This State Program Collects Money from the Deceased. Families Pay the Price.

A version of this story ran in the July / August 2024 issue.

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When 83-year-old Mary McCaughan died in an Austin nursing home of Alzheimer’s in 2017, her belongings included clothing and shoes worth $200. She had no home, no car, no retirement, no stocks or bonds, no jewelry nor family heirlooms. Her bank account contained roughly $104,000 from a court settlement she’d recently won against a nursing home, Windsor Nursing and Rehabilitation Center of Duval, where she was abused by a nurse’s aide who posted degrading photos and videos of her on social media.

The nursing home had hired that aide despite a history of arrests for fraud and criminal mischief, court records show. Mary was unable to clean herself or use the bathroom in the final stages of her illness. The aide took photographs of her unclothed. Then he started posting videos that appeared online in 2017.

“He was taking videos of her while she’s sitting there in her own, you know, excrement. She had some of it on her hand. In the video, he’s trying to get her to wipe it on her face, so he takes a feather and touches her lip, so she wipes [it] across her mouth,” said her son, Chandler McCaughan, who later filed a million-dollar lawsuit against Regency Integrated Health Services LLC, the owners of the Windsor nursing home. The lawsuit blames the company’s negligence for his mother’s mistreatment.

But on November 5, 2017, not long after winning a settlement in that case, Mary passed away.

Approximately 30 days later, Health Management Systems (HMS), a contractor hired by the state, sent a letter to Chandler, seeking to recoup $152,000—every penny that Medicaid had paid for her nursing home care.

The Medicaid Estate Recovery Program (MERP)—a controversial initiative mandated by Congress in the early ’90s and first implemented in Texas in 2005—requires the state to collect money from the estates of people over the age of 55 who received Medicaid. If an individual receives Medicaid for long-term institutional care, in-home services, prescription drugs, or hospitalization costs, the state can “recover” or “claw back” (to use agency speak) funds after the individual dies.

Texas Health and Human Services (HHS) runs MERP, but it spends millions of dollars annually for a private contractor, HMS, to handle the recovery process. The state agency paid HMS a total of $4.8 million in taxpayer money to administer the program for fiscal years 2020-2022, according to a copy of the contract, which was renewed for 2022-2024. The company also receives an additional fee of 11.5 percent based on the amount of its MERP recoveries, the contract says.

An HHS press officer, Jeremy Fuchs, said MERP funds collected by HMS support personal attendant care for in-home healthcare. Fuchs said HMS is the only MERP contractor Texas has used since 2006.

“I could be getting letters from them for the rest of my life.”

It’s unclear if the state gets its money’s worth. The Texas Observer found that from September 1, 2020, through August 30, 2022, Texas recouped $15.3 million from the heirs of deceased Medicaid beneficiaries. Of that, HMS received an estimated $6.5 million in fees and commissions—more than 40 percent of the total. But Texas was also forced to refund more than $520,000 over that period to more than a dozen families, who were later deemed qualified for exemptions because of hardships or family circumstances, according to information obtained through a public records request.

After a Medicaid beneficiary dies, HMS sends out two letters. The first letter, a “Notice of Intent to File a Claim Against the Estate,” is sent within 30 days. The letter begins with a message of condolences and informs family members how they might avoid a claim through exemptions such as the presence of a surviving spouse or child with a disability or through a hardship waiver that demonstrates low-income status. If HMS determines these scenarios don’t apply, it sends out a bill for services. The second letter, which looks like any letter from a bill collector, warns that after 180 days interest may accrue.

It wouldn’t be long before Mary’s settlement disappeared—a percentage to a lawyer, a percentage to taxes, and over $50,000 to MERP, according to her son.

MERP cannot collect more than the value of the deceased person’s estate. Individuals are not required to use their own money to repay those debts, a state agency spokesman confirmed.

But Chandler said he still gets letters from HMS seven years later requesting the full $152,000 even though there’s no money left in his mother’s estate. He has not kept those letters, he said. “I feel numb to it at this point,” he said. “I could be getting letters from them for the rest of my life.”

State officials said they could not provide specific information about repayments, including Medicaid ID numbers or ZIP codes, in response to the Observer’s requests.

In order to qualify for Medicaid assistance in the first place, applicants can own their own home and/or one vehicle, but they cannot have more than $2,000 in the bank. One of the most devastating potential consequences is that, after death, heirs may lose family homes even if they live there in order to repay Medicaid debts.

After a Medicaid recipient dies, MERP can make a claim during probate court proceedings, when the estate’s debts are settled and the remainder distributed to family members. Unlike in other states, MERP in Texas does not have legal authority to place liens on homes.

But Texas title companies use a document called an MERP Certification and Authorization Form to see if there is an MERP claim when a house belonging to an estate is sold. An HHS spokesperson told the Observer there is no state law requiring title companies to take this action. The form does not include information about possible exemptions or hardship waivers.

Heirs can apply for hardship waivers if repaying the Medicaid debt would require them to go on public benefits. Hardship waivers are also available if one or more family members makes under 300 percent of the federal poverty level, though each heir has to apply separately.

