The Affordable Care Act's Estate Recovery Catch-22

Date: December 13, 2021Attorney: Donald A. Dennison

Medicaid is a federal program administered through the states at the county level, and created under the Social Security Act, 42 U.S.C.A. § 1396 to 1396 w-5. The various Medicaid programs in New Jersey all fall under the umbrella of “NJ Family Care.” The most recent major expansion of the Medicaid program at the federal level occurred on March 23, 2010 when the Affordable Care Act a/k/a “Obamacare” was signed into law.

The Affordable Care Act (hereinafter “ACA”) was met with both loud praise and harsh criticism, with one particular provision, the “individual mandate”, receiving particularly staunch condemnation from opponents of the new law. In general, the individual mandate requires all adults to obtain a minimum amount of health insurance coverage (known as “minimum essential coverage” or “MES”) or face a penalty (fee). For those who do not have private health insurance coverage (such as through their employer), and do not obtain coverage through the marketplace, the potential for steep penalties is alarming enough to force their hand. For those forced into a Medicaid program under the ACA’s individual mandate, a Catch-22 lurks in the background.

New Jersey Medicaid’s estate recovery rules are codified at N.J.A.C. 10:49-14.1 and N.J.S.A. 30:4D-7.2, which have been expanded over the years through Medicaid Communications (“Med-Comms”) such as Med-Comm 10-08 and Med-Comm 00-16. Generally speaking, New Jersey Medicaid has adopted an expanded definition of “estate” to encompass assets that would traditionally fall outside of one’s estate, such as life insurance policies with beneficiary designations and assets owned jointly with right of survivorship. The practical implications of this expanded definition of estate means a wider net with which New Jersey Medicaid can potentially recover from a Medicaid recipient upon his or her death.

The estates of certain Medicaid recipients are not subject to the estate recovery rules such as those who received Medicaid benefits prior to their fifty-fifth (55) birthday. Additionally, estate recovery may be stalled or otherwise forgone in situations where a spouse survives the decedent Medicaid recipient, or if the decedent Medicaid recipient has a child or children under the age of twenty-one, or if the decedent Medicaid recipient has a disabled adult child (meeting the Social Security Administration’s definition of “disabled”).

But what happens when someone over fifty-five (55) and without private insurance tries to avoid the penalties associated with the individual mandate by enrolling in a program through New Jersey’s healthcare marketplace? After all, the purpose of this expansion was to get more people covered than ever before. Do the same estate recovery rules apply? Unfortunately, the answer is yes. This Catch-22 may be better described as a “black hole” impacting unsuspecting beneficiaries who receive non-probate assets upon the death of a Medicaid recipient.  

In 2020, Assemblywomen Joann Downey and Valerie Vainieri Huttle, together with Assemblyman Eric Houghtaling sponsored a Bill that would limit estate recovery in these types of situations. Please note, however, that this Bill[1] has not been signed into law as of the date of this article’s posting. Nevertheless, recent media attention surrounding Medicaid’s estate recovery practices have (hopefully) increased the likelihood of this Bill, or similar Bills, from being introduced in the legislature. A recent U.S. News and World Report article highlights the disproportionate impact estate recovery practices have on minority groups, and how the actual recovery of funds is minimal (less than one percent of the value of Medicaid benefits provided are actually recovered, according to some reports!)[2] I strongly encourage all readers to take a look at the footnoted article for some greater perspective into the impact estate recovery has on everyday Americans.

Those applying for or receiving means-tested benefits such as Medicaid or SSI should discuss these issues with an elder law attorney who is well-versed in government benefits planning. The Elder Law department at Mandelbaum Barrett PC is dedicated to representing individuals and families facing these and other Medicaid and government benefit issues.

If you have any questions, please contact Donald Dennison. 

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