It’s Possible to Lose Home in Medicaid Recovery

I am often asked if Medicaid can take your home. Although the home is generally protected, in certain circumstances Medicaid recovery can take your home and other property.

The federal government mandates that every state accepting Medicaid funds have in place a Medicaid recovery program. It is federal social policy to make each state seek reimbursement, recovery back, or recoupment, of certain medical payments in order to replenish the fund. Some northern states have a very aggressive program, which almost always entails a fight over estate recovery from the personal residence.

Florida has a much less aggressive program. Florida has the very powerful homestead law, contained in our Florida constitution and our probate code. Our homestead law generally protects the home, but not in all instances.

Florida administers the Medicaid program through the Agency for Health Care Administration, which sub-contracts its recovery efforts to Health Management Systems Inc. This private company administers the Medicaid recovery program through its attorneys and case workers. It is primarily concerned with three types of recovery.

First, it administers the "Medicaid Third Party Liability Act" contained in Florida Statute 409.910. If benefits or assets of a liable third party are discovered, Medicaid recovery will seek reimbursement from such third party to the extent of the medical benefits provided. For example, if a person is gravely injured in a motorcycle accident, Medicaid may have to pay medical bills, including hospital and nursing home care, which create a debt to the state.

If the auto driver who caused the accident is found to owe the motorcyclist for his personal injuries, either in settlement or after a civil trial, the personal injury attorney must seek a release from the Medicaid lien or may negotiate a payoff with Medicaid recovery. Medicaid has a lien for any medical care paid for, thus making Medicaid a payor of last resort and not a primary payor of medical care.

The debt or lien can only be collected from the third party wrong-doer's funds or insurance coverage or the funds from the settlement or judgment. If a liable third party is found to have assets, they should be used to reimburse the treasury. The injured person's assets are not subject to the lien, so the injured person's house will not be taken by Medicaid.

The second area of concern for Health Management Systems Inc. is amounts left in a Qualified Income Trust (QIT) at the death of the nursing home patient. The QIT was set up to allow a person with income in excess of the income cap, now in 2004 of $1,692, to qualify for Medicaid institutional care program. Medicaid will then pay the nursing home amount which is in excess of the patient's income, all of which income must be paid to the nursing home through the QIT.

When the Medicaid applicant dies, the trustee has an obligation, contained in the QIT agreement, to send the full remaining account balance, together with the last bank statement, death certificate, and explanation, to Health Management Systems Inc. Only the funds in the QIT, which should be less than the patient's monthly income, can be subject to recovery. The home will not be sought in this case.

The third concern of Health Management Systems Inc. is the recovery of medical expenses and nursing home expenses paid for the patient through the probate of the deceased's estate. Florida Statute 409.9101, called the "Medicaid Estate Recovery Act," contains the authority to collect recovery against any person who, after reaching age 55, received Medicaid benefits. It also contains exceptions when recovery would create a hardship.

In order to be approved for Medicaid nursing home care, the applicant must be over age 65 or disabled, and have less than $2,000 in available, non-exempt assets. That would generally be a joint bank account into which the applicant's Social Security and other income is direct deposited. If properly established, what is left in this account at death will pass to the joint owner, spouse or child.

The largest asset the Medicaid recipient may have kept, because it is generally exempt at the time of qualification, is the personal residence.

If the patient is married, the home can and should be deeded to the well spouse. Medicaid will not be able to reach the home because it is not owned by the Medicaid recipient. The home can be transferred or deeded to the well spouse, or to minor or disabled children, before or after approval of benefits.

If the Medicaid recipient is not married, most of the time the home will go to the recipient's children or grandchildren. The home will be protected by the homestead law, which provides the personal residence passes free from creditors, including Medicaid, when passing to certain relatives. A probate judge must enter an order that the home is homestead and passed to the relatives free of creditors. This order determining homestead will be the result of a petition to determine homestead, which your attorney will file, together with a petition for summary administration. Although this could cost perhaps $1,500 in legal fees and costs, it is better than allowing Medicaid recovery to take your home through probate.

This cost can be avoided by having the Medicaid recipient sign a Lady Bird deed, which transfers the remainder interest to the children, with the owner reserving a life estate with the right to sell and keep the proceeds. This deed will not result in any period of disqualification for gifting.

Recently a major document preparation firm wrongly prepared a life estate deed, which is different, and which will result in a period of disqualification. If the house is to go to a person unrelated to the deceased, the homestead law will not protect the house. The Lady Bird deed will ensure that the house remains an exempt asset, and will go to the non-relative at death, without Medicaid recovery taking the house. The nursing home resident still has the right to sell the home (most likely with the durable power of attorney), and place the proceeds in a balloon annuity with the beneficiary designation controlling.

It is possible to get a person qualified for Medicaid while still owning rental real estate. This is not good planning because, if the rentals are in the deceased's name alone, probate will be required and the property may be lost to Medicaid recovery.

As long as no assets go through probate, Medicaid recovery will not be involved. If the home or rental real estate is not planned to avoid probate, Medicaid recovery could make a creditor's claim, for all past benefits paid, on the home or other rental real estate. Any elder law attorney helping with your application for Medicaid should plan to avoid all Medicaid recovery at the death of the nursing home resident.