In at least one recent case in Dallas, an MERP claim interfered with a home sale even though an heir applied for and appeared to qualify for a waiver.

“They were really coming for the house.”

Last year, Jennifer Coulter, an El Paso attorney who specializes in MERP claims, received a desperate call for assistance from a student. After losing her mother to COVID-19, the student, an only child, inherited her mother’s Dallas condo. She was saddled with significant student debt, but when she tried to sell the condo, the title company, Independence Title, sent nearly $60,000 from the sale to HMS to pay an MERP claim. The student confirmed her story in an interview and provided documents to the Observer but requested her name not be used because of privacy concerns.

The student appeared to qualify for a hardship waiver based on her circumstances but was denied. That changed when a staffer for Democratic state Senator Royce West made further inquiries on her behalf and she was refunded the $60,000 within a few weeks, according to the student and West.

In a review of state collections data and other documents, along with interviews, the Observer identified more than 100 cases where MERP received money from people who were later deemed to qualify for a hardship waiver or to be otherwise exempt, effectively forcing economically vulnerable Texans to find a way to defend their inheritances from the state. State data shows more than 124 families received refunds from 2007 to 2022.

Fuchs, the agency spokesman, confirmedthatsuch refunds are generally issued in cases where payment was received and heirs later received waivers or exemptions.

There are two ways for heirs to get an MERP claim dismissed. The first is to qualify for an exemption by being a surviving spouse, a child under 21, a child “who is blind or permanently and totally disabled,” or an unmarried adult child living in the family home. Generally, people are given only two weeks after the death of a loved one to apply for such an exemption.

The second option is a hardship waiver. Heirs have 60 days to apply for a hardship waiver, but the application is not included with HMS letters seeking repayment for the Medicaid debt. That means grieving relatives of a disabled or elderly person who depended on Medicaid for nursing home or home healthcare must first request the form for a hardship waiver or find one online, fill it out properly, and submit it before the deadline.

Public records requests show that nearly 40 percent of applicants for hardship waivers are rejected. Since MERP began in Texas in 2005, 5,340 applications for those waivers have been filed. Of those, 3,310 were approved, 1,489 were denied, and 541 were recorded as incomplete.

In 2020, HMS was bought by Gainwell Technologies for approximately $3.4 billion. Gainwell is owned by a private equity firm called Veritas Capital, which was valued at $36 billion in 2021. In Texas, HMS still operates under its original name as a subsidiary of Gainwell.

Gainwell Technologies had Medicaid contracts in 27 states plus Puerto Rico and the Virgin Islands as of 2020, according to its corporate website.

Christina Vanecek, vice president of marketing and communications at Gainwell, declined to answer questions from the Observer, writing: “Unfortunately, our policy is that we do not comment on any current or past work or clients.”

Allen Coffey’s favorite room in his Victoria home is the living room, where walls are covered with paintings depicting bluebonnets and his family and pets. Large windows offer a view of live oaks. This land has been in his family for roughly 100 years. The house formerly belonged to his parents, Nora and William.

Coffey was living in a rental house nearby to help take care of them until their dementia worsened and they needed long-term care. When Coffey first spoke with a nursing home, he was told he would probably have to sell the family homestead for Medicaid to cover their care. Fortunately, as a church minister, he’d spent many years helping older adults and assumed there had to be another way.

After his father died in 2014, he received a letter in the mail from HMS with an MERP claim for more than $50,000. Because his mother was still alive and part-owner of the home, he remembers it was fairly easy to get the MERP claim dismissed since she qualified for an exemption. But, after his mom passed away in 2019, his experience with MERP was different. The cost of his mom’s care had totaled more than $340,000. The letter this time stated, “To the best knowledge of MERP no undue hardship exists and recovery will be cost effective.”

“They were really coming for the house,” Coffey said.

But Coffey thought he could make a case that losing the house would pose a hardship for him and hoped he could qualify for a waiver. By the time his mother died, Coffey had lived in the house with his wife for seven years. He’d spent all his retirement money caring for his parents, paying for dental care and hearing aids which weren’t covered by Medicaid or Medicare. He and his wife were both on fixed incomes—which meant losing the house would be devastating for them.

Coffey submitted a hardship waiver application, offering proof that he would have to go on public assistance if the state were to recover the Medicaid debts. HMS then had 40 days to make a determination. But Coffey said he never received confirmation that his application was received and wasn’t able to reach anyone on the phone.

Months passed. “It felt like I had a rock in my gut,” Coffey said. He pictured a sheriff’s deputy showing up to evict him and his wife.

The period from 2014 to 2019 had been the worst of his life. “My dad died. I lost my job of 19 years. … Then to have [my mom] die and have to fill all that crap out again and send it into this faceless parasitical organization doing the state’s work, it was very stressful.”

It was only after a Victoria Advocate journalist, Ciara McCarthy, decided to do a story and called HMS to check on his application that the wheels started turning. “I got a phone call that very same day,” he said. In December 2019, his application was approved, ending the state’s claim on his family property.

One day, Coffey and his wife hope to pass the house down to a niece or nephew.

