Medicaid Estate Recovery: How It Can Claim Your Home

The Difference Between Medicare and Medicaid Long-Term Care

Many people assume Medicare — the program they paid into for decades — will cover nursing home care. That assumption can be financially devastating.

Medicare Part A does cover skilled nursing care, but only under narrow conditions:

• You had a qualifying hospital stay of at least three consecutive nights.
• You transferred to a skilled nursing facility within 30 days of discharge.
• You require active, medically necessary rehabilitation — physical therapy, IV antibiotics, or licensed wound care.

Under those conditions, Medicare pays 100% for the first 20 days. From day 21 through day 100, a daily co-insurance amount applies (approximately $209 per day in 2026). On day 101, Medicare coverage ends completely.

What Medicare does not cover is custodial care — help bathing, eating, managing medications, or staying safe with advanced dementia. Custodial care is the long, grinding reality of late-stage Alzheimer's, Parkinson's, or severe heart failure. Medicare covers zero days of it.

In 2026, custodial nursing home care in an average U.S. metro area runs roughly $10,000–$12,000 per month. Memory care for dementia patients can reach $13,000 or more. In high-cost markets, costs can approach $15,000 per month. At $12,000 a month, a median retirement nest egg of approximately $280,000 is gone in roughly 23 months.

How Medicaid Fills the Gap — and What It Costs Later

Medicaid is the only major government program that covers unlimited custodial long-term care. But it is a poverty program. To qualify, a single applicant must generally have no more than $2,000 in countable assets.

When a family applies for Medicaid after a parent enters a nursing home, a hospital social worker often reassures them: "The house is safe. As long as she intends to return home, the home is exempt from the asset test."

That statement is technically true — and dangerously incomplete.

The home is exempt from the asset test used to determine Medicaid eligibility. But being exempt from the eligibility calculation is not the same as being protected from collection after death. These are two different legal concepts that produce opposite outcomes.

The collection mechanism that activates at death has a name: the Medicaid Estate Recovery Program (MERP).

What MERP Is and How It Works

MERP is not a state option — it is a federal mandate. Since the Omnibus Budget Reconciliation Act of 1993, every state must operate an estate recovery program as a condition of receiving federal Medicaid matching funds.

When a Medicaid recipient over age 55 dies, the state Medicaid agency (or a third-party contractor) files a creditor claim against the deceased's estate. The claim equals the total cost of long-term care, related prescriptions, and qualifying hospital services paid from age 55 onward.

In a typical 2026 case — three years in a memory care facility at $12,000 a month — that claim is approximately $432,000.

State agencies now cross-reference Medicaid recipient databases against county probate dockets in near real time. The process is largely automated. The claim arrives whether or not the family was ever told it was coming.

A real example: Dennis, a retired steelworker in Indiana, bought his home in 1982 and paid it off in 2004. When dementia advanced, his son Tom helped him apply for Medicaid. The social worker said the house was safe. Dennis died in 2025 after three years of Medicaid-funded care. The house was worth $310,000. The state of Indiana filed a MERP claim for $284,000. Tom inherited roughly $18,000 after the state was paid and legal fees were settled.

State Rules Vary Dramatically

MERP operates under one federal mandate but 50 different sets of state rules. The same family, same house, and same Medicaid history can face total loss or full preservation depending entirely on geography.

Ohio is among the most aggressive states. Ohio uses an "expanded estate recovery" definition, meaning it can pursue assets that pass outside of probate — including some transfer-on-death deed transfers. Ohio and roughly a third of states also file TEFRA liens (named for the Tax Equity and Fiscal Responsibility Act of 1982), which attach directly to the property title while the Medicaid recipient is still alive. Families often discover the lien only when a title company pulls a search at a closing.

California is comparatively favorable. After legislative reform effective January 2017, California scaled back its program significantly. California now recovers only from probate assets, only for care received after age 55, and excludes certain expense categories. A home held in a properly funded living trust — so it never enters probate — may pass to heirs with zero Medicaid recovery.

Florida sits in the middle but carries a structural advantage: the state constitution's homestead protection makes it extremely difficult for creditors, including Medicaid, to force the sale of a Florida homestead property that passes to a qualified heir. The state can file a claim, but collecting on it is often practically difficult.

The state you or your parents live in — and die in — is one of the most significant financial variables of retirement.

