Texas Medicaid Estate Recovery Program (MERP): What Families Need to Know

After a parent dies, the last thing a grieving family expects is a letter from the state demanding reimbursement for their nursing home care. But that's exactly what happens when the Texas Medicaid Estate Recovery Program (MERP) files a claim against the estate.

MERP is not optional. Texas is federally mandated to seek recovery for certain long-term care services provided to Medicaid beneficiaries aged 55 or older who applied for services on or after March 1, 2005. Understanding how the program works — and what it can't touch — is essential for any Texas family with an aging parent on Medicaid.

How MERP Claims Work

When a Medicaid recipient dies, the MERP contractor (currently HMS Inc.) sends a Notice of Intent to File a Claim within 30 days of learning about the death. This notice arrives by mail to the estate's personal representative or known heirs.

MERP claims are classified as Class 7 probate claims under Texas Estates Code § 355.102. They're paid after higher-priority claims — funeral expenses, administration costs, and secured debts — but before any assets are distributed to heirs.

The claim amount covers the total Medicaid long-term care services the state paid on behalf of the deceased. For a parent who spent several years in a nursing home, that number can easily reach $100,000 to $300,000 or more.

What MERP Can and Cannot Reach

This is the critical distinction: MERP can only recover from the probate estate. Assets that pass outside of probate are completely exempt from recovery.

Assets MERP can reach (pass through probate):

• Bank accounts with no beneficiary designation
• Real property titled solely in the deceased's name with no transfer-on-death mechanism
• Personal property and vehicles titled in the deceased's name
• Any asset that must go through the court probate process

Assets MERP cannot reach (pass outside probate):

• Life insurance policies with named beneficiaries
• Retirement accounts (401(k), IRA) with designated beneficiaries
• Bank accounts with Payable on Death (POD) or joint accounts with rights of survivorship
• Real property transferred via a recorded Transfer on Death Deed (TODD) or Lady Bird deed

The 60-Month Look-Back Period

Before a Medicaid application is approved, the Texas Health and Human Services Commission reviews the past 60 months of the applicant's financial records. Any asset transfers or gifts made for less than fair market value during this period trigger a penalty: a period of Medicaid ineligibility calculated by dividing the transferred amount by the average monthly cost of nursing home care.

An agent acting under a power of attorney who makes unauthorized gifts during the look-back period can permanently disqualify the principal from receiving long-term care coverage. This is why Medicaid planning must be done carefully, ideally with guidance from an elder law attorney or Medicaid benefits counselor.

Hardship Waivers

If the estate enters probate and faces a MERP claim, heirs can apply for a hardship waiver using Form 5006. The most commonly used waiver protects the family home:

Homestead hardship waiver requirements:

• The home's value is under $100,000
• One or more heirs have gross annual household income below 300% of the Federal Poverty Level

The 2026 FPL thresholds for the 300% test:

• Single person: $46,950 annually ($3,912/month)
• Two-person household: $63,450 annually ($5,287/month)
• Three-person household: $79,950 annually ($6,663/month)
• Four-person household: $96,450 annually ($8,038/month)

Heirs must submit Form 5006 within 60 days of receiving the Notice of Intent.

Absolute Exemptions (No Waiver Needed)

MERP cannot file a claim at all if the deceased is survived by:

• A living spouse
• A child under 21 years of age
• A child of any age who is blind or permanently and totally disabled
• An unmarried adult child who lived full-time in the Medicaid recipient's home for at least one year immediately before their death

If any of these survivors exist, MERP has no legal basis to pursue recovery — regardless of the estate's value.

How POA Planning Protects Against MERP

The most effective MERP defense is keeping assets out of probate entirely. A properly structured Durable Power of Attorney with gifting and real property "hot powers" allows the agent to:

• Execute a Lady Bird deed to transfer the home outside of probate (no creditor clawback window, unlike a TODD's two-year exposure)
• Change beneficiary designations on bank and investment accounts to POD/TOD status
• Consolidate assets into accounts with survivorship rights

These actions must be done while the principal is alive and ideally before or during the Medicaid application — but outside the 60-month look-back window for gifts.

Plan Before the Crisis

Once a parent is on Medicaid and incapacitated, the planning options narrow dramatically. The Texas Power of Attorney Kit covers MERP defense strategies, the specific "hot powers" needed for asset repositioning, and the look-back rules that govern timing.

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