The Medicaid Rule That Can Put Your Family Home at Risk

When Philomene Benoit died in 2012, the New Jersey home she and her husband had owned for more than 25 years remained with her surviving spouse, Clerveaux.

That might have seemed to settle the question of what would happen to their family home. But Philomene had received Medicaid-funded care for nearly nine years, leaving behind $415,501.30 in benefits the state would eventually seek to recover.

The state deferred collection until Clerveaux's death in 2019, after which New Jersey filed a lien against the property. When the home was sold two years later for about $302,000, the Medicaid claim was more than $113,000 greater than the entire sale price.

The net proceeds were placed in escrow while Clerveaux’s beneficiaries challenged the state’s right to recover from them. But in March of this year, a New Jersey appeals court upheld the state’s claim.

The case turns on a contradiction buried in the rules governing Medicaid and the family home: A house can be protected enough for someone to keep it while receiving benefits, but not necessarily protected enough to pass to their heirs afterward.

“The biggest misconception is that people think that the house is safe just because Medicaid doesn’t look at it at the initial eligibility determination,” Tim Sechler, a Pittsburgh-area elder-law attorney, tells Realtor.com®.

The mechanism is known as estate recovery. Federal law requires states to seek repayment after death for certain Medicaid costs paid on behalf of beneficiaries aged 55 and older—including long-term-care expenses that can rapidly consume the savings of people who need them.

How someone can qualify for Medicaid while still owning a home

To understand how a family can spend years preserving a house only to see it become a source of repayment later, it helps to start with the extraordinary cost of long-term care.

While Medicare is the program most Americans associate with aging, it doesn’t cover the enormous cost of ongoing custodial long-term care. That’s where Medicaid comes in. The joint federal-state program is the primary payer for 63% of nursing facility residents, according to KFF. And in 2023, Medicaid paid for 44% of the $147 billion that the U.S. spent on institutional long-term care.

It's a safety net that's likely to matter to more families in the years ahead. The number of Americans aged 85 and older is projected to rise from about 7 million in 2025 to 11.2 million by 2035, according to the Center for Retirement Research at Boston College. 

But Medicaid works differently from Medicare in another crucial respect: It’s means-tested.

Applicants must meet financial requirements that vary by state and eligibility pathway. For some older adults facing expensive long-term care, that means paying for care themselves and drawing down their assets before they’re eligible to apply.

A year in a nursing home can make that process startlingly fast. The national median cost reached $114,975 for a semiprivate room and $129,575 for a private room in 2025, according to CareScout’s Cost of Care Survey.

While that might mean exhausting savings, the family home is often treated differently.

Under qualifying circumstances, an owner-occupied primary residence can be excluded from the assets Medicaid counts when determining eligibility. That means someone can have relatively little money left, qualify for Medicaid, and still own a home.

For the family, that can produce a deceptively reassuring picture: The bank account has dwindled, but the house is still there. And that’s where the confusion Sechler describes can begin.

For one, the house still costs money to keep. Sechler says that he sees adult children sometimes cover property taxes, utilities, and other expenses because they believe they are preserving an asset they will eventually inherit.

“The adult child will say to me, ‘Well, you know, I’ve read my mom’s will, and my mom’s will says that when she passes away, I’m to inherit the house,’” he says.

From the child’s perspective, paying those bills can make perfect sense: Keep the house afloat now, and eventually it becomes something the parent can leave behind. But after the beneficiary dies, a different set of rules comes into play.

“That’s where the estate recovery program comes in,” Sechler explains.

Why the house can carry so much of what is left

And by then, the house may mean something very different to the family than it did when the need for care first began.

“You’re using all of your savings, and then all of a sudden ... it’s time to get on Medicaid,” says Amanda Spishak-Thomas, a Rutgers researcher who studies Medicaid estate recovery.

Yet throughout that process, she says, “you keep your home that whole time.”

For households without substantial investments or other assets, that can concentrate a large share of whatever wealth remains in the house.

That is, in part, the bargain Congress built into estate recovery when it made the practice mandatory in 1993: Medicaid can step in to cover qualifying long-term-care costs for people with limited financial resources, while states are later required to try to recoup certain expenditures from assets remaining in the estate.

But Spishak-Thomas’ research suggests that the financial effect may begin long before the state ever files a claim.

In a study of low-income adults aged 65 and older, she found that implementation of Medicaid estate recovery was associated with a significant decline in home equity overall, while finding no significant overall association with whether respondents remained homeowners.

That points to a more subtle mechanism than families losing wealth after death. Spishak-Thomas says one possible explanation is that people tap the wealth stored in their homes earlier as they try to cover care.

“Perhaps people are trying to cover the cost of healthcare as best they can,” she says, “and that includes ... extracting this housing wealth through this decrease in home equity to pay for their care.”

That can leave less for the state to recover later—but also less for a family to inherit. And for households without many other assets, those can effectively be the same dollars.

Spishak-Thomas’ research describes homeownership as a primary source of wealth accumulation for low-income families.

“Even if their home, after all the debts and everything, is $50,000, like $50,000 is a really meaningful amount of money for an adult child to inherit,” she says.

And even much smaller inheritances can change a family’s trajectory. Households receiving an inheritance of at least $5,000 were about 2.5 times as likely to become homeowners as those who received no inheritance, according to research from Realtor.com.

The association was even stronger for Black and Hispanic households, who were more than five times and seven times as likely, respectively, to become homeowners after receiving such an inheritance.

One state shows how quickly the recoveries add up

There is no reliable national count of how many homes are ultimately affected by Medicaid estate recovery, but Spishak-Thomas’ research provides a rare look at what the process can look like in one state.

Using public records, Spishak-Thomas and her co-authors identified 2,975 estates from which North Carolina recovered Medicaid costs between 2017 and 2021. The state collected about $83.2 million over that period, an average of roughly $27,961 per estate.

That average recovery would cover only a fraction of a single year in a nursing home at today’s median prices, but it could represent a substantial share of what a lower-income family has left to inherit.

Seen from the state’s side, the money is smaller still. Researchers calculated that estate recovery collections amounted to just 0.9% of North Carolina’s annual fee-for-service Medicaid long-term-services-and-supports budget.

The mismatch is central to Spishak-Thomas’ concern about the policy.

“This is all these people have,” she says. “Why are we penalizing people who want to just leave a little bit of something for their adult children?”

Whether Medicaid can reach your home depends heavily on your state

Even then, the story doesn't end the same way for every family.

Imagine two parents who both receive Medicaid-funded long-term care and both leave jointly owned homes behind. One house could pass to the surviving owner without ever entering the estate the state is allowed to pursue. The other could remain exposed to a Medicaid claim.

The difference can come down to where they live.

Sechler says some states generally limit recovery to assets that pass through probate. Others use a broader definition that can reach certain assets that bypass probate, including some jointly owned property.

New Jersey, for example, uses an expanded definition of estate, allowing it to reach certain property beyond the traditional probate estate—including the interest Philomene had held in the home with Clerveaux.

Family circumstances can change the outcome, too. Protections for surviving spouses and certain children can delay or prevent recovery, while hardship rules vary by state. That means families may not know what will ultimately happen to a home until years after the need for care first arose.

“There are planning-ahead strategies, and then there are more crisis-management strategies,” Sechler says, “and those strategies are going to end up varying state by state.”