When Medicaid Must Be Paid Back

Posted By Matthew Clawson || 14-Apr-2015

Medicaid is the state medical insurance program serving low income residents. It is funded from taxpayer money, gathered through state and federal taxes—not by payment of an insurance premium. (Not to be confused with Medicare, the federal medical insurance program for those over age 65.) Each state administers its own Medicaid program and, as a result, the rules and regulations for the Medicaid program will be different in each state.

The Affordable Care Act (a/k/a Obamacare) significantly expanded the Medicaid program for each participating state. Although not every state accepted the offer of increased federal payments to expand the state Medicaid program, for those states who did expand their Medicaid program under the ACA, such as Colorado, 11 million more people became eligible to be covered by Medicaid in various states. The expansion of Medicaid under the ACA allowed many more individuals to participate in Medicaid because the definitions of “low income” were changed. These new beneficiaries may be employed, own their homes and would not ordinarily consider themselves to be “poor.”

Since Medicaid is funded through taxpayer funds, Medicaid is not self-funding as is a typical private health insurance plan. In order to reimburse the taxpayers for the medical bills paid by Medicaid, the Medicaid programs in each state require Medicaid beneficiaries to pay back to Medicaid some medical expenses in some circumstances.

For instance, if a Medicaid beneficiary is injured in a car accident Medicaid will pay for the care and treatment of those injuries. However, if the beneficiary obtains an insurance settlement that pays compensation for those injuries, state law requires that the beneficiary pay back to Medicaid the amount of medical expenses paid for those auto injuries. If the beneficiary has a lawyer, state law requires that the lawyer notify Medicaid as soon as he or she is involved in the injury claim and to notify Medicaid as soon as a settlement is reached so that Medicaid is paid back from the settlement. If the beneficiary does not have a lawyer, the beneficiary must notify Medicaid either directly, or through the insurance company that will be paying the claim, that a claim is being made and that Medicaid will be paid back those medical bills paid on account of the injury.

For more than 20 years, federal law has also permitted states to recover all Medicaid costs in cases where beneficiaries at least 55 years old when they pass away under the “estate recovery” program. Medicaid costs often include the high expenses of nursing home care or other long term care that may accrue for years before a beneficiary dies. Under the old eligibility rules, this usually meant Medicaid recovered little because Medicaid beneficiaries were only eligible for the program if they were very poor and those beneficiaries rarely left any assets upon their death. Under the expanded Medicaid/ACA program, however, many families are surprised to learn that they owe Medicaid a significant amount of money on the death of their elderly relative from the assets left to them by their deceased relative. Medicaid can seize savings accounts, houses, trusts and retirement funds to reimburse the program for medical expenses paid by the state Medicaid program. Many such families have had sell to sell the deceased relative's home or other assets in order to reimburse the state for the Medicaid expenses paid during the deceased’s lifetime.

Medicaid rules in most states do not allow the state to seize assets during a surviving spouse's lifetime or when surviving children are younger than 21 or permanently disabled. Additionally, survivors in most states can seek “hardship” exemptions to deny the state the assets of the deceased relative. Some states, including Colorado, have scaled back what Medicaid costs they will attempt to recover from estates—but most states have not.

In the meantime, some are so fearful of the seizure of their assets on their death that they will decline to participate in Medicaid if that is their only choice under the ACA—or they will put off medically necessary, but expensive, procedures until they are old enough to qualify for Medicare, which does not have the repayment rules. Some say that this new twist on the Medicaid program disproportionately affects moderately low income people (who likely still own a home or have some modest savings or retirement accounts), as no such seizure is mandated for others who are covered through the ACA. Discussion is underway over proposed federal regulations that would limit what the participating states can pursue from a deceased Medicaid beneficiary’s estate—but there is no word yet on when those new regulations might go into effect.

Categories: News

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