What to Tell Your Clients About TennCare Medicaid Estate Recovery
By Tim Takacs and David McGuffey

Last week, your client Joe Franklin received a letter from the Bureau of TennCare. What concerned and frightened Joe is that the letter says that he owes the Bureau of TennCare money back for the amount of money that the TennCare Medicaid program paid out for his mother’s nursing home care. Mrs. Franklin passed away two months ago while a resident of a Nashville nursing home. She had been receiving Medicaid benefits for 18 months.

“TennCare must have paid out a fortune to the nursing home,” Joe tells you. “I don’t have that kind of money. Do I owe it? What about my two sisters? Do we have to pay Momma’s bill? When I went to the Medicaid office to apply for her, the Medicaid worker never told me that I’d have to pay back Medicaid. What should I do?”

Sound familiar? If you are in the general practice of law and typically represent clients in consumer and family matters, sooner or later a Joe Franklin will come into your office to seek your advice about TennCare Medicaid estate recovery. What will you tell your client?

Recent publicity about TennCare and estate recovery has moved Tennessee’s Medicaid recovery program out of the backwater of legal practice and onto the front pages of many of the state’s major daily newspapers. When Elder Law Practice in Tennessee[1] was published in 1998, Tim Takacs could write with a fair degree of confidence that few Tennessee attorneys knew much about Medicaid estate recovery. Indeed, 10 years ago it was highly likely that except for a handful of the state’s elder law attorneys, if you said “estate recovery,” almost every Tennessee lawyer would reply, “What is that?”

Today, we doubt that there is a member of the Tennessee bar in active practice who hasn’t heard about TennCare Medicaid estate recovery. Nonetheless, like much that has to do with Medicaid and public benefits for the elderly, the subject seems to be shrouded in mystery.

The State Medicaid Program
In Tennessee, Medicaid pays for nursing home care for people who need it and meet the program’s technical, medical and financial criteria. TennCare is Medicaid, too, but in general TennCare pays for medical care. Medicaid pays for nursing home care, and most of these nursing home residents on Medicaid are over the age of 65.

By contrast, Medicare is health insurance for the elderly and disabled. Medicare is a federal program. Medicaid is a combined federal and state program. The federal government sets out the framework for the Medicaid program (eligibility criteria and the like) and provides most of the money to the states, which administer the Medicaid program.

There is no estate recovery for Medicare benefits. But there is estate recovery for Medicaid benefits. Under a 1993 federal law — the Omnibus Budget Reconciliation Act of 1993 — each state is required to put in place a program to recover Medicaid benefits from the estates of decedents who obtained benefits after attaining the age of 55.

Congress also provided for limitations on Medicaid estate recovery. Federal law lists three specific situations where estate recovery is permitted.

1. Where the state is authorized to impose a lien on the institutionalized individual’s real property. Tennessee law prohibits imposition of a lien, so this situation does not apply in Tennessee.[2]
2. Where the individual received benefits under a Long-Term Care Insurance Partnership Program. Tennessee does not participate in the Partnership Program, so this situation does not apply.
3. Where the individual was 55 years of age or older when the individual received Medicaid benefits.[3] Estate recovery in Tennessee is permitted only in this situation.

In every situation federal law prohibits Medicaid estate recovery where:

• the individual is survived by a spouse, in which case benefits may not be recouped from the individual’s estate until the death of the surviving spouse,
• the individual has a surviving child who is under age 21,
• the individual has a surviving child who is blind,
• the individual has a surviving child who is permanently and totally disabled,
• application of estate recovery “would work an undue hardship as determined on the basis of criteria established by the Secretary” of the U. S. Department of Health and Human Services, or
• the assets out of which recoupment is sought are not included within the state’s definition of “probate estate” unless, at the option of the state, the state has included “any other real and personal property and other assets in which the individual had any legal title or interest at the time of death (to the extent of such interest).”[4]

TennCare Reform Act of 2002
Although Tennessee has long had a Medicaid estate recovery program, the Bureau of TennCare did not pursue decedents’ estates with vigor until the enactment in 2002 of the TennCare Reform Act. As a condition for the closing of a probate estate, the TennCare Reform Act requires the filing of a “TennCare release” — that is, a document obtained by the personal representative from the Bureau of TennCare, and filed with the probate court, stating that either the decedent owed nothing to the Bureau of TennCare at the time of the decedent’s death or any such debt has been satisfied.

