The Medicaid Estate Recovery Program (MERP) allows Medicaid to recover the money it spent on your care from your estate. This article will explain how MERP came to be, how it applies in practice, and how the Affordable Care Act affects Medicaid estate recovery.
This is a longstanding provision enacted as part of the 1993 Omnibus Budget Reconciliation Act (OBRA). Prior to OBRA, it was optional for states to seek estate recovery of long-term care costs.
Rationale
Although the idea of Medicaid taking money that otherwise would have gone to your heirs is distasteful, it becomes more palatable when you look at the reasons behind the MERP. Since federal and state taxpayers fund Medicaid, the goal of MERP is to lower Medicaid costs. If it can recover part or all of the money spent on your health care, it saves taxpayers money.
If Medicaid is paying for your long-term nursing home care, it’s likely thanks to Medicaid that there will be any estate left from which to recover funds. Without Medicaid coverage, you may have had to sell your house and other valuables to pay for your care, in effect liquidating your estate while you’re alive to pay for your long-term care.
And if the Medicaid beneficiary was truly without any assets at all, the estate recovery program won’t be able to recover anything, as they cannot attempt to recover the money from the beneficiary’s heirs (they can use the estate recovery process to recoup assets that may have passed to a surviving spouse, but only after that spouse has passed away as well).
To be clear, a person with significant assets will generally not qualify for Medicaid after the age of 65, since Medicaid eligibility includes both income and asset limits for that population. (A notable exception is a home; if the person’s spouse or dependent is living in the home or the person intends to eventually return to the home, the value of the home is generally not counted as an asset in terms of Medicaid eligibility—but it is subject to Medicaid estate recovery.)
But as discussed in more detail below, the Affordable Care Act (ACA) extended Medicaid eligibility to low-income adults under the age of 65, without regard for asset levels. This has made Medicaid estate recovery more of an issue for some members of the newly-eligible Medicaid population.
Estates Subject to MERP
The federal government has general guidelines for MERP, but specifics vary from state to state. The basic federal guidelines place your estate at risk if you’re at least 55 years old and receiving long-term care services paid for by Medicaid.
Specifically, the text of the legislation that implemented MERP clarifies that costs can be recovered for “nursing facility services, home and community-based services, services in an institution for mental diseases, home and community care, and community-supported living arrangements" (in other words, long-term care services, rather than basic medical care) for people who were 55 or older when the care was provided.
But states also have the option to use estate recovery to recoup Medicaid costs for a person who was permanently institutionalized, even if they were younger than 55. States can also implement estate recovery for any Medicaid spending incurred (not just long-term-care costs) after enrollees turn 55.
Check with your state Medicaid office to understand how MERP is enacted within your state and what costs are subject to recoupment.
Impact of Obamacare
The expansion of Medicaid under the Affordable Care Act (ACA), also known as Obamacare, pushed the issue of Medicaid estate recovery to the foreground in states that had strict estate recovery programs in place.
Under the ACA, Medicaid eligibility for adults under the age of 65 has been expanded to include most people with household incomes that don’t exceed 138% of the poverty level. Moreover, assets are no longer taken into account for people younger than 65; eligibility is based only on income.
Like expanded Medicaid, eligibility for the ACA’s premium subsidies (premium tax credits) is also based only on income, without regard for assets. And premium subsidies to offset the cost of private coverage are not available to those who are eligible for Medicaid.
Since premium subsidy eligibility and expanded Medicaid eligibility are based on income, regardless of the household’s assets, it’s possible for a person with significant assets to qualify for either one, depending on their income (this is not necessarily a bad thing, and it essentially levels the health insurance playing field for people who don’t have access to an employer’s health plan).
For example, a person who is living on retirement savings but only withdrawing a small amount from their savings each year might qualify for Medicaid, despite having a solid nest egg and a paid-off house.
So a much larger population of people 55 and over are now eligible for Medicaid. If they try to enroll in a plan through the health insurance exchanges and have an income that doesn’t exceed 138% of the poverty level, they will be directed to the Medicaid system instead, based on their income (note that there are still some states that have not expanded Medicaid under the ACA, so this is not the case in every state).
