The Medicaid Payback: Pennsylvania’s Medical Assistance Estate Recovery Program
What follows is an updated version of an article that was authored by Attorney Gerhard and previously published in the Pennsylvania Bar Association’s law journal, the Pennsylvania Bar Association Quarterly.
By ROBERT C. GERHARD III, Esquire, CELA*
This article discusses Pennsylvania’s estate recovery program in detail. Federal law requires each state to operate an estate recovery program that seeks repayment from the estates of deceased recipients of Medicaid long-term care benefits. Most of our clients refer to this program as “the Medicaid payback.” Pennsylvania complied with this federal mandate by passing Act 49 of 1994, Section 1412, 62 Pa. C.S. §1412. Pennsylvania’s estate recovery program has collected over $500,000,000 to date! Most of the recoveries are from the sale of the homes of deceased nursing home residents, but the estate recovery program seeks payback from probate estates that exceed $2,400. There are several exceptions to the estate recovery payback.
No further notice about the program is required to Medicaid recipients beyond enactment and publication of the law. However, the Pennsylvania Department of Human Services usually provides an informational brochure about the estate recovery program to Medical Assistance recipients when benefits are authorized. Caseworkers also do their best to explain the program to the family representatives during the application process. The application itself, Form PA-600L, mentions the estate recovery program on its last page.
Not all Medicaid payments are subject to estate recovery. Only Medical Assistance received by individuals after age 55 are recoverable, and only where the Medical assistance payments were for specific types of services. Estate recovery does not apply to medical assistance payments made before the recipient attained age 55.
Specifically, Pennsylvania’s estate recovery program only seeks reimbursement for certain services: 1) nursing facility services, 2) home and community based services such as those provided through the Aging Waiver Program, and 3) related hospital and prescription drug services. In other words, the pay-back is for Pennsylvania Medicaid long-term care benefits.
All “probate estate property” is subject to estate recovery. Other states have more aggressive programs that seek recovery from an expanded definition of estate property, such as property owned jointly with right of survivorship. Under present Pennsylvania law, property liable to repay the Department’s claim includes only probate estate property. This includes all real and personal property of a decedent which is subject to administration by a decedent’s personal representative, whether actually administered or not administered.
Life insurance which is payable to the decedent’s estate is subject to the Department’s claim, even if the life insurance policy contains a facility of payment clause. A facility of payment clause is a contract provision which enables an insurance company to pay policy proceeds directly to certain family members, not to the estate, even where there is no designated beneficiary.
Deposit accounts and patient care accounts paid directly to specified family members outside of probate pursuant to 20 P.S. §3101(b) and 20 P.S. §3101(c) are also included in the definition of estate assets for purposes of Pennsylvania’s estate recovery program. This includes excess funeral reserves which would otherwise be subject to formal estate administration but for the operation of 20 P.S. §3101, and which are instead paid directly to family members by the funeral director.
Assets generally not subject to estate recovery include property owned jointly by the decedent and another, including property owned as tenants by the entireties, life insurance proceeds paid directly to a designated named beneficiary, asset placed in trust prior to the death of the decedent, irrevocable funeral reserves, certain property of Native American Indians, government repatriations to special populations (German reparations), and certain trusts for disabled persons, including special needs trusts.
Where the decedent was over age 55, the personal representative of the estate has a duty to first ascertain whether the decedent received MA at any time during the 5 years preceding death. If no MA was received in 5 years prior to death, then there is no duty to even notify the Department of Human Services or request a claim, and therefore no estate recovery occurs. If the estate’s personal representative determines that benefits were received within that five year window, then the executor or administrator is required to give notice to the department in an effort to obtain a statement of the department’s claim. The 5-year time frame is for notification purposes only and does not limit the Department’s claim. There is no limit on the number of years for which DHS can seek recovery, except that there can be no recovery for medical assistance provided prior to the effective date of the act, August 15, 1994.
If a personal representative knows that a decedent received medical assistance while over age 55, but earlier than 5 years prior to death, estate recovery would still apply if a request for statement of claim is made. Absent actual knowledge of the existence of the claim, the only legal duty of a personal representative to request a claim hinges on the determination of whether medical assistance was paid within the 5 years prior to death where the recipient was over age 55 at the time benefits were received. A request for a statement of claim is sent by certified mail, return receipt requested to the Third Party Liability Section; Department of Human Services; Estate Recovery Program; P.O. Box 8486; Harrisburg, PA 17105-8486. Notice may also be sent to the Department via facsimile transmission at (717) 772-6553. WARNING: IT IS STRONGLY RECOMMENDED THAT YOU MEET WITH AN ELDER LAW ATTORNEY BEFORE REQUESTING A STATEMENT OF CLAIM FROM THE ESTATE RECOVERY PROGRAM. THERE ARE SEVERAL EXCEPTIONS TO ESTATE RECOVERY.
