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Pennsylvania Medicaid, Estate Recovery
Program

As published in the Pennsylvania
Bar Association's law journal, the Pennsylvania Bar
Association Quarterly.  The Pennsylvania
Bar Association Quarterly is published four times a year
in January, April, July, and October by the Pennsylvania Bar
Association.

By ROBERT C. GERHARD III,
CELA*

INTRODUCTION

Federal law requires each state to operate
an estate recovery program. Pennsylvania complied with this
federal mandate by passing Act 49 of 1994, Section 1412, 62
Pa. C.S. §1412 which required the Pennsylvania Department of
Public Welfare (DPW) to establish and implement an estate
recovery program to recover certain medical assistance
payments from a decedent’s probate estate. DPW set up the
program and ultimately regulations were promulgated, setting
forth Pennsylvania policy and practice with respect to the
program.

No further notice about the program is required to Medicaid
recipients beyond enactment and publication of the law.
However, the Department of Public Welfare includes an
informational brochure about the estate recovery program to
Medical Assistance recipients when their cases are authorized
for benefits. Caseworkers also do their best to explain the
program to the family representatives during the application
process.

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 assitance
payments made before the recipient
attained age 55.

Pennsylvania’s estate recovery program only seeks
reimbursement for certain services: nursing facility services,
home and community based services, or related hospital and
prescription drug services. Nursing facility services include
general, hospital based, and county nursing facility services,
as well as services provided in an intermediate care facility
for the mentally retarded or for persons with other related
conditions. Home and community based services include a broad
array of Medicaid services provided to an individual over age
55 to avoid institutionalized nursing facility services under
the waiver authority of section 1915 (c) of the Social
Security Act. (42 U.S.C.A. §1396n (c). Related hospital and
prescription drug services include hospital and prescription
drug services provided to an individual over age 55 while the
individual was a resident in a nursing facility or was
receiving home and community based services, while the
individual was on temporary leave from a nursing facility, and
subsequent to transfer from a nursing facility to a
hospital.

All "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 all 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 estate recovery.
This includes excess funeral reserves which would otherwise be
subject to formal estate administration but for the operation
of 20 P.S. §3101.

Assets 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, 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 DPW or request
a claim, and therefore no estate recovery occurs. If the
administrator 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 DPW 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. Failure to request a claim
under this circumstance is an ethical problem for the personal
representative if he or she knows of a creditor’s claim that
is due and fails to address it. 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.

Notice must be sent by certified mail, return receipt
requested to the Third Party Liability Section; Department of
Public Welfare; 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.

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. DPW
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, Commonwealth holiday, or a
day that the offices of the Department are closed, 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.

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 estates valued at $2,400 or less.

DPW’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 Medicare premium payments and
cost-sharing for qualified Medicare beneficiaries are also
included in the statement of claim for the period during which
nursing facility services, home and community based services,
and related hospital services were covered by Medical
Assistance. Medical Assistance services delivered through a
Managed Care Organization (MCO) contract are included in the
Department’s claim in an amount equal to that paid to the
MCO.

The Commonwealth’s estate recovery program generates a
"claim" against the decedent’s estate. Many people incorrectly
refer to the claim as a lien. The distinction is important in
cases where the 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) 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.

(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 6 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 Public Welfare 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 has a duty to pay the estate
debts in accordance with the statutory priorities outlined in
20 PA CS §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, DPW 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. The 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.

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 Public Welfare and appellate review in
Commonwealth Court.

Estate recovery is postponed by the Department of Public
Welfare 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
Department of Public Welfare 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.

If estate recovery would cause undue hardship, the personal
representative may request a waiver by writing to the Estate
Recovery Program. If undue hardship is found to exist, the
Department will waive estate recovery. DPW has created a
"hardship committee" Harrisburg to carefully consider such
requests. Although determinations 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. Also consider the physical or
mental disability of a beneficiary or any dependents.

Caregiver Exception

A major hardship exception is waiver of recovery against
the decedent’s residence in favor of certain caregivers who
helped keep the decedent out of a nursing home or who provided
care and support to the decedent 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.

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.

Small Estates

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 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.

"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." Future recoveries may be
sought against non-probate property.

Author's
Update:  Though not technically in the
category of estate recovery, there is a trend toward
states allowing the purchase of annuities in the Medicaid
planning process, provided that those annuities name the state
as the remainder beneficiary (behind a community spouse, or
minor or disabled child) to the extent Medicaid benefits have
been paid on behalf of the annuitant.  Stay
tuned... -Robert C. Gerhard, III
(1/15/2006)

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