LTC Bullet:  Medicaid Estate Recoveries Clarified by HCFA

Wednesday  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  To read the publication in its entirety, go to HCFA's website at [omitted (link no longer active)].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 replaces them, however, estate recoveries remain the only viable safety net for America's long-term care safety net, Medicaid.