The Look-Back Period: Why Transferring the House Can Backfire

A common instinct is to simply transfer the home to adult children before needing nursing home care. This approach carries serious risk.

Under the Deficit Reduction Act of 2005, when someone applies for long-term care Medicaid, the state examines every financial transaction made in the prior 60 months — five full years. If any asset was transferred for less than fair market value within that window, the state imposes a penalty period of Medicaid disqualification.

The penalty is calculated by dividing the value of the transferred asset by the average monthly nursing home cost in the state. The result is the number of months the applicant cannot receive Medicaid.

Example: A 76-year-old in Ohio transfers a $360,000 home to a daughter in March 2026. Five months later, a stroke requires nursing home care at $11,000 a month. Ohio's average monthly nursing home cost is approximately $8,500. Dividing $360,000 by $8,500 equals roughly 42 months of disqualification — during which the family must pay $11,000 a month out of pocket, with no Medicaid coverage.

The look-back window means protection must be built at least five years before care is needed — before a diagnosis, before a fall, before any triggering event. The healthier the person, the more options are available. The sicker the person, the more closed the window becomes.

Five Levels of MERP Exposure

Here is a framework for understanding where a family currently stands:

• Level 5 (safest): Medicaid long-term care was never used. No MERP claim exists. The home passes to heirs without encumbrance. This requires either privately funding all long-term care or carrying long-term care insurance that covered all expenses.
• Level 4: Medicaid was used, but the home is in a properly funded irrevocable trust, and the state uses probate-only recovery. The MERP claim exists but cannot reach trust assets. The home passes to heirs intact — if the trust was created more than 60 months before the Medicaid application.
• Level 3: Medicaid was used. The state uses probate-only recovery, but the home was titled in the deceased's name at death. The house goes through probate, the MERP claim attaches, and the family must liquidate or negotiate. Painful, but limited to probate assets.
• Level 2: Medicaid was used in an expanded-recovery state, and the home is titled in a way the state can reach outside of probate — joint tenancy in a TEFRA lien state, a transfer-on-death deed in Ohio, or certain living trusts in aggressive jurisdictions. The claim follows the asset regardless of probate structure.
• Level 1 (most exposed): A TEFRA lien was recorded against the property while the parent was still alive. Options at this point are limited to negotiating the amount paid to the state — not whether to pay.

Most families with a parent who recently used Medicaid long-term care are at Level 1 or Level 2 and do not know it.

What Early Planning Can Look Like

The difference between a $11,000 inheritance and a $340,000 inheritance can come down to a single legal appointment made years in advance.

In the Barbara scenario described above, a retired teacher with a paid-off $340,000 home received four and a half years of Medicaid-funded care. Without planning, the state collected $311,600 from her estate. Her daughter inherited approximately $11,000.

In the alternative scenario, Barbara — at age 61 and in good health — paid approximately $4,500 to create a Medicaid Asset Protection Trust (MAPT). She transferred the deed to the trust, retaining the right to live in the home for the rest of her life. Her daily life was unchanged. Sixty months later, the look-back window closed. When she needed care, the home had been in the trust for over six years. The state filed a MERP claim, but the home passed outside of probate. The state recovered only what remained in the probate estate. Barbara's daughter inherited the home free and clear — with a stepped-up cost basis, meaning no capital gains tax on the sale — and walked away with $340,000.

Same house. Same care. Same law. Same state. The only variable was the legal container holding the asset.

Three steps to take now:

1. Do a title search on every piece of real property your family owns. Find out exactly how each property is titled. This is your exposure map.
2. Identify your state's recovery profile. Is it probate-only, or does it use expanded recovery? Does it file TEFRA liens? Your state bar's elder law section can provide a summary.
3. Schedule a consultation with a board-certified elder law attorney who specializes in Medicaid planning — not a generalist. The National Academy of Elder Law Attorneys (NAELA) maintains a directory. A consultation typically costs between $200 and $750.

If parents are in their early 70s and in reasonably good health, the five-year window is open. If they are in their 80s with existing conditions, the window is narrowing. Every month of delay is a month subtracted from the available protection period. There is no retroactive planning once a stroke or fall triggers the need for care. Always confirm details and eligibility with a qualified elder law attorney, as rules vary by state and individual circumstances.