Beginning Jan. 1, 2007, under legislation enacted in 2006 by the General Assembly, the personal representative must notify the Bureau of TennCare of the decedent’s death and file an affidavit with the probate court clerk affirming that the Bureau of TennCare has been so notified. (The complete text of Tenn. Code Ann. § 71-5-116 is reproduced in the Appendix)

Unlike many statutory mysteries, there is no uncertainty about the intent of the legislature, as that is set out right in the statute:

It is the legislative intent of this subsection (d) that, after the date of death, the Bureau of TennCare strive vigorously to recoup any TennCare funds expended for a decedent during the decedent’s lifetime.[5]

Perhaps the most important limitation on a state’s right of recoupment is that Medicaid estate recovery applies only to dead people. For correctly paid Medicaid benefits, the state can recoup benefits only against the deceased Medicaid recipient’s estate.

Example: Mr. Mulligan, an unmarried resident of a Tennessee nursing home, is a recipient of Medicaid benefits. He inherits $50,000 from his sister. He must notify the State Department of Human Services of the receipt of the inheritance. Because he now has in excess of $2,000 in “countable” resources (the Medicaid resource limit), he no longer meets the financial criteria for eligibility for benefits. DHS issues him a notice of termination of benefits. Must he repay the state back for the benefits heretofore paid out for him?

No — moreover, in order to become financially eligible again for Medicaid benefits, Mr. Mulligan does not have to pay the state first.

If, however, Mr. Mulligan had not timely notified DHS of the inheritance, and he had received Medicaid benefits for several months while being over-resourced, he will have received benefits that were incorrectly paid, and he would be subject to a claim by the state against him to recover those incorrectly paid benefits.

Sharp-eyed readers will note discrepancies between the six exceptions set forth in the federal estate recovery law and Tennessee’s version. Tennessee law prohibits estate recovery where:

• the individual is survived by a spouse, in which case benefits may not be recouped from the individual’s estate until the death of the surviving spouse,
• the individual has a surviving child who is under age 18,
• the individual has a surviving child who is blind,
• the individual has a surviving child who is permanently and totally disabled,
• the individual has a surviving child who became blind after reaching majority if undue hardship would result upon application of estate recovery,
• the individual has a surviving child who became permanently and totally disabled after reaching majority if undue hardship would result upon application of estate recovery,
• the assets out of which recoupment is sought are not included within the state’s definition of “probate estate,”
• the individual was not receiving TennCare or Medicaid benefits at the time of his death,
• the Department of Human Services did not inform the Medicaid applicant or recipient of estate recovery as required by Tenn. Code Ann. § 71-5-118(1), or
• the Bureau of TennCare did not file a claim for recovery in accordance with the requirements of Tennessee Code Annotated, Title 30, Chapter 2, Part 3 (the laws governing administration of decedents’ estates).

Reducing the age of the decedent’s surviving child from 21 to 18 years certainly is insupportable, and, one would think, would not survive constitutional challenge (under the Supremacy Clause of the United States Constitution). It also appears that the General Assembly has attempted to limit the circumstances to which the “undue hardship” exception will be applied only to a surviving blind or permanently and totally disabled child.

Note, too, the reference in the Tennessee statute to the definition of “child” in section 1614 of the Social Security Act 42 U.S.C. §1382c(c):

For purposes of this title, the term “child” means an individual who is neither married nor (as determined by the Commissioner of Social Security) the head of a household, and who is (1) under the age of eighteen, or (2) under the age of twenty-two and (as determined by the Commissioner of Social Security) a student regularly attending a school, college, or university, or a course of vocational or technical training designed to prepare him for gainful employment.

