In what can hit some surviving family members or other heirs as a rude awakening, state Medicaid programs like Health First Colorado are required by federal law to recover certain Medicaid benefits paid on behalf of a senior Medicaid enrollee. The program typically does this by filing a claim against the estate of the enrollee after they die. This is formally known as the Medicaid Estate Recovery Program (MERP).

For individuals age 55 or older, for example, Colorado is required to seek recovery of payments from the estate for nursing facility services, home and community-based services, and related hospital and prescription drug services. Recovery can be demanded whether the care was received at home, in an assisted living facility, in a separate personal care home, or in a nursing home. It does not matter when the Medicaid system has paid for the care. States have the option to recover payments for all other Medicaid services provided to these individuals, except Medicare cost-sharing paid on behalf of Medicare Savings Program beneficiaries.

In Colorado, this “estate recovery” is overseen by the Department of Health Care Policy and Financing (DHCPF). Health First Colorado states that this recovery process applies to all Medicaid recipients, regardless of their program type or assistance eligibility. In addition to the services listed above, DHCPF may also recover Medicaid payments made for medical assistance on behalf of an individual who was institutionalized at the time they received the assistance. Federal law allows Medicare cost-sharing expenses to be recovered as well. These can include Medicare premiums, deductibles and coinsurance amounts that a state’s Medicaid plan has paid. DHCPF does not mention these cost-sharing costs as recoverable in Colorado.

How is this cost recovery done in Colorado?

As briefly stated above, the way recovery works is DHCPF will file a claim against the estate of the Medicaid recipient after they have died. For this purpose, all property—personal and real—that is left when the recipient dies is considered part of the estate. Proceeds from the sale of property in the estate will be used to reimburse DHCPF for the cost of medical assistance provided to the Medicaid enrollee. All MERP claims against an estate must be paid before the property can be distributed as specified in a legal will. Nationwide, the rationale given for having this recovery process is that it helps pay the costs of providing all services to people who are on Medicaid.

Understandably, it can come as a real surprise when a person receives Medicaid-paid long-term care and then later that Medicaid recipient’s estate receives from the state a “Notice of Intent to File a Claim against the Estate.” Very, very few people even know that Medicaid is keeping a running tab on what it is paying and can later seek to recover. There have been anecdotal accounts of estate handlers receiving notices that the estate will owe as much as $100,000 to $300,000 for services that Medicaid paid for. Reportedly, the letter sent to the recipient’s estate says the amount of recovery to be received will not exceed the value of the estate’s assets, and if there is no money or assets in the estate, then there is nothing to recover.

It may initially sound contradictory to think a Medicaid recipient would have significant assets subject to estate recovery since that person would have had to meet limits on income and assets in order to qualify for Medicaid in the first place. But remember that a home and an auto and certain items of personal property are exempt from assets testing that determines Medicaid eligibility. And particularly if the Medicaid recipient owns and lives in the home, that can constitute a significant asset on its own.

Are any estates exempt from cost recovery in Colorado?

DHCPF states it will not recover from a deceased’s estate in the following situations:

  • The deceased Medicaid recipient is survived by a spouse, a child under 21, or a blind or disabled dependent who still resides in the home.
  • There is a brother or sister who lived in the home at least one year before the Medicaid recipient went into a nursing facility and who lived in the home continuously since that entry into the nursing facility.
  • There is a son or daughter who lived in the home for at least two years before the recipient entered a nursing facility and whose care allowed the recipient to delay nursing facility placement. Here too the son or daughter must have lived in the home continuously since the date of nursing facility placement for the Medicaid recipient.

Are there any hardship exemptions for cost recovery in Colorado?

Heirs of a deceased Medicaid recipient may submit a request to waive or otherwise adjust recovery on the basis of hardship. States are required to establish procedures for waiving estate recovery. The outcome of a waiver request will be “at the discretion” of DHCPF.

Can heirs pay a recovery claim without giving up the estate property in Colorado?

Yes. If heirs wish to retain the estate property, they may do so provided they pay the amount DHCPF would have otherwise recovered.

Is a Medicaid recipient ever required to sell a home while still living?

DHCPF’s answer: “The program does not require a recipient to sell a home. However, the Department may place a lien on the property while the recipient is alive. A lien represents a debt that must be satisfied when the property is sold . . . ensuring the Department can recover medical costs when the property is sold.” Such a lien does not by itself change ownership of the property.

According to DHCPF, liens will be used when ALL FIVE of the following conditions apply:

  1. The recipient resides in a nursing facility or other medical institution.
  2. The recipient owns a home or other real property.
  3. DHCPF determines the recipient is not likely to return home to the property.
  4. The recipient does not have a spouse, a child under 21, or a blind or disabled dependent living in the home.
  5. The recipient does not have a brother or sister who is part owner of the home and who has lived in the home continuously since at least one year prior to the recipient entering into a nursing facility.

A state must remove the lien if the Medicaid enrollee is discharged from the nursing facility and returns home. Also, according to, states may impose liens for Medicaid benefits that were incorrectly paid, pursuant to a court judgment.

As Colorado lawyers see things related to Cost Recovery

Hammond Law Group, a firm that specializes in estate planning with offices in Denver and Colorado Springs, confirms that many people don’t realize that the cost of medical expenses that are paid for by Colorado’s Medicaid program are subject to a recovery program. The firm emphasizes the following facts you should know:

1. The acceptance of Medicaid assistance creates a debt that is enforceable after the death of the client.

Estate recovery applies to those Medicaid clients who have received services after 1992 and were age 55 or older at the time of the service or who were institutionalized.

2. Colorado’s estate recovery program is administered not by the state’s Medicaid program itself or directly by DHCPF but by a third party.

Hammond says DHCPF contracts with Health Management Systems, Inc. (HMS) to administer Colorado’s Medicaid Estate Recovery Program.

3. Colorado limits Medicaid estate claims to property in a “probate” estate.

In Colorado, this means property of the deceased whose affairs are subject to the Probate Code. The legal specifics involved here are obviously important to know, and the earlier the better, since this may affect  decisions in planning ahead for possible Medicaid enrollment.

4. Certain properties may be exempt from the program.

In addition to the exemptions mentioned earlier (e.g., a spouse, sibling, or in some instances a child or disabled dependent living in the Medicaid recipient’s home), property may also be exempted if the heirs to the estate will be forced to rely on public assistance if they do not receive the inheritance, or if the inheritance allows them to discontinue public assistance currently being received.

As Hammond observes, “Medicaid law is complex with many rules and regulations.” Expert legal advice is warranted “to help you navigate the specifics of the program before, during, and after applying for assistance, including Medicaid planning to help preserve both eligibility and a family’s property.” [Italics added]