Yes, the government can take your home after a Medicaid recipient dies. Here's how to protect yourself.

By Beth Pinsker

If you don't defend against Medicaid estate recovery, states are required to go looking for reimbursement, and real estate is often the only asset left

Jackie Keller and the house she battled the government to keep. She took care of her mother (shown with her at right) in the home.

The estate that Jackie Keller fought the government to keep is not a grand mansion with manicured lawns, or anything that could be used as a set for HBO's show "The Gilded Age." Rather, it's a modest three-bedroom house on the edge of the Echo Mountain forest in Oregon, where Keller took care of her mother and disabled older brother until the end of their lives. When she took over the mortgage after her mother died, she got a stern letter from the state of Oregon that said she owed just over $70,000 to reimburse for care her mother received through the Medicaid program.

The cost was insurmountable to Keller. She was in her 60s, living on Social Security, and the house was in an area that had been devastated by a major fire a few years before. If she had to sell it to pay off the debt, she would have walked away with very little to start a new life.

"The bottom line is they do not tell you what they are up to when they offer you all these services," Keller told MarketWatch. "And then they take your home."

Or at least they try to. Keller decided to fight, and she ended up getting the claim against her family property dropped.

Not everyone succeeds.

Medicaid estate recovery has been a mandated federal policy since 1993, set up primarily to recoup rising costs. Workers pay taxes into the system throughout their careers, but if a person over age 55 receives Medicaid benefits for long-term medical care, states are required to seek reimbursement after they die. It can be a small amount, or it can be much more.

This makes Medicaid unique: The government never asks to be repaid for approved Medicare or Social Security benefits, nor does it ask for money back from other antipoverty programs like the Supplemental Nutrition Assistance Program, or SNAP, after a person's death.

The argument in favor of the estate-recovery program is something like "don't ask your neighbor to pay for your care," according to Dennison Keller, an elder-law attorney in Ohio. "I might be in the minority on this, but I think if the estate-recovery system helps the state maintain the programs, sometimes it's the price you have to pay," he said.

The chief argument against the asset-recovery program is that the money recouped is just a drop in the bucket compared with the Medicaid budget, but it can mean everything to individual families that have few assets left.

"It was created to drive people to private long-term-care insurance, but it continues to drive these gaps [in homeownership]," said Mandi Spishak-Thomas, an assistant professor at the Rutgers Institute for Health, Health Care Policy and Aging Research. Spishak-Thomas became a leading researcher on the issue after her grandmother died and the state where she lived filed a claim against the estate, forcing her uncle to sell the house to pay the bill. "It feels like we have enough data to say this policy isn't doing anything but harming low-income Black families, and white families too," she said.

Recent data on the enforcement amounts are not publicly available, but a 2021 report shows aggregated collections of about $700 million a year, while Medicaid's annual total spending is close to $1 trillion. A few states stand out as the major enforcers, with Massachusetts, New York, Pennsylvania, Ohio and Wisconsin accounting for 40% of all collections.

The prospect that the government can "take your house" if you are on Medicaid scares some people away from applying for benefits in the first place. It sends a few scurrying for help, meanwhile, and leaves others vulnerable because they don't know there's anything they can do to prevent this from happening.

"They don't know to call it Medicaid estate recovery, but they do hear horror stories about it," said elder-law attorney Mark Munson, who helps clients manage Medicaid in a way that diminishes the chances the government will ask for sums that will force their families to sell property in order to pay. "I'm in this little community of Wausau, Wisconsin, and it's $15,000 [a month] to be in a nursing home here. For somebody who has a net worth of $500,000, that's a very frightening number. They will pay for legal services to protect assets so they can qualify for Medicaid and make sure that the assets also avoid estate recovery," he said.

For those without protection, "You just have to pay the bill," said Cynthia Letsch, an elder-law attorney in Iowa. "People come to me with the letters, and I say, 'Too bad you didn't come to me sooner.'"