It appears that the legislature, by capriciously reordering the wording of 42 U.S.C. § 1396p(b)(2)(A) to recast Congressional intent to fit its own desires, is trying to restrict blanket application of the blind or disabled child exception only to those who became blind or disabled prior to age 18 or age 22 (perhaps the child was a student when disabled). Avoidance of anomalous results — if the individual is survived by a 20-year-old child who became disabled at age 19, must that child prove undue hardship? — explains why the General Assembly felt compelled to reduce the age of the surviving child exception from age 21 to 18.

In all likelihood, then, litigation will ensue over the General Assembly’s narrowing of the scope of the federal exceptions to Medicaid estate recovery.

What to Tell Clients
Attorneys will encounter Medicaid estate recovery issues in two situations: either when the individual is alive or when the individual is dead.

The Individual Is Alive The individual, and his or her spouse or family members, will be seeking advice on whether to apply for Medicaid benefits at all; or, if Medicaid benefits are being sought or have been attained, how to minimize or avoid the likelihood of Medicaid estate recovery.

Individuals who need Medicaid assistance to promote, enhance, or maintain their good health, safety, and well-being should not be deterred or dissuaded from seeking benefits for fear of Medicaid estate recovery.

Many spouses own their assets as tenants by the entirety, such that upon the death of the first spouse, that spouse’s interest vanishes and the surviving spouse assumes all right, title, and interest in the marital asset. Upon the death of the surviving spouse, may the Bureau of TennCare assert a claim against the estate of the second-to-die spouse for Medicaid benefits paid out on behalf of the first-to-die spouse?

The Bureau of TennCare has argued that the definition of “estate” in 42 U.S.C. § 1396p(b)(4) is broad enough to include the assets held in the estate of the surviving spouse that had once been held jointly with the recipient spouse. Under this reasoning, when “estate” is defined expansively under 42 U.S.C. § 1396p(b)(4), section 1396p(b)(1)(B) allows recovery from the estate of the surviving spouse.

The Tennessee Court of Appeals resolved the issue in favor of the estate of the second-to-die spouse in the case of In Re: The Estate of James Clifford Smith.[6]

Prior to her death, Mrs. Smith (the nursing home spouse) had transferred all of her assets to Mr. Smith (the second-to-die spouse who was never a recipient of Medicaid benefits). Applying federal law, the Court of Appeals determined that Mrs. Smith had no “legal title or interest at the time of death” in any assets. “Because Mrs. Smith had no interest in any property when she died, there is no estate of the benefit recipient,” wrote the court. “Recovery is not allowed under 42 U.S.C. § 1396p(b)(1)(B).”

As a general rule, the spouse who is not applying for Medicaid assistance should not, in her estate plan, disinherit her spouse. Elder law attorneys see this often. Remember the elective share? Although no one would expect the Medicaid recipient nursing home spouse to elect against the will, the Tennessee Department of Human Services can and will do so on his behalf. A spouse who fails to elect against the will would be deemed to have made a disqualifying disposal of assets for less than fair market value.

If the individual has no spouse, inquire whether one of the other exceptions might apply. If not, and there is or could be a probate estate, consider whether something should be done with the asset. For example, the individual’s homestead could be sold and the funds transferred to a special needs pooled trust.[7]

The Individual Is Dead Again, inquire whether one of the exceptions might apply, whether on the date of the decedent’s death, at the time of the engagement, or at some time in the future (a child might have an application for Social Security disability benefits pending, for example).

If more than one year has elapsed from the date of the death of the Medicaid recipient and the Bureau of TennCare has not filed a claim in the probate court for recoupment of benefits, any such claim that might subsequently be filed should be dead on arrival in the probate court. An informal poll of members of the Tennessee Bar Association’s Elder Law Section found that the probate judges in East and Middle Tennessee are dismissing claims that have not been timely filed; however, the probate judges in Shelby County are upholding them.

