What Assets Can Medicare Take From an Estate?

It is common for individuals to wonder about the financial implications of healthcare programs on their estates, particularly concerning asset recovery. While the terms Medicare and Medicaid are sometimes used interchangeably, they operate distinctly, especially regarding their provisions for seeking reimbursement from a deceased beneficiary’s assets. This distinction is important for understanding how an estate might be affected by healthcare costs incurred during one’s lifetime.

Medicare’s Role in Asset Protection

Medicare is a federal health insurance program primarily serving individuals aged 65 or older, certain younger people with disabilities, and those with End-Stage Renal Disease. This program focuses on covering acute medical care, including hospital stays, doctor visits, and prescription drugs. Medicare does not assess a beneficiary’s assets for eligibility purposes, nor does it seek repayment from an individual’s estate for the medical services it covers.

Unlike some other government programs, Medicare does not place liens on homes or other assets to recover costs for standard medical care. Its design emphasizes healthcare access rather than asset recovery from estates. Therefore, the common misconception that Medicare will “take” assets from an estate is not accurate for its covered services.

Medicaid Estate Recovery Programs

In contrast to Medicare, Medicaid is a joint federal and state program providing health coverage to low-income individuals and families, and it has specific provisions for asset recovery. Federal law, the Omnibus Budget Reconciliation Act of 1993, mandates that states establish Medicaid Estate Recovery Programs (MERPs) to recoup certain long-term care costs from the estates of deceased beneficiaries. This requirement applies to individuals aged 55 or older who received Medicaid long-term services and supports (LTSS), or those permanently institutionalized, regardless of age. These programs aim to recover taxpayer funds expended on significant long-term care services, such as nursing home care, in-home care, and related hospital and prescription drug services.

While the federal mandate provides a framework, the specific implementation details, including the scope of assets subject to recovery and available exemptions, can vary by state. Understanding these state-level variations is important for accurate estate planning.

Assets Subject to Medicaid Estate Recovery

The types of assets subject to Medicaid estate recovery include those that pass through probate. A probate estate encompasses assets solely owned by the deceased Medicaid beneficiary, such as real estate, individual bank accounts, and other personal property distributed through a will or intestate succession. State Medicaid agencies file a claim against this probate estate to seek reimbursement for covered services.

Many states, however, expand the definition of an “estate” beyond traditional probate assets to include certain non-probate assets. This expanded definition includes assets that bypass probate but were accessible to the individual during their lifetime. Such assets may include those held in joint tenancy with right of survivorship, tenancy in common, life estates, or certain trusts.

Assets Exempt from Medicaid Estate Recovery

While Medicaid estate recovery provisions are broad, certain assets are protected under specific conditions. A primary residence often receives protection, especially if a surviving spouse, a child under 21, or a blind or permanently disabled child of any age lives there. In such cases, recovery may be deferred or entirely prevented. Some states also offer homestead protections if the property passes to certain heirs.

Other common exemptions include certain personal belongings, household goods, and a limited amount of cash or liquid assets, with specific thresholds varying by state. Assets held in certain types of trusts, particularly third-party special needs trusts, may also be protected from recovery because the assets are not considered to belong to the beneficiary. However, first-party special needs trusts, funded with the beneficiary’s own assets, are subject to recovery for remaining funds after the beneficiary’s death. Life insurance policies with a named beneficiary are often exempt, as the proceeds pass directly to the beneficiary outside of the estate.

When and How Medicaid Estate Recovery Happens

Medicaid estate recovery begins after the death of the Medicaid beneficiary. However, recovery is deferred or waived in specific circumstances to prevent undue hardship on survivors. Recovery is not pursued if there is a surviving spouse, a child under 21 years old, or a child of any age who is blind or has a permanent disability. States are also federally required to establish procedures for waiving recovery in cases of undue hardship, such as when it would impoverish heirs or if the estate is a modest-value homestead or sole income-producing asset for survivors.

The recovery process involves the state filing a claim against the deceased beneficiary’s estate during probate proceedings. If the estate includes real property, the state may place a lien on it to secure its claim, with recovery occurring when the property is sold. The state must provide notice to the estate or heirs before initiating recovery actions. While the state’s claim has preferred status, certain expenses, such as funeral and estate administration costs, may be paid before the Medicaid claim is satisfied.