If there is an estate claim, the Department must submit its claim to the executor or administrator within forty-five (45) days of receipt of the notice or the claim is forfeited. DHS usually forwards the statement of claim within two to three weeks, though there have been rare cases where the Department failed to submit its claim within the required time period resulting in forfeiture. The certified mail receipt or facsimile transmission confirmation verifies the receipt date for starting the response period. If the last day of a response period falls on a weekend, Pennsylvania holiday, or a day that the offices of the Department are closed, then the response period ends on the next business day.
The Department’s 45-day response period does not start to run until a notice is properly served on the Department which fully complies with the applicable regulations. The letter from the personal representative must set forth a statement that the personal representative is requesting a statement of the claim against the estate of the decedent. Additionally, the decedent’s name, last address, date of birth, and Social Security Number must be in the letter together with the name, address, and phone number of the personal representative. A last requirement of the notice is written documentation of the gross value of the decedent’s estate. The Department has a form that it prefers to be submitted, instead of a letter, but either approach will work so long as the required information is provided.
Written documentation of the size of the estate is required by the Department’s regulations and should accompany the personal representative’s request for a statement of claim. Such verification could include a copy of the estate’s financial inventory, copies of the bank account statements, or other written verification of the value of the estate. The purpose of this requirement in the regulations is to serve as a trigger mechanism for the Department to identify those small estates where estate recovery will not be pursued due to the hardship waiver for probate estates valued at $2,400 or less.
The Department’s estate recovery claim consists of all Medical assistance payments made on behalf of the decedent for nursing facility services, home and community based services, and related hospital and prescription drug services rendered on or after August 15, 1994.
The Commonwealth’s estate recovery program generates a “claim” against the decedent’s estate. Many people incorrectly refer to the claim as a lien. It is not technically a “lien.” The distinction is important in cases where the decedent’s estate is insolvent.
Judgment liens, mortgage liens, and other liens against specific property take priority over unsecured creditors and get paid first when the property is sold. The estate recovery claim is not a lien, but an unsecured claim against estate assets. Pennsylvania law sets forth the priority in which unsecured claims are paid from an insolvent estate:
If the applicable assets of the estate are insufficient to pay all proper charges and claims in full, the personal representative, subject to any preference given by law to claims due the United States, shall pay them in the following order, without priority as between claims of the same class:
(1) The costs of administration.
(2) The family exemption ($3,500).
(3) The costs of the decedent’s funeral and burial, and the costs of medicines furnished to him within six months of his death, of medical or nursing services performed for him within that time, of hospital services including maintenance provided him within that time, and of services performed for him by any of his employees within that time.
(4) The cost of a gravemarker.
(5) Rents for the occupancy of the decedent’s residence for six months immediately prior to his death.
(5.1) Claims by the Commonwealth and the political subdivisions of the Commonwealth.
(6) All other claims, including claims by the Commonwealth.
Estate administration expenses, including reasonable attorney fees, represent Class 1 claims and are paid first. The estate recovery claim is subordinate to the family exemption as well, if applicable. The estate recovery claim is a Class 3 claim to the extent it is comprised of medical services rendered within the last six months prior to death, and the balance represents a Class 5.1 claim.
The family exemption takes priority over the Department’s claim, but only if the family member who is otherwise entitled to the exemption was residing in the household of the decedent. If the nursing home applicant intends to return home, the family member can still be considered as “residing” with the late family member and the exemption may still be claimed. At a certain point a nursing home resident may not be considered as residing at home, for purposes of claiming the family exemption. The Department considers its position in these situations on a case-by-case basis, but a nursing home stay of over one year in duration would tend to indicate that the family exemption is not going to be allowed, while a stay of under one year would most likely not draw an objection from the Department of Human Services with regard to claiming the family exemption.
Funeral expenses and nursing home services paid within 6 months of death are both Class 3 claims. A strict interpretation of the statute would call for a pro-rata payment of the competing claims without priority between claims of the same class. However, the Commonwealth has always had an informal policy of accepting a “Class 3 (b) position” behind reasonable funeral and burial expenses, an approach now formalized in the regulations.
