Medicaid is the primary payer for long-term care services such as nursing facility care and home-and community-based services. Many long-term care Medicaid recipients are seniors who, while not poor by conventional standards, lack the means to pay for the high costs of long-term care. These elderly recipients often own a home with high equity. Seniors often ask if Medicaid can take their home should they qualify for Medicaid benefits. The answer is important to anyone seeking Medicaid coverage and extends to assets beyond the home.
Medicaid generally excludes a primary residence from the initial eligibility assessment. However, federal law mandates that all states implement an estate recovery program to recoup the costs of long-term care paid by taxpayers on behalf of Medicaid recipients. As Medicaid is a means-tested benefit, the home is often the only valuable asset a recipient owns at death.
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Estate recovery programs vary considerably from state to state. Legal strategies to protect a family home from Medicaid and preserve it for future generations should be discussed with an experienced elder law attorney. You may also want to be aware of common estate planning dos and don’ts to ensure your assets are protected.
The Home as an Asset and Medicaid Eligibility
In keeping with its mission to provide a healthcare safety net to poor Americans and those without enough resources to pay for the total cost of their care, Medicaid has strict asset and income limits that an applicant must meet to qualify for assistance.
Most state Medicaid programs require applicants to have $2,000 or less in countable assets. Bank accounts, stocks, bonds, cash, and most other assets are countable under this limit.
A home is generally excluded if the Medicaid applicant declares an intent to return home.
Certain assets may be exempt or noncountable for Medicaid eligibility purposes, the most significant being the primary residence, which Medicaid generally does not consider the home a countable asset. The rules differ depending on factors such as an intent to return home, equity value, and marital status.
As a review:
- A home is generally excluded if the Medicaid applicant declares an intent to return home.
- Each state uses a federally set minimum-maximum threshold to set a home equity interest limit. If a single applicant’s home equity limit is above the value, the home is treated as a countable asset, notwithstanding an intent to return home. For 2024, home equity limits range from $713,000 to $1,071,000.
- If the applicant is married and the spouse lives in the home, the home is exempt regardless of the equity value. This is also the case if a dependent child is living in the home.
It is important to remember that Medicaid’s look-back period prohibits an applicant or spouse from disposing of the home (i.e., by gifting or transferring it) for less than fair market value within the look-back period (60 months in all states but California). An applicant may be able to use the Child Caregiver Exemption or the Sibling Exemption to avoid violating the transfer of asset restriction and exclude the home from Medicaid’s asset limits if circumstances dictate.
For those planning for the future, it’s also beneficial to understand common myths about estate planning that could impact Medicaid eligibility.
Estate Recovery
The most common reimbursement regime that a Medicaid enrollee will face is estate recovery. As mentioned, states must recover the costs of benefits paid on behalf of a recipient who received Medicaid coverage after age 55. Estate recoveries are limited to the medical expenses that Medicaid paid for the deceased. These recoveries are most often effectuated through the use of a post-death lien.
Federal Law for Estate Recovery
Federal law requires states to pursue estate recovery from the “probate estate” of the deceased Medicaid recipient. These states are referred to as limited estate recovery jurisdictions. In a limited estate recovery jurisdiction, all of the Medicaid recipient’s assets passing through probate will be recoverable by the state up to the amount of benefits paid out.
Federal law permits states to recover beyond the probate estate to include any assets the Medicaid recipient held at the time of death that passed to a survivor through joint ownership, survivorship, life estate, living trust, and more. These states are referred to as expanded estate recovery jurisdictions. States that implement expanded recovery can be difficult for applicants to navigate without the assistance of counsel.
State Requirements for Estate Recovery
Estate recovery in practice differs dramatically from state to state. For example, some states do not attempt estate recovery if the deceased’s estate is below a specific value. Other states waive estate recovery if it is not cost-effective. Medicaid’s standing relative to other claims against the estate also varies by state. Estate recovery may also be deferred in situations involving surviving spouses and dependent children. The lien may be placed on a home occupied by survivors of the deceased Medicaid beneficiary to be collected later (i.e., when the survivor loses their exempted status and the home becomes available for estate recovery).
The US Department of Health and Human Services acknowledges that Medicaid liens and estate recovery programs are “controversial” because they conflict with the natural desire to pass valuable assets to loved ones. They may even be seen as “tantamount to stealing inheritances,” the agency admits.
Different planning strategies can be used to protect a home estate recovery, depending on whether the applicant lives in a limited or expanded recovery jurisdiction. Because this area of law is dynamic, it is essential for those concerned about estate recovery to engage in proactive planning, which may include the use of a Medicaid Asset Protection Trust, to best plan for the future.