Medicaid benefits seem more like loans than benefits these days.  This is because there are laws that require states to recoup what it spent on care from estates after the Medicaid recipient dies.

This federal recoupment effort carried out by each state is known as Medicaid Estate Recovery.  For this reason it is important for a person who is considering application for any type of Medicaid to get solid advice on this topic prior to applying for Medicaid.  It is also important for any person probating a will or administering an estate to consider the possibility of Medicaid being an estate creditor to put the agency on notice before disbursing the proceeds of an estate or else risk personal liability against the personal representative (aka executor).

To grasp Medicaid Estate Recovery, it is important to understand that there are many different categories of Medicaid, but they are all part of a joint federal/state program.  Estate recovery applies to some categories of Medicaid and not to others.

Also understand that there are certain types of liens on property that individuals can give to Medicaid to allow them to qualify for Medicaid.  These are pre-death liens referred to as TEFRA (Tax Equity and Fiscal Responsibility Act) liens.  An example might be a single person of any age who cannot qualify for nursing home Medicaid because he owns his home, thus resulting in resources that exceed the $2000 resource limit.  He might give a lien and place the property on the market to sell and qualify for nursing home Medicaid under the “bona fide effort to sale” property exclusion.   Medicaid will hopefully recoup funds from the sale of the property up to the amount it paid for the care of the individual who gave the lien, but often the property does not sell during the lifetime of the Medicaid recipient.  Medicaid will continue to hold that lien and right to recover funds from the sale after the Medicaid recipient dies.

But what is referred to as Medicaid Estate Recovery goes a step further.  Even without a specific TEFRA lien being given by the property owner, Medicaid can recoup funds from the probate estate of the Medicaid recipient after his death provided there are funds from which to recoup.  In other words, this is a statutory lien that applies to estates of deceased Medicaid recipients for whom certain types of Medicaid benefits were paid.  

Through Medicaid Estate Recovery the federal government requires states to seek recovery of funds spent on care from the estates of persons who received certain benefits, particularly benefits paid after the age of fifty-five years and incorrect payments.  This includes:

• benefits that were not paid correctly to a person of any age (resulting in what is known as an overpayment);
• benefits paid after age 55 for nursing home Medicaid;
• benefits paid after age 55 for waiver services (at home care provided to avoid institutional care);
• benefits paid for hospital and drugs for persons who received those benefits in connection with nursing home or waiver Medicaid after the age if 55.

Federal law gives the states the option to seek recovery of funds for all Medicaid expenditures for services received after age 55 unless otherwise exempted (more on this later).  This would include money spent for SSI eligible persons who qualify for Medicaid in the community.  Alabama has opted to exercise this recovery.

To further complicate matters, the Alabama Medicaid Administrative Code includes language indicating that the agency will seek recovery for benefits paid for a person of any age who permanently resides in a nursing facility, intermediate care facility for the intellectually disabled or other medical institution.  There are attorneys in Alabama who believe that this application of estate recovery for institutional benefits for persons under the age of 55 violates the federal statute.  If Medicaid does seek recovery of such funds a recovery in this category will likely be challenged in years to come.

Medicaid Estate Recovery does not apply to the Medicare Savings Programs (QMB, SLMB and QI), but Alabama is collecting on benefits paid for these programs prior to 2010.  These are programs that help low income persons eligible for Medicare pay for healthcare costs through Medicaid.  Due to the Medicare Improvements for Patients and Providers Act (MIPPA) these categories of Medicaid benefits are not subject to estate recovery.  Note that as of 2016 the award letters to these recipients incorrectly indicated that estate recovery would apply.  An exception to this exclusion is Medicare Savings Program benefits paid on behalf of beneficiaries of first party special needs trust.

At this time Medicaid Estate Recovery only applies to property in the probate estate in Alabama.  That means that property that passes directly to someone outside of the probate estate cannot be reached by Medicaid.  Examples include property titled as survivorship property (in a deed where the owners hold property as joint tenants with right of survivorship); property in which the deceased had already transferred it to another retaining only a life estate (through a life estate and remainder deed); proceeds of life insurance, IRAs, or brokerage accounts with a beneficiary named to take the proceeds at death; joint bank accounts with a co-owner or set up as payable on death to a named beneficiary.

Estate recovery/lien enforcement can be delayed or waived in certain circumstances.

Delay may occur:

• until after the death of any surviving spouse (no lien was taken);
• related to the home, until the property is no longer occupied by a surviving child under the age of 21 years of age; a surviving child who is blind or disabled (no lien was taken);
• related to the home, until the property is no longer occupied by a sibling with an equity interest who had resided in the home for at least one year preceding the Medicaid recipient’s admission to the facility where benefits were paid (no lien was taken);
• related to the home, until the property is no longer occupied a son or daughter who provided two years or more of care immediately before the admission to the facility where benefits were paid and that care was of such a level that it allowed the Medicaid recipient to reside in the home and avoid institutional care (a lien may exist, and note that the property could have been transferred to the child without penalty).
•  related to the home, until the property is no longer occupied by a sibling who is lawfully living in the home and was lawfully residing continuously in the home for at least one year immediately prior to the Medicaid recipient being admitted to the facility where benefits were paid (a lien may exist).

Waiver may occur:

• for an amount of money equal to sums paid under a qualified long-term care insurance policy;
• upon proving undue hardship which is: the existence of a situation, established by convincing evidence, that the estate subject to recovery is an asset such as a family farm or family business which produces “limited income” (defined as equal to or less than the income limit established in Rule 560-X-25-.14 [at or below 141% of the poverty level]) and is the sole income-producing asset of one or more heirs to the estate.  The limit of  141% of the poverty level is $1426.45 for a one person household, $1934.05 for a two person household (for larger households, add 507.60 for each additional person).  Note that the Medicaid regulations state that undue hardship does not apply for  recipients with long term care insurance policies who became Medicaid eligible by virtue of disregarding assets because of payments made by a long term care insurance policy or because of entitlement to receive benefits under a long term care insurance policy OR  if the Medicaid agency determines the hardship was created by the recipient by resorting to estate planning methods under which the recipient illegally divested assets in order to avoid estate recovery.

To request an undue hardship waiver a request for a waiver application must be made to Alabama Medicaid within 30 days of receiving the agency notice against the estate or upon the sale, transfer or conveyance of real property subject to a TEFRA lien.

A bill was filed in the Alabama Senate in the 2017 legislative session and again in the current 2018 session that would give the Alabama Medicaid broad statutory powers to impose liens against the real property of any Medicaid beneficiary.  Astonishingly it would require every estate administered in Alabama to notify the agency as a creditor even if the deceased person never applied for Medicaid.  That pending legislation can be read here.