There are two kinds of liens. TEFRA (Tax Equity and Fiscal Responsibility Act) liens or pre-death liens occur when the recipient is permanently institutionalized. Post-death liens are placed against the estate of a deceased Medicaid recipient.
TEFRA liens give the states the option to use a lien to prevent the recipient from giving away assets before they can be assigned to offset long-term care costs accrued on their behalf. Under TEFRA, Medicaid’s interest is given precedence over the interests of adult children or others who claim an interest in the home. While TEFRA liens are placed before death of the recipient, recovery does not generally begin until the recipient dies unless the property is sold during the recipient’s lifetime. States must dissolve the lien if the recipient is able to return home. If the property is sold voluntarily, Medicaid’s claim must be settled first over mortgage lien holders or others who may have claim. Medicaid can only claim the lesser of either the amount actually spent on the individual’s behalf or the individual’s equity interest based on the home’s fair market value.
Post-death liens allow states flexibility in their recovery of Medicaid funds. They are often part of the probate process. States cannot make estate recovery in certain cases such as during the lifetime of the surviving spouse so states will place liens to ensure eventual repayment.
There is considerable variation on how states recover Medicaid funds through liens, the absence of comprehensive consistency on how liens work may cause individuals to avoid Medicaid help they need. So let’s look at what a Medicaid lien is.
Given the rules for Medicaid eligibility, the only probate property of substantial value that a Medicaid recipient is likely to own at death is his or her home. There’s no official estimate of how many people in the United State are house rich and cash poor but just say for a moment that you and your spouse own a house worth the median sales price for Seattle. For the third quarter of this year, that would make your house worth $365,000. In most cases, that’s a pretty good chunk of money. But say either you or your spouse suddenly require long term care due to dementia.
There are four possible ways to pay for nursing home care: private funding, insurance, Medicare and managed care plans and lastly Medicaid. The cost of having someone in the family with dementia of any sort is many factors over the cost of any other disease. The average national cost of a non-dementia specific state nursing facility with a semi-private room according to the Met Life 2012 Market Survey ran right around $214 a day or $81,030 (this number varies a bit but $81,030 is on the low end) annually. While admission to a nursing home could be for short-term services, for many Americans the move to a nursing home is a permanent one. As the average long-term stay for a dementia client is years rather than months, you can see that a nursing home stay can rapidly deplete your assets and your ability to pay for it.
This is why Medicaid, a joint federal-state program, designed to provide low income individuals or those with limited assets a means to access medical care, has suddenly become the default nursing home insurance for middle class Americans. The problem arises in that many individuals become eligible for Medicaid by spending down their resources and using most of their resources to pay for nursing home or in-home care. In the past, this left the spouse that didn’t need nursing home care (the community spouse) destitute. So in 2001, most states adopted policies that allowed the community spouse to retain some assets, called non-countable assets, including a home, so long as these assets didn’t exceed certain limits. For Washington state, the value of the home equity cannot exceed $525,000. Therefore, it’s possible for someone to meet Medicaid requirements for assistance and yet still have modest or even substantial assets tied up in the equity of a home. The primary reason to protect equity assets is so that either the recipient can return to the residence if possible or certain relatives (such as a spouse) can remain in residence.
Non-countable assets include:
- Personal possessions, such as clothing, furniture, and jewelry
- One motor vehicle is excluded, regardless of value, as long as it is used for transportation of the applicant or a household member. The value of an additional automobile may be excluded if needed for health or self-support reasons. (Check your state’s rules.)
- The applicant’s principal residence, provided it is in the same state in which the individual is applying for coverage (the states vary in whether the Medicaid applicant must prove a reasonable likelihood of being able to return home). Under the Deficit Reduction Act of 2005 (DRA), principal residences may be deemed noncountable only to the extent their equity is less than $525,000, with the states having the option of raising this limit to $786,000 (in 2012). In all states and under the DRA, the house may be kept with no equity limit if the Medicaid applicant’s spouse or another dependent relative lives there
- Prepaid funeral plans and a small amount of life insurance
- Assets that are considered “inaccessible” for one reason or another
When these circumstances change, for instance the community spouse moves or dies and the institutional spouse is deemed unable to return home, Medicaid rules consider the real property as an available asset and either decline benefits or recoup the Medicaid spending. There are certain exceptions such as a child under the age of 21, blind or disabled and still living at home. See the list of exceptions below. However, the long and short of it is that states are then required to pursue recovering medical assistance costs such as nursing home services, home and community based services, hospital and prescription drug services, and other items covered by the Medicaid state plan from recipients who were 55 or older when they received benefits, were permanently institutionalized regardless of age and were not survived by a spouse or other dependents who have legitimate claims to the estate. See this story on what they cannot recover.
DSS cannot force you to sell your property if:
1. Your spouse lives there; or
2. Your child lives there and the child is under 21, blind or disabled; or
3. Your brother or sister lives there and has been living there for more than
one year before you were institutionalized; or
4. Your adult, non-disabled child lives there and has lived there for at least two
years before you entered a medical facility and this child provided care for
you which allowed you to live at home rather than enter an institution; or
5. Your relative, for whom you provided at least 50 percent of support lives there.
The objective of the recovery mandate was to recover taxpayer dollars by requiring people to use private resources to pay for the cost of long-term care. One way states accomplish that is to place a lien on property. Medicaid liens can apply to any property but are most objected to when it applies to the family home. Liens give the state rights to the property until the Medicaid recipient’s debt is satisfied and prevents the transfer of the property without notifying the creditor who then has the right to enforce their right.