There are exceptions that can be claimed, and this is where the need for families to play defense comes in. The official rules on estate recovery take up just three paragraphs on Medicaid's website. "States may not recover from the estate of a deceased Medicaid enrollee who is survived by a spouse, child under age 21, or blind or disabled child of any age. States are also required to establish procedures for waiving estate recovery when recovery would cause an undue hardship," the website says. The Centers for Medicare & Medicaid Services had no comment.

John Ford, director of the Elder Law Project at the Northeast Justice Center in Massachusetts, pointed out that when somebody goes into a nursing home, they are concerned about medical issues, not legal ones. "Even though it's on the application form, people don't pay attention. They just get stuck," said Ford. "When the loved one dies and the house goes into probate, then they get a rude awakening."

What to do

When it comes to Medicaid estate recovery, it's up to individual states to manage the process. Some use third-party contractors, consolidated among a few companies like Health Management Systems (owned by Gainwell Technologies) and Myers & Stauffer, both of which declined to comment. But most states run their own programs according to the rules set by their legislative bodies. These vary greatly and are constantly changing.

Massachusetts recently softened its statutes so that only federal Medicaid dollars, and not anything involving state funds, would be subject to recovery. Iowa is one of several states that limits recovery to only what is in the recipient's official probate estate at death, which allows for several defensive planning strategies. At the other end of the spectrum, Oregon broadened its recovery program to include assets that are beyond the probate estate, making planning more complicated but still not impossible.

'People come to me with the letters, and I say, "Too bad you didn't come to me sooner."'Cynthia Letsch, elder-law attorney

The onus is on the family to prepare. They need to know what probate is (it's the legal process of validating a will or settling an estate without one) and what counts as assets in a person's estate (anything left in the deceased person's name that does not pass through a trust or beneficiary designation). And they have to do it well in advance of any illnesses, because Medicaid has a five-year look-back period for eligibility. That often means finding a qualified estate lawyer and retitling assets, which is beyond the financial literacy and affordability of many people who are on their way to qualify for a program that generally requires income and assets below $2,000 a year.

The first line of defense is knowing what the government is allowed to come after with Medicaid estate recovery, then working on whittling that pile down to nothing. Statistics show many more attempts at estate recovery than completions, so this strategy works for a lot of people, whether they do it wittingly or not. New York, for instance, pursued 28,870 estates in 2019, according to government data, but recovered assets from only 4,222 of them - collecting $59 million nonetheless. Much less populous Iowa pursued 16,279 estates and recovered $25 million from 3,397 of them.

Here's what's at risk:

-- Real estate

-- Primary car

-- Family businesses and farms

-- Financial assets

-- Valuable belongings (farm equipment, jewelry, art)

-- Life insurance

A house is usually the biggest sitting duck for estate-recovery claims. Medicaid lets recipients qualify for care while owning a house, especially if there's a well spouse at home. Once notified of the death of a Medicaid recipient who listed a house as an asset on their application, the state (or the third-party contractor on behalf of the state) will send a letter claiming priority order for payment. If their spouse is still alive, the state will wait until their death and then send a payment letter to the heirs.

Retitling a house usually involves a lawyer, because it has to be recorded properly, and there are liabilities involved if it is not. It's best to do this at least five years before Medicaid comes into the picture. An ill homeowner can file a quitclaim deed to get their name off a jointly owned property, or if they are the sole owner, they can transfer the deed to another person.

An elder-law specialist, however, will most likely recommend a trust called a Medicaid Asset Protection Trust, which offers more protections for the owner, who can, for example, change the trustee if necessary. Some attorneys, like Keller, also use pooled trusts, which allow funds to be placed outside the control of the Medicaid recipient but used for their benefit while they are alive - such as to pay to upgrade to a private room in a nursing home or for cable TV while they are there. After the person's death, the pooled funds revert to Medicaid, but the Medicaid Asset Protection Trust funds go to the designated heirs.

(MORE TO FOLLOW) Dow Jones Newswires

08-25-26 0830ET