When President Lyndon B. Johnson signed the Medicaid and Medicare Act in 1965, men on average did not live past the age of 66 nor women past 73. As people lived longer, the cost of long-term care increased, and the cost for that federal government safety net rose. In response, Congress passed legislation in 1993 requiring all states to implement MERP as a condition of receiving federal Medicaid funding.

From the beginning, the program was unpopular. Texas became one of the last three states to implement MERP in May 2005.

As of December 2023, MERP has recovered over $94.5 million in Texas since the program began. Predictably, the most populous counties, Harris and Dallas, see the most recoveries. Last year, the highest single recovery amount was about $424,000 from an estate in Travis County. But many small counties have experienced higher rates of MERP recoveries, relative to the population of seniors in those counties, according to an Observer analysis.

HHS told the Observer it could provide no data on MERP recoveries by race, ethnicity, or even ZIP code.

“I think that all data collected by states wherein they’re serving different communities should be broken down demographically,” state Senator West said in an interview. “Obviously that includes zip codes and census [data] to see exactly what the impact is.”

Texas doesn’t track the number of homes families were forced to abandon or sell to repay MERP debts, an HHS spokesman told the Observer.

“We want to get the word out that you can protect yourself.”

In other states that do gather this information, MERP has been found to have a harsher impact on families of color. The HHS ombudsman, who is assigned to advocate for ordinary people dealing with the agency, has received nearly 200 complaints about MERP since 2009, when the state began collecting data, according to a response to a records request.

Democratic U.S. Representative Jan Schakowsky of Illinois has called for MERP to be repealed. In 2021, she sponsored a bill to repeal the federal law that mandates MERP, which she reintroduced this year. “I think it’s a harmful program. I think it hurts a lot of people, and it should just be eliminated right now,” Schakowsky told the Observer.

Jennifer Lav, a senior attorney at the nonprofit National Law Health Program, said the process of going after families, who are typically low-income, is “just bad policy. … MERP is the only example of a public benefit that needs to be paid back,” she said.

In 2021, the Medicaid and CHIP Payment and Access Commission found that while MERP was implemented to replenish Medicaid funds, recoveries covered little of the cost of long-term care, which amounted to $187.6 billion nationwide in 2019.

Terry Garret, a member of the National Academy of Elder Law Attorneys, which opposes MERP, pointed out that wealthier families often know how to shield their assets from MERP. She and others are working to spread the word on low-cost ways families can avoid losing their homes.

One method—apart from hardship waiver and exemption applications—is to use a Lady Bird Deed or a Transfer on Death Deed, because that way a house goes directly to the heirs, avoiding the probate process, which is one way MERP makes recoveries.

“We want to get the word out that you can protect yourself,” Garret said.

Melanie Nash grew up in a ranch-style home in Whitehouse, a small farming community in East Texas with a present population of roughly 9,000. As a 5-year-old, she remembers her parents driving her to see their new home as it was being built. She saw the interior wooden frames, the place her bedroom would be. When she was shown carpet swatches, she picked out velvet-red carpet, but her parents vetoed.

“It was the early ’70s,” Nash said, so they went with olive green. Her parents, Ross and Aiszeleen Stansell, taught math and agriculture at local schools. “They came up through segregation to integration,” said Nash. The house was a symbol of how hard they worked.

Ross, Nash’s father, was also a Baptist deacon. In 2008, he was driving and missed the highway exit for his church—which was odd for him. Then, he couldn’t find his truck in a Home Depot parking lot. In 2009, he was diagnosed with Parkinson’s and dementia.

Nash and her parents met with a financial advisor and an eldercare attorney, who helped them plan to protect their assets. They put in place a Lady Bird Deed—which will help protect the family property even after both have passed—before going through the arduous process of signing up for Medicaid.

Nash told the Observer she wanted to share her parents’ story because she knows many other families of color struggle with qualifying for Medicaid and with protecting their homes from MERP debt collectors.

When it comes to qualifying for Medicaid, things can get complicated. For example, the Stansells had two cars, but they were only allowed to keep one to qualify. They had to sell Ross’ truck, but because selling the truck would tip them over the financial asset limit, that money had to be spent immediately on such things as accrued debt, medical devices, or home modifications. This is called a “spend down,” which allows families to meet Medicaid eligibility requirements.

When Nash’s mother could no longer physically help lift her father up, they decided it was time to move him into nursing home care. Nash’s mom visited daily. “I have these vivid images of her taking care of his hands and, you know, putting lotion on his hands, washing his hands, clipping his fingernails—and cleaning his glasses,” Nash said.

In March 2020, her father passed away, but her mother did not worry about losing the family home because of the arrangements they’d already made. Soon after, Nash’s daughter, MeLeauna, moved in to keep her grandmother company.

In a full-circle moment, MeLeuana now has a job as a counselor at the school where her grandmother once worked, giving back to a community her family has given to for generations. “It’s so important that we still have that family home,” Nash said.

Editor’s Note: This story was supported by grant funding from USC Annenberg School for Communication and Journalism—Center for Health Journalism.