LTC Bullet: Medicaid
Estate Recoveries Clarified by HCFA
March 7, 2001
On January 11, 2001, the Health Care Financing Administration of the U.S.
Department of Health and Human Services published Transmittal 75 of the
"State Medicaid Manual—Part 3—Eligibility" containing new and revised
material effective February 15, 2001 bearing on mandatory and optional
Medicaid estate recoveries. Among numerous other subjects, this new
manual issuance provides guidance on how and under what circumstances
state Medicaid programs may collect against annuities, "dual eligibles,"
individuals with long-term care insurance policies, managed care payments,
and American Indians. To read the publication in its entirety, go to
HCFA's website at [omitted (link no longer active)].
We've decided not to provide excerpts here, because the material is nearly
indecipherable in context, and would be incomprehensible if excerpted
without prolonged explanation. Nevertheless, we will provide an account,
which follows, of why we believe Medicaid estate recoveries are
important. We regret that the Center for Long-Term Care Financing does
not have the staff resources to answer technical questions about the HCFA
Transmittal or the nuances of estate recovery, so please direct your calls
and emails to the Health Care Financing Administration and not to us.
Why Estate Recoveries Matter
To prevent Medicaid dependency is an excellent reason why people should
plan early and save, invest or insure fully for long-term care. We often
point out the benefits of paying privately for long-term care to avoid the
access and quality problems associated with Medicaid financing. Access to
quality care is not the only reason to stay off Medicaid, however. The
Medicaid program requires a recipient's estate to reimburse the state and
federal governments for the cost of his or her care.
Is Medicaid estate recovery just a pernicious means for uncaring
bureaucrats to add insult to injury? No, indeed. The purpose of estate
recovery, according to legislative history on the intent of Congress was
"to assure that all of the resources available to an institutionalized
individual, including equity in a home, which are not needed for the
support of a spouse or dependent children will be used to defray the cost
of supporting the individual in the institution." (United States Code,
Congressional and Administrative News, 97th Congress—Second
Session—1982, Legislative History [Public Laws 97-146 to 97-248] Volume 2,
St. Paul, Minnesota, West Publishing Company, p. 814)
In other words, Congress did not want to devastate families financially
who are facing an unplanned for long-term care crisis. That's why the
legislators allowed generous eligibility exemptions that permit families
to retain large amounts of income and assets while a loved one receives
Medicaid-financed care. On the other hand, Congress did not want Medicaid
to become an "entitlement" on which people would rely to indemnify their
heirs against the loss of an inheritance to long-term care expenses. The
policy makers' "kinder and gentler" approach was to allow generous
eligibility criteria, but to recover benefits paid after recipients' died,
from their thus-sheltered estates.
Some states, such as Oregon, have pursued estate recoveries aggressively
since before the federal Medicaid program began. The Tax Equity and Fiscal
Responsibility Act of 1982 explicitly authorized Medicaid estate
recoveries as a state option. Since the Omnibus Budget Reconciliation
Act of 1993, recovery of benefits correctly paid out of the estates of
deceased recipients has been mandatory for every state Medicaid program as
a condition of receiving Federal matching funds.
Most state implementation and federal enforcement of Medicaid estate
recoveries has been spotty and inefficient at best, however. The program
is politically sensitive and challenging to administer. Furthermore, it
is being undermined all across the country. Medicaid estate planning
attorneys, who push Medicaid's already generous eligibility criteria to
their outer limits, also routinely (and legally) evade the "mandatory"
estate recovery liability for their well-heeled clients. So-called "senior
advocates" often fight against efficient and effective enforcement of
estate recovery in the mistaken belief that it is a punitive measure
instead of a means to replenish Medicaid financially and empower the
program to provide better care for everyone.
Currently in California, for example, Medicaid planners and senior
advocates have joined forces to fight against "spousal recoveries."
Federal law prohibits states from pursuing recoveries from the estate of a
deceased Medicaid recipient until after the death of the recipient's
surviving spouse. If the California Advocates for Nursing Home Reform (CANHR)
succeeds in stopping California from pursuing spousal recoveries as it is
currently attempting to do, the state will lose an enormous potential
funding source for indigent long-term care and estate recovery will become
moot for anyone with a surviving spouse. (Asset transfers between spouses
are no longer restricted so institutionalized spouses will routinely
transfer their assets to community spouses in order to avoid recovery even
more than they already do.)
In a 1989 report, titled "Medicaid: Recoveries From Nursing Home
Resident's Estates Could Offset Program Costs," the General Accounting
Office wrote "Because about one-third of Medicaid nursing home residents
who own a home have a spouse living in the community, a significant
portion of potential recoveries is lost unless a state authorizes
recoveries from the estates of surviving spouses. For example, GAO
estimates that California will recover about $15.8 million from the
estates of Medicaid recipients admitted to nursing homes in 1985 under its
existing recovery program. But it could recover an additional $11 million
if the state enacts legislation to authorize recoveries from the estates
of the surviving spouse when he or she, in turn, dies." Today, California
recovers almost three times as much from estates as it did in 1985 and
would therefore sacrifice potentially $30 million per year by prohibiting
spousal recoveries if GAO's estimates remain accurate.
The stakes are huge. As we have often pointed out, when people can ignore
the risk of long-term care, avoid the premiums for private insurance, and
qualify easily for Medicaid if and when long-term care becomes necessary,
we should not be too surprised that most Americans do not plan, save or
insure for long-term care and end up on Medicaid by default. In our
current long-term care system, efficient estate recoveries are critical.
They are the only financial leverage the system has to encourage people to
prepare to pay privately for long-term care. The Center for Long-Term
Care Financing believes that a better approach would be to provide
uninsured seniors with formal lines of credit on their estates so they
could avoid welfare altogether and purchase quality care in the private
marketplace. Until this "LTC Choice" plan of ours (read more about it at
http://www.centerltc.org/pubs/CLTCFReport.pdf) replaces them, however,
estate recoveries remain the only viable safety net for America's
long-term care safety net, Medicaid.