In the 2007 session, the General Assembly enacted a new section regarding the filing of claims against decedents’ estates that appears to impose a drop-dead bar against the validity of any claims filed more than 12 months after the decedent’s date of death:

(d) The clerk shall file all claims received not later than twelve (12) months from the decedent’s date of death. However, filing of claims by the clerk shall not create an inference as to whether such claims are valid or were timely filed. The clerk shall return any claim submitted before the appointment of a personal representative or received more than twelve (12) months from the decedent’s date of death.[8]

TennCare’s Collection Letters
In April 2006 the Bureau of TennCare hired an outside consulting firm in Atlanta, Georgia, to help find properties that were passed on to heirs without going to probate. Although the initial collection letter that family members receive after the death of their loved one purports to come from the Bureau of TennCare in Nashville, the return address on the envelope says it came from Atlanta.

Sent a few months after the Medicaid recipient’s death, the letters tell the family member that they MUST respond within a certain number of days and cannot distribute the decedent’s money or property without the Bureau of TennCare’s consent. If that letter is not answered, another, more threatening letter arrives. This second letter says how much is owed to TennCare and implies that it is the family member’s responsibility to pay. This letter may include a billing statement, which, to lay persons, looks as if a claim has been filed against the decedent’s estate.

The letters that TennCare estate recovery is sending to the families of deceased individuals border on — if not cross over the line — inappropriate. They contain threats and make inaccurate statements of the law. If they had been sent out by a collection agency on behalf of a private firm, almost certainly the letters would violate federal and state fair debt collection practices laws.

State officials say they are doing what is required of the federal government, noting that Tennessee is not as aggressive in its pursuit of properties as other states. Marilyn Wilson, a spokesperson for TennCare, told the Tennessean newspaper that the acquisitions are “something that we wouldn’t be unsympathetic to,” adding, “If we are going to provide Medicaid coverage, we must actively engage in estate recovery efforts.”[9]

What you should tell your clients: Unless a probate estate has been opened, there is no law or rule that requires that a response be given to TennCare. And, there certainly is no requirement that next of kin are personally responsible for benefits paid to the deceased.

We are telling our families who get these letters not to reply to them. Despite what the letters say or seem to imply, the duty to reply to these letters applies only to the executor or administrator who has been appointed by the court to oversee the deceased person’s estate.

• • •

TIMOTHY L. TAKACS is certified as an elder law attorney by the National Elder Law Foundation and as a certified elder law specialist by the Tennessee Commission on CLE and Specialization. He is a charter member of and the first chairperson of the Tennessee Bar Association’s Elder Law Section. Takacs is a graduate of the University of Notre Dame and the Vanderbilt University School of Law. He has been in private practice in Hendersonville since 1980.

DAVID MCGUFFEY is certified as an elder law attorney by the National Elder Law Foundation, and as an elder law specialist and a civil trial specialist by the Tennessee Commission on Continuing Legal Education and Specialization. He is the managing attorney of the Cookeville office of The Elder Law Practice of Timothy L. Takacs. McGuffey received his bachelor’s and law degrees from Georgia State University.

• • •

Notes

1. Timothy L. Takacs, Elder Law Practice in Tennessee, Michie, 1998, supplemented annually.
2. Tenn. Code Ann. § 71-5-116(a) and (b).
3. 42 U.S.C. § 1396p(b)(1)(B).
4. 42 U.S.C. § 1396p(b)(4)(B).
5. Tenn. Code Ann. § 71-5-116(d).
6. No. M2005-01410-COA-R3-CV, Tenn. Ct. App., November 1, 2006.
7. 42 U.S.C. § 1396p(d)(4)(C).
8. Tenn. Code Ann. § 30-2-307(d), as amended by 2007 Tenn. Pub. Acts, Chapter 8 (effective date March 28, 2007).
9. Tennessean, Oct. 23, 2006.

• • •

Estate Recovery Appendix
Tenn. Code Ann. § 71-5-116

(a) No applicant shall be required to execute an agreement for a lien on real property occupied as such applicant’s residence on account of medical assistance paid or to be paid on such applicant’s behalf pursuant to this part.

