Medicaid is a government program that can help eligible seniors pay for nursing home care. If you’re helping an aging parent navigate Medicaid because they don’t have long-term care insurance or you think you’ll need it yourself someday, it’s important to understand how the program works. For instance, you should be aware that the Medicaid Estate Recovery Program (MERP) may be used to recoup costs paid toward long-term care. Medicaid estate recovery is intended to help make the program affordable for the government, but it can financially impact the beneficiaries of Medicaid recipients. You may need to make sure you’re handling this kind of situation in the wisest possible way by consulting a financial advisor.
Medicaid Estate Recovery, Explained
Medicare is designed to help pay for healthcare costs for seniors once they turn 65. While it covers a number of healthcare expenses, it doesn’t apply to costs associated with long-term care in a nursing home.
That’s where Medicaid can help fill the gap. Medicaid can help with paying the costs of long-term care for aging seniors. It can be used in situations where someone lacks long-term care insurance coverage or they don’t have sufficient assets to pay for long-term care out of pocket. You may also use Medicaid to pay for nursing home care if you’ve taken steps to protect assets using a trust or other estate planning tools.
But the benefits you or an aging parent receive from Medicaid aren’t necessarily free. The Medicaid Estate Recovery Program allows Medicaid to recoup the money spent on behalf of an aging senior to cover long-term care costs. The Omnibus Budget Reconciliation Act of 1993 requires states to attempt to seek reimbursement from a Medicaid beneficiary’s estate when they pass away.
How Medicaid Estate Recovery Works
The Medicaid Estate Recovery Program allows Medicaid to seek recompense for a variety of costs, including:
- Expenses related to a nursing home or other long-term care facilities stay
- Home- and community-based services
- Medical services received through a hospital (when the recipient is a long-term care patient)
- Prescription drug services for long-term care recipients
If you or an aging parent passes away after receiving long-term care or other benefits through Medicaid, the recovery program allows Medicaid to pursue any eligible assets held by your estate. What that includes can depend on where you live, but generally, it means any assets that would be subject to the probate process after you pass away.
So that may include:
- Bank accounts owned by you
- Your home or another real estate property
- Vehicles or other real property
Some states also allow Medicaid estate recovery to include assets that aren’t subject to probate. That can include jointly owned bank accounts between spouses, Payable on death bank accounts, real estate that’s owned in joint tenancy with right of survivorship, living trusts and any other assets that a Medicaid recipient has a legal interest in. It’s important to understand the laws in your state regarding what can and cannot be used to recover Medicaid benefits when you or an aging parent passes away.
It’s also worth noting that while Medicaid can’t take someone’s home or assets before they pass away, it is possible for a lien to be placed upon the property. For example, if your mother has to move into a nursing home then Medicaid could place a lien on the property. If your mother passes away and you inherit the home, you wouldn’t be able to sell it without first satisfying the lien.
What Medicaid Estate Recovery Means for Heirs
The most significant impact of Medicaid estate recovery for heirs of Medicaid recipients is the possibility of inheriting a reduced estate. Medicaid eligibility assumes that recipients are low-income or have few assets to pay for long-term care. But if your parents are able to leave some assets behind when they pass away, the recovery program could shrink the estate that passes on to you.
It’s also important to note that while Medicaid estate recovery rules disavow you personally from paying for your parent’s long-term care costs, filial responsibility laws do not. These laws, though rarely enforced, allow healthcare providers to sue the children of long-term care recipients to recover nursing care costs.
So even if Medicaid doesn’t take anything away from your parent’s estate after they pass away, a nursing home could still sue you personally to recover money paid toward the cost of their care. The care facility has to be able to prove that you have the means to pay but this could add a wrinkle to your financial picture if you’re responsible for wrapping up a deceased parent’s estate.
How to Avoid Medicaid Estate Recovery
Strategic planning can help you or your loved ones avoid financial impacts from Medicaid estate recovery.
For example, you may consider purchasing long-term care insurance for yourself for encouraging your parents to do so. A long-term care insurance policy can pay for the costs of nursing home care so you can avoid the need for Medicaid altogether.
If you’re interested in long-term care insurance for yourself or an aging parent, compare the cost for premiums against the benefits the policy pays out. If you’re unsure whether you or a parent may need long-term care at all, you might consider a hybrid policy that includes both long-term care coverage and a life insurance death benefit.
Another option for avoiding Medicaid estate recovery is removing as many assets as possible from the probate process. Married couples, for example, can accomplish that by making sure all assets are jointly owned with the right of survivorship or using assets to purchase an annuity that transfers benefits to the surviving spouse when the other spouse passes away.
It’s important to understand which assets are and is not subject to probate in your state and whether your state allows for an expanded definition of recoverable assets for Medicaid. Talking to an estate planning attorney or an elder law expert can help you to shape a plan for protecting assets.
The Bottom Line
Medicaid estate recovery may not be something you have to worry about if your aging parents leave little or no assets behind. But it’s something you should still be aware of if you expect to inherit anything from your parents when they pass away. If you’re targeted for estate recovery, you may be able to avoid it if you can prove that it would cause you undue financial hardship. Again, this is where talking to an estate planning professional can help you avoid any unexpected surprises.
Tips for Estate Planning
- Consider talking to a financial advisor about Medicaid and how to plan for long-term care costs. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Consider a living trust. It will let you transfer assets to the control of a trustee, who will manage them according to your wishes on behalf of your beneficiaries. Trust assets aren’t necessarily exempt from Medicaid recovery, but this could still be a useful estate planning tool for minimizing taxes and ensuring a smooth transition of assets to your beneficiaries.
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