Does Medicaid Take Life Insurance Benefits to Pay for the Policyholder’s Nursing Home Costs?

The United States's Medicaid program is a hybrid state and federal program that exists to cover certain medical costs for low-income workers and certain other individuals. Unlike Medicare, Medicaid imposes no age or disability restrictions for individuals who wish to join it. However, Medicaid applicants must demonstrate that they qualify as "low-income" individuals under federal poverty statutes. As it currently stands, individuals who earn more than 150 percent of the federal poverty wage aren't eligible for Medicaid. The same basic income qualifications apply to families as well.

Since the costs of Medicaid are shouldered equally by state and federal governments, eligibility requirements vary slightly from place to place. In some states, Medicaid pays for virtually all of the medical needs of the individuals who qualify for it. In other places, the program may act as a robust insurance program that utilizes a copay schedule to share the cost of care with its users.

One particularly popular aspect of Medicaid is its mandate to pay for nursing-home care. For those who qualify, the program pays for virtually all of the costs associated with the provision of temporary and permanent assisted-living services. Needless to say, this can cost tens of thousands of dollars per year and represents a major drag on the federal budget. The sheer expense of this program has led the families of many Medicaid recipients to worry about the sustainability of such a program.

Although Medicaid's assisted-living aid program appears to be in no danger of ending, state Medicaid agencies do make some attempts to recover these outlays. The Medicaid Estate Recovery Program employs several different means of recovering assisted-living outlays. However, it's not currently authorized to seize the life insurance benefits that may be paid out to Medicaid beneficiaries' heirs. Under federal law, life insurance benefits can't be garnished in this manner.

The Medicaid Estate Recovery Program has other means of cost-recovery at its disposal. First, it may seize certain features of Medicaid beneficiaries' estates. These include houses, vehicles and other items of value. In most cases, these items are not worth very much. After all, the Medicaid income threshold eliminates higher-income individuals from contention. Most of the program's beneficiaries live in subsidized rental housing or rural homesteads that lack significant resale value. To offset these meager returns, the Medicaid Estate Recovery Program may also seize certain trusts, retirement plans and other savings vehicles in an effort to recoup some of the assisted-living program's costs.

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