Question: My mother and father operated a small restaurant for nearly 50 years before he had a stroke. After a short hospital stay, he was discharged to a nursing home for rehabilitation. He lost not only movement on his right side, but also some of mental capability and needs continuous care. Because their Social Security was not enough to support them, Mom had to continue working in the business. They own nothing but their home and the restaurant business. After we finally got him qualified for Medicaid, Mom received a letter from the state that after his death, they would come after his assets to get repaid for what was spent. Can the state take my mother’s home and their business?
Answer: Effective October 1, 1993, a federal law called “OBRA” (Omnibus Budget Reconciliation Act of 1993) requires states to attempt to recoup the amounts furnished to Medicaid beneficiaries for nursing home and other long-term care services from the estates of Medicaid beneficiaries. For recovery purposes, an estate may include any assets in which the Medicaid beneficiary had legal ownership or interest at his or her death, including the home.
The federal law also requires that each state set up criteria so that when undue hardship would result, recovery can be waived. The Health Care Financing Administration (HCFA), which is responsible for the administration of the federal Medicaid program, suggests that the states give special consideration to “undue hardship” where the estate subject to recovery is either (1) the sole income-producing asset of survivors (where income is limited), such as a family farm or other family business, (2) there is a homestead of modest value, or (3) there are other compelling circumstances.
Unlike estate planning where wealth individuals are encouraged to remove assets from their estates in order to reduce or avoid estate taxation, when seeking to recover Medicaid payments from less economically fortunate individuals, states can determine that an undue hardship does not exist if a person created the hardship by “…resorting to estate planning methods under which the individual divested assets in order to avoid estate recovery.” In other words, it’s OK for a wealthy individual to obtain estate planning advice from legal counsel in order to avoid tens of thousands or hundreds of thousands of dollars of estate tax, but it’s not OK for less economically fortunate individuals to save the family home or farm from Medicaid recovery if they follow estate planning advice.
Although no estate recovery can take place while a surviving spouse is alive, the effect of the placement of a Medicaid lien on assets after the death of the Medicaid recipient can decimate the surviving spouse’s economic future. For example, by placing a lien on the home which is still occupied by a widow or widower, the state in effect makes the survivor a prisoner in the home because it is impossible for that person to sell the property and use the money for assisted living or to take out a mortgage or loan if he or she needs to money on which to live.

Generally, families are ill-informed about recovery, and some states fail to notify families about the availability of hardship waivers or that liens are going to be enforced. In addition, some states do not have procedures in place for families to contest the size of the amount claimed to be due. In effect, Medicaid is nothing more than a big loan program. As such, recipients should have access to the same consumer protection as other debtors in order to prevent overreaching by the states which basically make up their own rules as they go.

Taking the NextStep: Always see a qualified elder law attorney early in the Medicaid process to find out how recovery is handled in your state. To find an elder law attorney in your area, go to www.naela.org.