Beware Medicaid Estate Claims

When Kevin White talks about his family home, a smile crosses his face.

The Minnesota native created memories in the house. His father built it in the 1960s, tucking it into the quiet forests and hills of Mazeppa, Minnesota. An unused oven reminds White of his mom. The smell of her fresh-baked bread would lure him and the kids she babysat into the kitchen. A chair gathering dust in a corner brings memories of his dad, who sat there for hours carving wood.

The home has been a foundation in White's family and community for decades, and he plans to pass it on to his son. But a controversial federal law known as estate recovery could cancel his plans.

White's mother was diagnosed with Type 1 diabetes in 2017, and her treatment was expensive. He spent more than $15,000 to help her, but she also received health care services through Medicaid.

After two years of treatment, the state informed White that Medical Assistance, Minnesota's version of Medicaid, had spent $187,000 on his mother — and that, under a federal process called estate recovery, it had placed a lien on the family home to recover some of that money.

Because his mother gave Kevin the house before she died, he is now responsible for the state's lien on the property. Even worse, when the home's value rose along with the rest of the housing market, the county re-appraised the property and the lien amount doubled.

"I did exactly what they told me to do, then when I went and had it appraised, they backed out of the deal," White said. "It's changed my view of the state to where I think they're crooked. I don't trust them at all anymore."

He may not be the only one.

Medicaid programs across the country must try to recover certain benefits paid on behalf of their enrollees. That's according to the Centers for Medicare and Medicaid Services (CMS), the federal agency that runs Medicare, the health insurance program for people 65 and older, and works with states to administer Medicaid, for people with low incomes.

CMS requires states to try to recover the cost of nursing facility stays, home and community-based services, and related hospital and prescription drug benefits. Some states also seek repayment for other Medicaid services.

Experts say Medicaid recipients are often not told before they accept treatment that they can be required to reimburse the cost of their care, even if that means losing equity in their property and deepening wealth inequality. And although recovery programs are meant to help future Medicaid recipients, loopholes allow some wealthier families to receive taxpayer-funded medical care while skirting the rules of estate recovery.

"Low-income communities are the most hit because it's their family that received Medicaid benefits, and they are the families that now have to pay the price," said Rep. Jan Schakowsky, a Democrat from Illinois. "This is really, really unfair. If it generated lots and lots of money for the economy, that would be one thing. But it doesn't. It is a tiny amount that is actually recovered and recovered from mostly poor people."

When Congress created Medicaid in 1965, the program — which operates under different names in some states, such as Medical Assistance in Minnesota and Medi-Cal in California — permitted but did not require the states to recoup their spending on the program. Congress made estate recovery mandatory in 1993; advocates for poor families and older adults are lobbying Congress to repeal the mandate, saying it perpetuates poverty and inequality for a minimal return to the states.

Regardless of the fairness or economic return from estate recovery, state courts have consistently ruled that the practice is lawful. In its decision upholding the program's legality, the Minnesota Supreme Court said: "The estate collection statute at issue here serves a very important purpose. [Estate collection] is a system whereby money paid to qualified individuals for health care purposes may be recovered and reused to help other similarly situated persons."

In fiscal year 2019, states reported collecting roughly $733.4 million using estate recovery, according to a report that quotes the nonpartisan Medicaid and CHIP Payment and Access Commission. That is about one-tenth of one percent of the $671.2 billion federal and state governments combined spent on Medicaid in 2020, according to the CMS.

Federal courts also have upheld estate recovery. After Congress made estate recovery mandatory in 1993, West Virginia sued the federal government, saying, among other things, that the requirement was a "betrayal of the New Deal." The state lost. Michigan delayed estate recovery until 2007, when the federal government threatened to pull its Medicaid funding. The U.S. Supreme Court recently heard oral arguments in a case challenging part of Florida's estate-recovery law.

States must continue the program if they want federal Medicaid dollars to flow. But attorneys say that estate recovery hurts some of their most vulnerable clients the most. Laurie Hanson and Laura Zdychnec are two of those attorneys.

Hanson and Zdychnec have met many people like Kevin White through the Minneapolis law firm they created for older clients. As taxpayers, they said they have no issue with the concept of estate recovery. But the way that it is executed raises legal and ethical concerns for them and their team.

"Federal law is pretty clear that people need to be aware of, and given notice of, the state's estate recovery program when they apply for Medical Assistance. That notice is in some cases lacking entirely, and in some cases it's pretty deficient," Zdychnec said.

"I'm not suggesting that people never are aware of what's coming at them, but I think, in my opinion, the state needs to do far more to inform people up front of how [this program] really operates and what the expectation will be on the other end."

In some cases, Hanson said that entire generations are displaced because the home they live in is the only asset they have — and they don't learn about estate recovery until it is too late.

In its 2021 report to Congress, the Medicaid and Chip Payment and Access Commission found that few people know about estate recovery and many with wealth avoid recovery programs entirely. That comes at the expense of families with modest income, said John Kantke, a St. Paul, Minnesota, lawyer who has practiced elder law and represented aging Minnesotans for more than a decade.

To qualify for Minnesota's Medical Assistance program, people must dispose of most of their assets and spend down to their last $3,000, depending on their circumstances, five years before they enroll. Those who break the rules can be hit with penalties, which include the state refusing to pay some Medicaid expenses.

The restrictions were meant to penalize people who exploit the system, but Kantke found that those who can afford a good lawyer can find ways of qualifying for Medicaid without losing their wealth to estate recovery.

Whether that is through cabin trusts, nonprofits or other financial loopholes, it's an option that Minnesota's more vulnerable Medical Assistance recipients cannot access. Estate recovery's loopholes, and the burden they place on low-income families, are part of why Kantke says the program is "regressive."

"It's hitting those with the least amount of money the hardest," he said. "When the system is taking one hundred percent from some and ten percent from others, it seems unfair."

State officials are very aware of these loopholes. They say they have worked hard to close them and make the program more equitable, but that's easier said than done.

Geneva Finn is the Special Recovery Unit Manager for Minnesota's Department of Human Services. She and six staff members run Minnesota's estate recovery program. Finn said she is concerned about loopholes, but her office is short-staffed and under-resourced.

With so much to manage and so few resources to manage them with, the state leaves a lot of data collection to the counties. As a result, escape routes from estate recovery, such as hardship waivers and appeals, are decided by county officials with little state oversight.

"Counties track their estate recovery program internally. Some counties are in paper file. Some counties have various databases set up," Finn said. "You could have your hardship waiver granted — it wouldn't go to our appeals office; it would just go to the county office. It would just happen on the county level, and I wouldn't necessarily have reason to know about it, unless there was some question about it."

In some ways, the difference between Minnesota counties' recovery programs is a microcosm for estate recovery in different states.

"This is an all-too-common crisis for families across Minnesota and the country," said Rep. Ilhan Omar, a Democrat from Minnesota who has cosponsored federal legislation, the Stop Unfair Medicaid Recoveries Act, to forbid states to require the survivors of Medicaid recipients to reimburse the state for medical care given to relatives.

"After losing a loved one, families are forced to pay thousands — sometimes hundreds of thousands — of dollars' worth of long-term care that their loved one received. It is traumatic and pushes many families into medical debt. In some cases, families lose their homes because of this unexpected debt," Omar added. "This is an outrage and needs to end."