(b) No lien may be imposed against the real property of any recipient prior to such individual’s death on account of medical assistance paid or to be paid on such recipient’s behalf pursuant to this part, except pursuant to a court judgment for recovery of benefits incorrectly paid on behalf of such recipient.

(c)

1. There shall be no adjustment or recovery of any payment for medical assistance correctly paid on behalf of any recipient pursuant to this part from such recipient’s estate, except in the case of a recipient who was fifty-five (55) years of age or older at the time the recipient received medical assistance or services pursuant to this part. In such a case, adjustment or recovery from the recipient’s estate may be pursued only after the death of such individual’s surviving spouse, if any, and only at a time when such individual has no surviving child who is under eighteen (18) years of age or no surviving child, as defined in § 1614 of the Social Security Act, who is blind or permanently and totally disabled or a child who became blind or permanently and totally disabled after reaching majority if the TennCare Bureau and the personal representative agree or, in the event of a disagreement, the court, after de novo review, finds that such repayment would constitute an undue hardship to such blind or disabled child. Before any probate estate may be closed pursuant to Title 30, with respect to a decedent who, at the time of death, was enrolled in the TennCare program, the personal representative of the estate shall file with the clerk of the court exercising probate jurisdiction a release from the Bureau of TennCare evidencing either:
   1. payment of all medical assistance benefits, premiums, or other such costs due from the estate under law;
   2. waiver of the bureau’s claims; or
   3. a statement from the bureau that no amount is due.

(d) To facilitate and enhance compliance with subsection (c), the following notices shall be provided:

1. Within thirty (30) days of receipt of notice of a person’s death, the Department of Health shall notify the Bureau of TennCare, in a format to be specified by the bureau, of the death of any individual fifty-five (55) years of age or older. Each such notification shall include the decedent’s name, date of birth and Social Security number;
2. Within sixty (60) days of the date of issuance of either letters of administration or letters testamentary, the personal representatives of decedents shall provide notice of the death of any individual age fifty-five (55) years of age or older to the Bureau of TennCare, in a format to be specified by the bureau, shall state whether the decedent was a TennCare recipient and shall request a release from the Bureau of TennCare pursuant to § 71-5-116(c)(2), and an affidavit confirming such notice shall be filed pursuant to § 30-2-301(b)(3);
3. Personal representatives of decedents shall provide notice to the court concerning whether or not the decedent was a TennCare recipient pursuant to § 30-1-117; and
4. Personal representatives of decedents shall provide the notice to creditors specified in § 30-2-306 to the Bureau of TennCare if the decedent was a TennCare recipient. If a notice to creditors is provided to the bureau, the bureau shall file a claim for recovery in accordance with the requirements of Title 30, Chapter 2, Part 3.

   It is the legislative intent of this subsection (d) that, after the date of death, the Bureau of TennCare strive vigorously to recoup any TennCare funds expended for a decedent during the decedent’s lifetime.

(e) The Bureau of TennCare shall publish a form of notice to be used pursuant to subdivisions (d)(1) and (d)(2), with instructions for use of the form written in plain language. Such form and instructions shall be available at the office of any clerk of a court exercising probate jurisdiction as well as available on the bureau’s Web site.

Notice shall be provided via certified mail or in such other manner as designated by the bureau.

(f) Recoveries pursuant to this section shall be prorated among the federal government, the state, and the county involved, if any, in proportion to the amounts that each contributed to the assistance and services.

42 U.S.C. §1396p. Liens, adjustments and recoveries, and transfers of assets

(a) Imposition of lien against property of an individual on account of medical assistance rendered to him under a State plan

