Flash back to an August day in 1993: President Clinton signs his first budget plan into law amid great fanfare. It's a historic bill that raises taxes on the well-to-do, curtails spending and sets a course for the budget surplus that will get so much attention in 1998.
Far from the headlines and cameras, buried inside the massive new law, is a little-debated provision that will affect the thousands of families with an elderly parent in a nursing home.The new rule requires states to recoup some of the costs of long-term care paid by Medicaid by collecting from patients' estates - essentially transforming Medicaid from a system that provides medical care to the poor into a quasi-loan program.
Any state that doesn't comply risks forfeiting federal Medicaid contributions, which pay for about 50 percent of the program. Even before the feds stepped in, about half the states were going after assets from the estates of Medicaid-supported nursing-home residents. Now only Michigan and Texas are on the side-lines.
It may seem obvious, but the best way to avoid Medicaid estate recovery is to avoid being on Medicaid. Deliberately rearranging your estate plans to become eligible for Medicaid may backfire if the state is able to get its hands on those assets anyway. And once you're eligible for Medicaid, you have fewer choices than a private-pay patient for the type of care you get and where you get it.
If reliance on Medicaid is inevitable, there are a few things families can do to help take the sting out of the estate-recovery process:
- First, be sure you understand the recovery rules of your state. You don't want to be caught by surprise.
- Husbands and wives should each have a durable power of attorney, which allows them to deed the house to their spouse before Medicaid eligibility kicks in.
- Always answer "yes" on a Medicaid application when it asks if the patient intends to return home. That way, a lien can't be placed against your home.
- Alert other family members to the disadvantages of leaving assets to a Medicaid patient. Such a bequest could simply go to the state as part of estate recovery.
- As a last resort, apply for a hardship waiver. Federal law requires states to waive recovery if it would cause undue hardship, but states' criteria for hardship are often very stringent.