The personal representative of an estate has a duty to pay the estate debts in accordance with the statutory priorities outlined in 20 Pa.C.S. §3392. If the statutory priorities are not followed and the Commonwealth’s claim remains unsatisfied, the personal representative is personally liable to the extent estate assets were not properly applied to pay the estate recovery claim.
In some situations estate recovery is postponed. In postponement cases, the executor also has a duty to protect the Commonwealth’s interest in certain estate “protectable” assets. Improper transfer or sale of such protected assets will also result in personal liability for the personal representative.
Although in many cases it may not appear financially feasible to bring an estate accounting before the court for audit, obtaining a decree of distribution can help protect the executor from personal liability. However, the regulations provide that a decree of distribution will only discharge liability of personal representative if certain conditions are met. Specifically, the Pennsylvania Department of Human Services must be served with a copy of the proposed distribution at least 30 days in advance of court approval, the court records must show that the personal representative made the appropriate request for the statement of a claim pursuant to 55 PA Code §258.4. Furthermore, the court records must show that any claim of the Department was presented to the court and paid, or that there were insufficient assets to pay the Department’s claim, and the Department must be served with a copy of the final distribution order and paid all amounts that it is due.
The personal representative must fully disclose all estate assets in paperwork presented to the court when seeking the decree of distribution. If recoverable estate assets are not disclosed, then the personal representative is not discharged from liability and can be held personally liable for the value of the non-disclosed assets which should have been used to satisfy the estate recovery claim.
The estate recovery act specifically relieves the bona fide purchaser of estate property from personal liability, even where the Department’s claim is not properly satisfied by the personal representative. However, purchasers are only exempted from personal liability in arm’s-length transactions where the property is purchased at fair market value. If property subject to the Department’s claim is sold for less than fair market value, both the transferee and the personal representative are personally liable for the difference between the fair market value and the amount actually received by the estate.
Many times family members are interested in attempting to keep a home or automobile in the family and wish to purchase it from the estate. Occasionally the purchaser inappropriately seeks to take the property at a bargain price, certainly something less than fair market value. The best practice for the personal representative in this circumstance, other than selling the property to an unrelated third party, is to adequately document the fair market of the asset by way of a professional appraisal. Estate property must be sold for fair market value. An honest, professional appraisal can help protect both the transferee and personal representative from liability in this circumstance. An experienced elder law attorney can help make sure the transaction proceeds smoothly.
In addition to pursuing traditional remedies in court for enforcement of liability against the personal representative, the Department may administratively assess liability pursuant to 62 P.S. §1412(a.1)(1) and (2). Where an administrative assessment is made, the personal representative receives written notice and has a 30-day appeal period to request a hearing before the Department’s Bureau of Hearings and Appeals. This hearing is known as a “fair hearing.” The determination made by the administrative law judge at the fair hearing is subject to reconsideration by the Secretary of the Department of Human Services and appellate review in Commonwealth Court.
Estate recovery is postponed by the Department of Human Services in certain circumstances. No interest is charged on the Department’s claim in the case of postponement. Collection the estate recovery claim is delayed until:
1) The death of any surviving spouse.
2) The death of any child who is blind or totally and permanently disabled as determined under the standards of the Supplemental Security Income (SSI) program in the Social Security Act.
3)The date any surviving child is 21 years of age.
4)The death of, property transfer by or vacating of the property by a sibling who has an equity interest in the property and who has been living in the home for at least 1 year prior to the death of the decedent.
During postponement, “protectable assets” are to be safeguarded by the personal representative. In the case of real property, the personal representative is to make arrangements to have a mortgage or other recorded encumbrance entered against the property in favor of the Department. Individual items of personal property with a fair market value in excess of $10,000, are to be protected by way of a properly perfected security interest being entered of record.
If the estate contains cash or cash equivalents exceeding $50,000, the personal representative is to work with the Pa Department of Human Services to place the money in a trust which complies with the estate recovery regulations. The trust would allow the surviving spouse or child to access the income without court approval but would require court approval for distributions of principal. The creation of such a trust can be avoided if the beneficiary is willing to waive postponement and the Department is willing to compromise the claim. In fact, the Department may opt to waive recovery in cases where there is a surviving spouse and very little in the way cash or other protectable assets, since creation of a trust for assets of modest value would not be cost effective.
