FAQ: Why did Michigan enact estate recovery?

by Jerrold Bartholomew

Estate recovery has been permitted under the Federal law since 1965. In 1993, the Federal law was changed to require states to have some form of estate recovery. Since that time, many different kinds of estate recovery programs have been enacted in different states. Michigan became the last state in the union to enact estate recovery when it passed an estate recovery law in September of 2007. Despite being tremendously unpopular, the estate recovery law passed in Michigan during the state’s budget crisis in the fall of 2007.

There are probably two reasons why Michigan adopted estate recovery. First, with the state budget showing severe deficits, law-makers were interested in any possibility of increased revenues. Second, the Federal government was threatening to deny money to fund Michigan’s Medicaid program because Michigan had failed to comply with the 1993 mandate to enact some form of estate recovery. The loss of matching funds from the Federal government would have been a catastrophic blow to Michigan’s already ailing budget.

Whether estate recovery will do anything to balance Michigan’s budget is far from clear at this point. Estate recovery programs are costly to administer and the recovery is often meager. It is hard to say whether recovering an estimated 5% will be worth the trouble:

The Mackinac Center for Public Policy has estimated that Michigan could actually see a savings of up to $85 million per year if it implemented an estate recovery system, which was based on collections nationally from 2004 that totaled $362 million out of the $45.8 billion spent on nursing home Medicaid recipients.

“Oregon had the second highest rate of collection at 5.8 percent, or $13 million of its $238 million Medicaid nursing home care bill. Given the $1.7 billion Michigan spent on Medicaid nursing home care, a 5 percent recovery rate would save taxpayers $85 million,” wrote TaraLynn Velting, an estate attorney with Garan Lucow Miller in Grand Rapids and an adjunct scholar with the Mackinac Center.

There are always unintended consequences to laws that seek to increase revenues. The enactment of estate recovery is likely to contribute to anxiety among seniors and may actually result in more extensive Medicaid planning. Protecting a home from estate recovery often requires a combination of strategies that are only available to families who are proactive and begin the planning process sooner to avoid risk to the home. The net impact of estate recovery could therefore be an increase in the number of people receiving long-term care Medicaid.

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