According to the U.S. Department of Health & Human Services, Medicaid "provides health coverage for lower-income people, families and children, the elderly, and people with disabilities." In 1993, a federal law was enacted which requires each and every U.S state to implement a "Medicaid estate recovery" program for two groups of people receiving Medicaid benefits: (1) Anyone over the age of 55 who has received Medicaid assistance, and (2) Anyone who is permanently institutionalized and has received Medicaid assistance, regardless of age. Thus, if you or a loved one falls into one of these two groups, then your estate or your loved one's estate will potentially be subject to a Medicaid lien or "death tax" after you die.
What is Medicaid Estate Recovery?
Medicaid estate recovery is governed by state law which directs the state to recover from the estate of a deceased Medicaid recipient who falls into one of the categories described above assets equal to the value of the Medicaid benefits paid on behalf of the deceased recipient during his or her lifetime.
Since Medicaid estate recovery is governed by state law, this means that each and every U.S. state has its own set of rules governing what can be recovered. At a minimum, federal law requires states to attempt estate recovery for Medicaid benefits paid on behalf of a deceased recipient against his or her assets that must go through probate. At a maximum, states may attempt estate recovery for Medicaid benefits paid on behalf of a deceased recipient from any assets owned by the recipient at the time of his or her death. Thus, since probate itself is governed by state law and these laws vary from state to state, it is important to understand what assets are subject to probate in your state (referred to quite aptly as "probate assets").
What Estate Assets Are, and Are Not, Subject to Medicaid Estate Recovery?
In general, in order to fall into the first category of Medicaid recipients described above whose estates are subject to Medicaid estate recovery, the person must be "sick and broke." So this begs the question - If you need to be sick and broke to qualify for Medicaid, then how could you possibly have any assets left in your estate when you die for the state to collect?
This is where "Medicaid planning" or "Medicaid estate planning" comes into play. While the main goal of this type of planning is to qualify a sick person for Medicaid benefits (usually as soon as possible), another goal is to take assets that will be subject to Medicaid estate recovery under applicable state law (referred to as "nonexempt assets") and convert them into assets that will not be subject to Medicaid estate recovery (referred to as "exempt assets"). With that said, while in some states it may be possible to make a sick person broke enough to qualify for Medicaid, it may not be possible to convert each and every asset owned by the recipient from a nonexempt asset into an exempt asset if the state has aggressive Medicaid estate recovery laws.
So what kinds of assets are exempt from Medicaid estate recovery? As discussed above, since Medicaid estate recovery is governed by state law, what may be an exempt asset in one state may not be an exempt asset in another state. This means that unfortunately it is impossible to even give a broad and general list of what may or may not be exempt. Thus, it is very important to consult with an elder law attorney in the state where the sick person lives in order to determine which assets of the sick person will be exempt, or not be exempt, from Medicaid estate recovery.