Understanding Medicaid’s Estate Recovery Program (MERP) & How to Protect the Home

Last updated: October 12, 2020


What is the Medicaid Estate Recovery Program?

Medicaid’s estate recovery program, abbreviated as MERP or MER, is a program in which a state’s Medicaid agency seeks reimbursement of all long term care costs for which it paid for a Medicaid beneficiary. Long term costs can include nursing home care, home and community based services to prevent premature institutionalization, and hospital / prescription drug costs related to long term care. Medicaid’s estate recovery follows the Medicaid recipient’s death, and it is through his / her remaining estate (typically one’s home) that the Medicaid agency attempts repayment.

One’s estate might include cash, checking and savings accounts, stocks and bonds, remaining funds in a qualified income trust, funds remaining in an irrevocable funeral trust, and any other items of value, such as one’s vehicle or home. It is often one’s home that is the last remaining asset of any real value from which Medicaid can seek reimbursement. Note that one’s home is generally exempt from Medicaid’s asset limit while the Medicaid recipient is still living. That said, unless planning strategies have been implemented, one’s home is often not safe from Medicaid estate recovery. Learn more here. Generally speaking, although not always, a life insurance policy is safe from estate recovery if a beneficiary is named other than one’s estate.

With the 1993 Omnibus Budget Reconciliation Act, also known as OBRA, it became a requirement that all states have a Medicaid estate recovery program and to seek reimbursement of long term care costs for persons who are 55 years of age or older. One exception for persons under 55 for estate recovery does exist and this is they were permanently institutionalized, such as in a nursing home. Prior to OBRA, the decision to implement an estate recovery program was left to the discretion of each state. That said, outside of the federal guidelines for MERP, the specifics of a state’s estate recovery program differs based on the state in which one resides. As an example, some states try to recover costs for other Medicaid services outside of long term care. Funds that are collected via MERP go back into the state’s Medicaid program and are used to pay for Medicaid services for other beneficiaries.


How Does MERP Work?

Following the death of a Medicaid recipient, Medicaid generally sends a letter to a relative of the deceased, often a beneficiary or the executor of the estate, asking for reimbursement of all long term care costs for which it previously paid for the deceased. Essentially, the letter informs the family that the Medicaid agency intends to file a claim of repayment. Please note that a Medicaid agency cannot collect more from one’s estate than the amount in which it paid. For example, if the state paid $153,000, but one’s estate is worth $300,000, Medicaid can only take $153,000.

With MERP, all states are required to seek recovery from the deceased’s Medicaid recipient’s “probate estate”. Not all assets go through probate, a court process in which the deceased’s will is validated (if there is one), the value of the estate is determined, debts are paid, and any remaining assets are distributed to beneficiaries. Assets that go through probate include ones that are strictly in the deceased’s name, or if jointly owned, are ones that are “tenants in common”. With tenants in common, the beneficiary of the deceased’s share is named in the will. Stated differently, the other owner does not automatically inherit the deceased’s share. It is important to note that probate laws differ by state.
States also have the option to attempt recovery from assets that do not go through probate. This is known as an “expanded” definition of estate recovery and includes assets that are jointly held other than “tenants in common”, life estates, and assets in a living trust.
A chart can be found below under the section, Does MERP Differ Based on the State, that indicates which states are probate only states and which states are expanded recovery states.


Can Medicaid Put a Lien on the Home?

Yes, Medicaid can put a lien on a Medicaid recipient’s home, but not all states do. (A lien is a way to guarantee payment of a debt, or in this case, reimbursement of long term care costs. Essentially, it does not allow one’s home to be sold without existing debt paid first). With the passing of the Tax Equity and Fiscal Responsibility Act (TEFRA) in 1982, states were given the option to use liens to prevent Medicaid beneficiaries from transferring their home to a loved one shortly before they die as a means to avoid estate recovery. As a side note, if a Medicaid recipient were to transfer his / her home, the transfer would be a violation of Medicaid’s look back rule, resulting in a penalty period of disqualification. Therefore, the family would have to pay out-of-pocket for long term care costs during disqualification. However, a lien prevents the Medicaid recipient from transferring his / her home.

Generally, a lien is filed by the state when the Medicaid recipient is institutionalized, and it is not expected to return home. If the individual does return home, the lien is removed. A lien is also removed if the home is sold and Medicaid is reimbursed. Note that selling the home while the recipient is still living will most likely cause the individual to be ineligible for long term care Medicaid due to having excess assets (being over Medicaid’s asset limit). In a nutshell, the home is exempt from Medicaid’s asset limit prior to sale, but if it is sold, it turns an exempt asset into a countable asset (cash). In some states, a lien may be removed following the death of the Medicaid recipient, while in other states, Medicaid will collect on the lien following the death of the recipient.

A lien cannot be put on a Medicaid recipient’s home in the following situations:

• He / she has a spouse is living in the home.
• He / she has a child under 21 years old living in the home.
• He / she has a disabled or blind child who lives in the home.
• He / she has a brother / sister living in the home who has an equity interest (ownership) in it. Furthermore, he / she lived in the home a minimum of one year before the Medicaid recipient moved to a nursing home.

