The Scary Truth Behind the Medicaid Estate Recovery Program

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In the United States, every one in five people have Medicaid for their insurance provider. Medicaid is the United States’ federal and state health insurance program for low-income households.

This health insurance program covers a broad range of health services while limiting the out-of-pocket cost to the enrollee. Additionally, Medicaid provides a lot of financing for community health centers, hospitals, nursing homes, doctors, and jobs in the healthcare sector.

Medicaid has a unique state-federal partnership. Basically, federal standards regulate the program. However, the states that have Medicaid programs determine their eligibility guidelines, healthcare delivery models, covered services, and hospital and physician payment methods.

If a state wishes to implement and test approaches that differ from federal statute, they can apply for and obtain Section 1115 waivers. This allows each state’s Medicaid programs to vary widely.

As someone who works in a hospital and deals with both in-state and out-of-state Medicaid, I can attest to this. People come from other states are very surprised (usually unpleasantly so) on what is and isn’t covered.

The Medicaid program bases it’s entitlement on two guarantees. First, any and all American citizens who meet their state’s eligibility requirements are guaranteed health insurance coverage.

Second, any state with a Medicaid program has a guaranteed federal dollar matching program. There is no cap for any covered services provided in a calendar year to enrollees.

Medicaid strives to meet a diverse need set by the population. There are federally-mandated services that the Medicaid program has to cover, but many states decide to cover additional services.

Common optional service coverage includes prescription drugs, eyeglasses, physical therapy, and dental care. Some states cover mental health services and substance abuse treatment, as well.

For children, Medicaid has a comprehensive list of benefits that fall under EPSDT (Early Periodic Screening Diagnosis and Treatments). This is critical for any children with special needs because private insurance often isn’t enough to meet their medical needs.

Medicaid also differs from Medicare and commercial health insurance because it covers long-term care. This long-term care, includes community-based support, services, skilled nursing facilities, and traditional nursing homes.

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To date, more than 50% of all Medicaid spending in the United States revolves around long-term care, including helping people with disabilities live independent lives. This is where the Medicaid Estate Recovery Program comes in.

The Medicaid Estate Recovery Program

In 1993, then-President Bill Clinton signed his deficit-reduction act into law, and it included the Medicaid Estate Recovery Program. Before this law, each state has the right to seek Medicaid debt repayment, but the law made it mandatory.

This law arrived right when the attitude about welfare was reaching a fever pitch, and taxpayers were afraid of paying for systematic abuse of the Medicaid program.

Politicians pushed this fear and misinformation to try and justify significant cutbacks of the Medicare and Medicaid programs in the early 1990s. At the time, estate recovery was showcased as a very sensible reform.

Each state would be able to recoup the costs for Medicaid’s largest spending category. This is long-term care like nursing homes. They would recoup these costs from the demographic most likely to incur them, or people aged 55 and older.

The ideal was that this would help replenish the state’s funds that they previously spent on long-term care. If the estate had no money to speak of, the debt didn’t get paid.

This reform wasn’t to scare people away from applying for Medicaid, but it was trying to minimize the costs of a very expensive program.

Estates Impacted by the Medicaid Estate Recovery Program

The federal government does have very general guidelines for this program, but each state has its own interpretation. The very basic guidelines outlined by the federal government say your estate is at risk if you’re at or over 55 years old, and you’re in long-term care paid for by your state’s Medicaid program. Specifically, the Medicaid program can seek to recoup costs for:

“Nursing facility services, home and community-based services, and related hospital and prescription drug services.”

Simply put, people who were 55 or older when they received long-term care services. However, states have the option to use the estate recovery program to recoup costs for any person at any age that was permanently institutionalized.

They can also use the estate recovery program for Medicaid spending for all enrollees after they turn 55. In other words, when you’re most likely to use it.

How the Program Recoups Costs

Every state in the United States try to recoup the money they spent on the Medicaid program on long-term care. However, some states also try to recoup money they spent on other types of healthcare expenses.

Under federal regulations, states are not allowed to take more money from your estate than they spent on your individual care. But, anyone in the United States will tell you that long-term care is extremely expensive. Chances are, the estate won’t have enough money to cover your costs.

For example, the average private room in a long-term care facility is $8,365 per month, or $100,380 per year. If you stayed in the nursing home for 10 years before passing away, you’d be in debt $1,003,800. A semi-private room is $7,441 per day, or $89,292 per year.

The most common way the program attempts to recover the money is through probate. Some states can and do try to recover their money using other assets. It’s legal for states to attempt to recoup their costs by taking control of assets that pass through a joint tenancy or living trust like a property.

Some states operate under the “expanded definition of an estate.” States using this definition can claim a deceased’s estate includes life estates, jointly owned property, living trusts, and any assets the deceased had a legal interest in when they died. To make it worse, there are dozens of court cases that upheld this law.

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In Wisconsin, the state can try to recoup costs from joint tenancy property, life estates, life insurance policies (no matter who the beneficiary is), marital property up to 50% of the surviving spouse’s estate, revocable trusts, TEFRA liens on the life estates, and any other non-probate property the deceased had like housing or vehicles.

Estates Protected from the Medicaid Estate Recovery Program

A state can’t make a case for an estate recovery if the deceased’s spouse is living. However, they can try to recoup the costs after your spouse dies. States also can’t make recoveries if you die but have a living child who is disabled, blind, or under 21 years old.

Certain situations don’t allow states to enact this program using your house’s value if you have an adult child that cared for you before you died still living in the house. However, these rules are very complex, and you’ll need an estate lawyer to help you wade through the legal jargon.

Also, states have to have hardship exceptions for this program. However, there’s a catch. The state itself decides how and what it defines as hardship.

The federal government did suggest that any estate that has a family farm or a small family business get automatic consideration for the hardship exemption if the property in question provides income that supports the surviving family. But this is a suggestion, and not a law.

Why The Medicaid Estate Recovery Program Isn’t Well-Known

Fine print. Many states sneakily bury the information about the Medicaid Estate Recovery Program in the fine print of the Medicaid paperwork in hopes that people miss it.

If you look at the Wisconsin Medicaid Eligibility Handbook, there is no mention of the Estate Recovery Program until section 22.1, near the back of the book.

To me, this sounds a lot like punishing grieving families and pushing them deeper into debt.

Education, Family, Finance, Health, and Psychology writer trying to improve my writing and explore fascinating topics.

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