1. No lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan, except
   1. pursuant to the judgment of a court on account of benefits incorrectly paid on behalf of such individual, or
   2. in the case of the real property of an individual -
      1. who is an inpatient in a nursing facility, intermediate care facility for the mentally retarded, or other medical institution, if such individual is required, as a condition of receiving services in such institution under the State plan, to spend for costs of medical care all but a minimal amount of his income required for personal needs, and
      2. with respect to whom the State determines, after notice and opportunity for a hearing (in accordance with procedures established by the State), that he cannot reasonably be expected to be discharged from the medical institution and to return home, except as provided in paragraph (2).
2. No lien may be imposed under paragraph (1)(B) on such individual’s home if
   1. the spouse of such individual,
   2. such individual’s child who is under age 21, or (with respect to States eligible to participate in the State program established under subchapter XVI of this chapter) is blind or permanently and totally disabled, or (with respect to States which are not eligible to participate in such program) is blind or disabled as defined in section 1382c of this title, or
   3. a sibling of such individual (who has an equity interest in such home and who was residing in such individual’s home for a period of at least one year immediately before the date of the individual’s admission to the medical institution), is lawfully residing in such home.
3. Any lien imposed with respect to an individual pursuant to paragraph (1)(B) shall dissolve upon that individual’s discharge from the medical institution and return home.

(b) Adjustment or recovery of medical assistance correctly paid under a State plan

1. No adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan may be made, except that the State shall seek adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan in the case of the following individuals:
   1. In the case of an individual described in subsection (a)(1)(B) of this section, the State shall seek adjustment or recovery from the individual’s estate or upon sale of the property subject to a lien imposed on account of medical assistance paid on behalf of the individual.
   2. In the case of an individual who was 55 years of age or older when the individual received such medical assistance, the State shall seek adjustment or recovery from the individual’s estate, but only for medical assistance consisting of
      1. nursing facility services, home and community-based services, and related hospital and prescription drug services, or
      2. at the option of the State, any items or services under the State plan.
   3. 1. In the case of an individual who has received (or is entitled to receive) benefits under a long-term care insurance policy in connection with which assets or resources are disregarded in the manner described in clause (ii), except as provided in such clause, the State shall seek adjustment or recovery from the individual’s estate on account of medical assistance paid on behalf of the individual for nursing facility and other long-term care services.
      2. Clause (i) shall not apply in the case of an individual who received medical assistance under a State plan of a State which had a State plan amendment approved as of May 14, 1993, which provided for the disregard of any assets or resources
         1. to the extent that payments are made under a long-term care insurance policy; or
         2. because an individual has received (or is entitled to receive) benefits under a long-term care insurance policy.
   4. Any adjustment or recovery under paragraph (1) may be made only after the death of the individual’s surviving spouse, if any, and only at a time
      1. when he has no surviving child who is under age 21, or (with respect to States eligible to participate in the State program established under subchapter XVI of this chapter) is blind or permanently and totally disabled, or (with respect to States which are not eligible to participate in such program) is blind or disabled as defined in section 1382c of this title; and
      2. in the case of a lien on an individual’s home under subsection (a)(1)(B) of this section, when —
         1. no sibling of the individual (who was residing in the individual’s home for a period of at least one year immediately before the date of the individual’s admission to the medical institution), and
         2. no son or daughter of the individual (who was residing in the individual’s home for a period of at least two years immediately before the date of the individual’s admission to the medical institution, and who establishes to the satisfaction of the State that he or she provided care to such individual which permitted such individual to reside at home rather than in an institution), is lawfully residing in such home who has lawfully resided in such home on a continuous basis since the date of the individual’s admission to the medical institution.
      3. The State agency shall establish procedures (in accordance with standards specified by the Secretary) under which the agency shall waive the application of this subsection (other than paragraph (1)(C)) if such application would work an undue hardship as determined on the basis of criteria established by the Secretary.
      4. For purposes of this subsection, the term ‘’estate’’, with respect to a deceased individual —
         1. shall include all real and personal property and other assets included within the individual’s estate, as defined for purposes of State probate law; and
         2. may include, at the option of the State (and shall include, in the case of an individual to whom paragraph (1)(C)(i) applies), any other real and personal property and other assets in which the individual had any legal title or interest at the time of death (to the extent of such interest), including such assets conveyed to a survivor, heir, or assign of the deceased individual through joint tenancy, tenancy in common, survivorship, life estate, living trust, or other arrangement.

      Tennessee Bar Journal
      July 2007 - Vol. 43, No. 7

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