In states that have MERPs that go beyond long-term care costs, this has resulted in some people being caught off-guard by the estate recovery programs.
Some states that previously had more robust MERPs have opted to limit their estate recovery programs to only what’s required by the federal government (namely, long-term care costs). You can click on a state on this map to see how the state handles Medicaid estate recovery, and whether the rules have been changed as a result of the ACA’s expansion of Medicaid eligibility.
It’s important to understand that while the ACA expanded the population of people age 55 to 64 who are enrolled in Medicaid—and whose assets are not taken into consideration when their Medicaid eligibility is determined—it did not change anything about the MERP.
The Recoupment Process
All states try to recover Medicaid money spent on long-term care such as nursing homes. Some states also attempt to recover money spent on other healthcare expenses.
States can use Medicaid managed care programs (ie, contracting with an insurance company to provide services to Medicaid enrollees) instead of paying directly for enrollees’ medical needs. In that case, the state can use Medicaid estate recovery to recoup either all of the amount that the state paid the Medicaid managed care organization on the enrollee’s behalf, or the portion attributable to long-term care services (depending on whether the state uses the MERP to recoup all expenses or just long-term care expenses).
Most states do use Medicaid managed care. So depending on the circumstances, the amount the state is seeking to recoup may not match the amount of actual healthcare costs the person had while covered under the Medicaid program (ie, the amount recouped for a person who needed extensive care might be less than the cost of the care the person received, while it might be more than the cost of care provided to a person who needed very little care).
If a state does not use Medicaid managed care, they are not allowed to recoup more than the actual amount the state spent on the person’s care.
All states try to recover from estate assets that pass through probate, but some states also try to recover from other assets.
Since state laws vary, the only way to know for sure if your estate is at risk is to educate yourself about the specifics of your state’s MERP. Although your state Medicaid office can tell you the basics, you may find it helpful to consult a professional specializing in elder law or estate planning.
Protected Estates
States aren’t allowed to make estate recoveries while your spouse is alive, but they can try to recover Medicaid funds spent on your health care after your spouse dies. States can’t make recoveries if you have a living child who is under 21 years old, blind, or disabled.
In some situations, states can’t recover funds from the value of your house if an adult child who cared for you is living there. But, these rules are complicated, so if you’re relying on this to protect your house from MERP, you’ll need to consult an estate planning professional or get legal advice.
States must provide for hardship exceptions to MERP. But, each state decides for itself how it defines hardship. The federal government suggests that estates which include small family businesses and family farms be considered for a hardship exception if the income produced from the property is essential to the support of surviving family members.
There are additional protections that apply to American Indians and Alaska Natives.
How to Protect Your Estate
In some cases, you may not be able to protect your estate. In others, advanced planning with the help of an elder law attorney or estate planning professional may shield some or all of your estate’s assets. Or, you may discover that the laws in your state make it unlikely that MERP will try to recover assets from your estate.
If you have a long-term care insurance policy (and your state has a partnership for long term care program) and you eventually need care that exceeds the benefits of your policy, a portion of the cost of your care will be protected from estate recovery.
Since Medicaid regulations and probate laws vary from state to state, often the only way to know is to seek help from a professional familiar with both the Medicaid MERP program and probate laws in your state.
Summary
Medicaid estate recovery is the process by which the Medicaid program can recoup some or all of the money that the program spent on a person’s care. The money is recouped from the person’s estate after they pass away.
All states are required to use Medicaid estate recovery for long-term care services that were provided after a person was 55 years old. Some states choose to go further than this, and recoup any medical costs that were paid by Medicaid after a person was 55, and/or the costs associated with a person who was institutionalized prior to age 55.
A Word From Verywell
If you’re enrolled in Medicaid, or if you have a loved one who is, it’s worth understanding how your state handles Medicaid estate recovery. Depending on the services you end up needing and the state where you live, your estate may or may not be subject to Medicaid estate recovery someday. Talking with an elder law attorney can help you ensure that you’re protecting your assets to the best of your ability, while also receiving the medical coverage for which you’re eligible.
