Can Medicare come after life insurance as payment for nursing home?

The answer to this question is more complex than one might expect and will be dependent on the beneficiary designation(s) and state that you live in. Some states have Estate Recovery Programs that attempt to recover from all of a Medicaid recipients assets whereas some will only attempt to recover from probate assets. If you are in a state that only recovers from probate assets then as long as the policy's beneficiary is other than the estate of the insured there should be no problem with the policy beneficiary receiving the proceeds and using them to pay funeral expenses. If, however, you live in a state that does attempts to recover from all of a Medicaid recipient's assets it is possible that recovery can be sought from the policy proceeds.

If the goal is to be assured that funeral expenses will be covered the best option is number 2(b) below...purchasing a pre-paid funeral arrangement and having it deemed an irrevocable contract by the provider. This is effective in all states.

The more imminent question with regard to owning a life insurance policy is with respect to eligibility, i.e., can you keep the policy when applying for benefits in the first place?

1. Does the policy have cash value? If it does, each state has rules as to the amount of life insurance permitted to be retained without causing an eligibility penalty. For instance in Florida if the total face value (in other words death benefit) of all policies owned is less than or equal to $2,500 then the cash value of the total of all policies is excluded. If the total death benefit of all policies exceeds $2,500 then the cash value of all policies is included in determining the asset test.

2. If the policy would otherwise be countable and you want to fund funeral costs you have two options:
a. Keep the policy as a countable asset but reduce its cash value to below $2,000. This can be done by either borrowing or withdrawing the cash value down to the appropriate level. Keep in mind that premium may have to continue to be paid to keep the policy in force and the Medicaid recipient may not have the income to pay it (some other party will have to pay the premium to maintain the policy). The "spend down" techniques discussed elsewhere will then have to be employed with funds borrowed or withdrawn from the policy to keep the Medicaid recipients assets under $2,000.
b. The policy can be surrendered completely and the cash value used to purchase an Irrevocable Funeral Arrangement with a funeral home. If deemed irrevocable the value of the funeral contract will not be countable as an asset for eligibility purposes and cannot be sought as a source for Medicaid Estate Recovery.

I would plan for and pay for my funeral, now. There is no penalty for that.

My mom passed away and my sister and I were the owners and beneficiary 's of her life insurance which we have received !! She was on Medicaid and lives in Texas! We received a bill from Mert for the full amount of her policy!! Do we have to give all her insurance money to this Recovery Program?

If it has no actual cash value, they won't bother with it.
Look at the policy.

Medicare doesn't give a ant's butt about your insurance or other assets. BUT Medicaid does. If you get Medicaid, they are required to try to do asset recovery from your estate after death.

Life insurance policies can be sticky for both the Medicaid application and then after death through MERP (Medicaid Estate Recovery Program). To be on the safe side on all this, you &/or your future executor should review with an elder law or probate attorney as state laws make a huge difference in all this.

In general, if the policy has a cash value (which most whole life policies do), then the cash value is included in the spend-down to qualify for Medicaid. If it's a term policy usually no cash value, you disclose the details & amount of the policy in the application. You may be asked whom the beneficiary is too. Sometimes older paid up policy can produce a dividend. (My mom's policy does this). If it produces a dividend, it means "income" and either needs to be spent-down or has to be set up to be re-invested in the policy (so no "income" to the policy owner). The dividend is reported for the annual renewal of the Medicaid too (at least it is for how the renewal form is for my mom TX Medicaid and amortized for 12 mos if large).

For term, whom the beneficiary is will make a difference for MERP. If the named beneficiary is your child or grandchild, they inherit the $ OUTSIDE of probate. So outside of anything MERP can do. But if the beneficiary is your estate then the $ from the policy is within your probatable estate and subject to MERP.
Now some states have probate as a level of claim and paid in order of level. TX does this and burial / death stuff is a class 1 & 2 item & paid before class 7 claim. But other states probate as all claims equal. So MERP could vie for that 10K to go to them first & foremost. It's unlikely as the money would have been paid to FH or policy signed over to FH, but could. Understand?

This is why you hear that you should have a prepaid NCV (no cash value) funeral & burial policy as it assures that policy will pay for FH without any issues. So look at the policy and review with good legal to see what works best to ensure this.

Oh another thought, SS does pay a $ 255.00 lump sum death benefit. HOWEVER, it only pays if there is a surviving spouse who would themselves be a beneficiary or survivor of the deceased SS recipient. Also will pay the $ 255 for dependents of the SS recipient (like if the kids are under 18 & in school or under 21 and disabled so that either way the kids will be getting a SS survivors benefit). The death benefit does not pay to the family.

Wow. this is so hard. With my grandma and my aunt both. They required nursing home care, as they were combative and I could not keep them here with my small children at the time. Grandma was at a point where she thought someone was out to get my daughte and actually shoved her down the basement steps, trying to protect her from ( the insurance man) thankfully she was ok. only minor scraps and bruises... but that's neigher here nor there. We had to make self payments until her estate money, savings, retirement etc was gone, Then had to apply for Medicaid. At that point they looked at her life insurance, and said after the funeral ( upon her passing) we would have to give back what was left. This is prob wrong to admit or maybe it wasn't. but we wen and pre-planned her funeral... we told the director how much the policy was and ask to make it the nicest he could with that amount. She already had her stone from when Pappaw passed. We used all the life insurance ( she didn't have a great deal, I think $10.000. After her passing we had to pay to have stone engraved with her name. If your loved one has a large life insurance policy and are on Medicaid it's a sad thing to think, but it will prob go to the state.