In addition to the pre-death lien discussed above, some states may put a lien on the home following a Medicaid recipient’s death. This is done when there is a survivor, such as a spouse, still occupying the home. This is done so that the state can collect repayment following the death of the survivor. However, the lien may be lifted if the survivor wishes to sell the home.


Does MERP Differ Based on the State?

Yes, the laws governing a state’s Medicaid estate recovery program varies based on the state in which one resides. For instance, some states will not attempt recovery if the deceased’s estate is under a specified value. Georgia, is one such state, and will not seek recovery if one’s estate is less than $25,000. Texas is another state, and recovery will not be sought on an estate less than $10,000. Some states may also waive estate recovery if the cost of Medicaid long term care is under a specific amount. For example, Texas will not attempt recovery if the costs were $3,000 or less.

As previously stated, Medicaid cannot attempt estate recovery if there is a surviving spouse. However, some states will attempt to collect after the death of the surviving spouse, while other states will not. California and Texas are two states that prohibit estate recovery after the death of the non-Medicaid spouse.

Also, as mentioned above, some states only seek estate recovery through assets that go through probate, while other states use an expanded definition of estate and seeks reimbursement through assets that do not go through probate.

Medicaid Estate Recovery Program: Probate Only vs. Expanded Definition States
Probate Only States Expanded Definition of Estate States
Alabama Arkansas (though limited)
Alaska Connecticut
Arizona Georgia
California Hawaii
Colorado Idaho
Delaware Indiana
Florida Iowa
Illinois Kansas
Louisiana Kentucky
Maryland Maine
Massachusetts Minnesota
Michigan Mississippi
Missouri Montana
Nebraska Nevada
New Mexico New Hampshire
New York New Jersey
North Carolina North Dakota
Oklahoma Ohio
Pennsylvania Oregon
Rhode Island Utah
South Carolina Virginia
South Dakota Washington
Tennessee Wisconsin
Texas Wyoming
Washington DC
West Virginia


How Often is MERP Enforced?

All states have a MERP program and must attempt reimbursement for long term care costs. However, there are some circumstances in which a state cannot seek reimbursement. These exceptions include the following:

1. The deceased Medicaid recipient has a living spouse. Note that it is possible for a state to attempt recovery following the death of the surviving spouse. However, not all states do so, and even in those that do, there is usually a statute of limitation, or put differently, a maximum amount of time in which Medicaid is able to initiate estate recovery. Generally speaking, if a state has a statute of limitation, it is often one year.

2. The deceased has a child who is not yet 21 years. It is possible for Medicaid to initiate estate recovery after the child turns 21. However, as with the above situation, there is generally a statute of limitation of one year. This means that in most cases, if the child does not turn 21 within a year of the Medicaid recipient’s passing, the state cannot attempt estate recovery.

3. The deceased has a child who is blind or disabled (as defined by the Social Security Administration).

4. A brother / sister who has equity interest (ownership) in the home lives there and first moved in a minimum of 1 year prior to a Medicaid recipient’s institutionalization. This is known as the sibling exemption.

5. An adult child lives in the home and lived in it with his / her parent for at least 2 years preceding the parent’s institutionalization. During this time, the adult child provided care that delayed the need for facility care. This is called the caregiver child exemption.

Also, as stated above, the rules that govern a state’s Medicaid estate recovery program varies based on the state in which one resides. Remember, some state will not file for recovery if one’s estate is under a specific value or if the amount Medicaid spent on long term care is under a certain amount. Another reason a state may not attempt recovery is if the cost of selling the home will be more than the home is worth.

In addition, all states have an undue hardship exception, which means they will not seek estate recovery if doing so will result in “undue hardship” for the beneficiaries of a deceased’s estate. While undue hardship is defined differently by each state, considerations often include if the beneficiary resides at the deceased’s residence, he / she has no other residence, and would not be able to provide for essential needs, such as food, shelter, and clothing, if Medicaid pursued estate recovery.


Protecting Assets from MERP

Understanding Medicaid estate recovery and estate planning techniques can be complicated, particularly since the rules are not consistent across states. For this reason, it is highly suggested one consult with a professional Medicaid planner in regards to one’s particular situation. Medicaid planners can educate one as to the specifics in the state in which he / she resides and assist in implementing strategies to protect one’s assets from estate recovery and instead preserve them for family as inheritance.

An expert Medicaid planner can be helpful regardless of whether one has yet to apply for long term care Medicaid, is a Medicaid recipient, or is a family member of a deceased Medicaid recipient and would like to pursue an undue hardship exception. Ultimately, the ideal time to contact a professional planner is well in advance of the need for long term care Medicaid. This allows more options, such as Medicaid asset protection trusts and long term care partnership programs.

For probate-only states, simply keeping assets out of probate will protect them from estate recovery. As Medicaid planners are knowledgeable about state specific probate rules, they are well equipped to assist with this.

Furthermore, the rules regarding a state’s undue hardship exception vary based on the state. A Medicaid planner will be familiar with a state’s rules, if a beneficiary’s situation might warrant an undue hardship, and can assist in pursuing and providing proof that one will endure a hardship if a state moves forward with estate recovery. Find a professional Medicaid planner here.

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