If estate recovery would cause undue hardship, the estate may request a waiver by writing to the Estate Recovery Program. If undue hardship is found to exist, the Department will waive estate recovery. Determinations of hardship requests are made on a case-by-case basis, the estate recovery regulations set forth some of the circumstances where hardship waivers will be granted. In making the request, consider the economic status of the beneficiary of the estate. The lawyer preparing this request should consider the physical or mental disability of a beneficiary or any dependents.
A major exception to the payback is waiver of recovery against the decedent’s residence where certain caregivers helped keep the decedent out of a nursing home for two years or more or provided care and support to the decedent for at least two years while home and community based services were being accessed. The caregiver must have resided in the home for at least the two years immediately prior to the decedent’s entry to a nursing facility or for the two years during the administration of home and community based services. The Department will permanently waive the claim with respect to the residence in this instance. It is critical that the attorney submit the proper supporting documentation, most importantly the requisite medical documentation. The exception does not apply if the caregiver has an alternate residence.
Certain Income-Producing Property
The Department’s claim will also be waived on a hardship basis for a spouse, child, sibling, or grandchild with respect to income-producing property if the asset is used to generate the primary source of income for the household, and the family would have income below 250% of the federal poverty guidelines without use of the asset. The regulations define an income-producing asset as property which is used in a trade or business such as a family farm, family business, or rental property.
Home Maintenance Expenses
The Department’s claim is waived in cases where a person, other than an estate creditor, has advanced “necessary and reasonable expenses” to maintain the decedent’s home while the decedent was either in a nursing facility or at home receiving home and community based services. The regulations define necessary and reasonable expenses for maintaining the home to include real estate taxes, utility bills, home repairs, and home maintenance such as lawn care and snow removal necessary to keep the property in condition for the decedent to return home or to sell at fair market value.
Provided that there is an heir to claim his or her beneficial interest in the estate, the Department will find undue hardship and will permanently waive its claim for administered estates with a gross value of $2,400 or less. If the gross value of the estate exceeds $2,400, estate recovery applies to the entire estate absent another applicable hardship exception.
The Bureau of Hearings and Appeals has exclusive jurisdiction to review disputes concerning waiver, compromise, or postponement of collection under an abuse of discretion standard. The Bureau of Hearings and Appeals has concurrent jurisdiction with the Court of Common Pleas with regard to assessment of liability against a personal representative and over computation of the estate recovery claim.
The Department has many cases where no family member comes forward to probate a will or is willing to serve as administrator for a decedent’s estate. The Commonwealth is permitted to serve as personal representative of an unadministered estate pursuant to 20 Pa.C.S. §3155(b)(4). As a practical matter, the Office of Legal Counsel for the Department has limited resources to allocate to the task of administering these estates and anticipates that it will only rarely do so.
The estate recovery regulations provide for this situation by allowing the Department to provide lists of such estates to county bar associations for local attorneys to administer. Members of the bar may serve both as administrator and attorney for the estate, but the total combined fee charged for both roles can not exceed $1,000 or 6% of the estate, whichever is greater.
Applicable law reads that “With the approval of the Governor, the Department may expand the estate recovery by regulation to include medical assistance for services other than those listed in this section and to recover against other real and personal property in which an individual had any legal title or interest at the time of death.” In other words, the law can change such that estate recovery may in the future apply to non-probate property such as jointly owned property.
Appendix “A” Pennsylvania Medical Assistance Estate Recovery Program Collections:
Fiscal year 03-04 $22.8M
Fiscal year 04-05 $25.4M
Fiscal year 05-06 $27.9M
Fiscal year 06-07 $31.1M
Fiscal year 07-08 $35.5M
Fiscal year 08-09 $32.8M
Fiscal year 09-10 $34.4M
Fiscal year 10-11 $36.4M
Fiscal year 11-12 $36.7M
Fiscal year 12-13 $39.5M
Fiscal year 13-14 $35.6M
Fiscal year 14-15 $39.4M
Fiscal year 15-16 $43.0M
Fiscal year 16-17 $48.8M
Fiscal year 17-18 $53.7M
Fiscal year 18-19 $56.4M
Fiscal year 19-20 $45.5M
Fiscal year 2020 – 2021 (Not yet available)
Appendix “B” Estate Recovery Program Contact Information:*
Division of Third Party Liability
Pennsylvania Department of Human Services
Estate Recovery Program
P.O. Box 8486
Harrisburg, PA 17105-8486
Toll Free Phone: (800) 528-3708
Facsimile: (717) 772-6553
*It is recommended that you have Robert C. Gerhard, III, Esq. or another attorney of your choosing to contact the Estate Recovery Program, and that you not attempt to do so on your own.