15 Sep How to Adjust Your Estate Plan If You Lose Your Medicaid Coverage

Losing your Medicaid coverage can feel overwhelming, especially if you depend on it for healthcare or long-term care. Maybe your income went up, your eligibility changed, or you missed a renewal deadline. Whatever the reason, the loss can leave you wondering how you’ll cover care costs, what will happen to your home, or whether your family will be protected.  

But the truth is, losing Medicaid doesn’t mean you’re out of options. With some smart estate planning moves, you can protect your assets and keep your long-term goals on track. 

Why People Lose Medicaid Coverage

If you lose Medicaid, you may need to reapply, create a spend-down plan, or make a few adjustments to your estate plan. But before you start making changes, it’s important to understand why your coverage ended in the first place. 

In Arizona, the most common reasons are:

• Income or assets above the limit
• Paperwork not being submitted on time
• Changes in household size, disability status, or age

Protecting Your Assets After Losing Medicaid 

When you’re on Medicaid, certain assets—like your home or car—are often exempt from eligibility rules. Once coverage ends, those protections may no longer apply. That means that your savings, retirement accounts, or even your house could be at risk if you need to pay for long-term care out of pocket.

This is where estate planning becomes critical. Without a clear plan, the assets you intended to pass down could be reduced or lost.

Requalifying Through a Spend-Down Strategy

If your Medicaid benefits ended because you have “too much” wealth, one way back in is through a spend-down strategy. Simply put, this means using some of your resources in ways that help you, rather than just giving assets away or losing them to medical bills. 

For example, some people pay off their mortgage, replace an old roof, or finally get the mobility equipment they’ve been putting off buying. Others choose to prepay for funeral costs so the expense won’t have to come out of their estate.

The key is that you’re not wasting your money—you’re turning it into something useful that improves your quality of life, while still meeting Medicaid’s eligibility rules. 

The Medicaid Estate Recovery Program (MERP)

Even if you requalify for Medicaid later, Arizona’s Medicaid Estate Recovery Program (MERP) may still apply. This program allows the state to recover certain long-term care costs from your estate after you pass away. 

If you don’t plan ahead, your heirs could face unexpected claims for Medicaid care. Using tools like irrevocable trusts can reduce the impact or even help your estate avoid recovery altogether.

For example:

• Medicaid Asset Protection Trusts will protect your home and savings from estate recovery, as long as they are set up correctly.
• Special Needs Trusts ensure that your loved ones with disabilities can continue to receive benefits without being disqualified. 

Deferrals and Waivers May Help

Some families may qualify for a deferral or waiver of estate recovery. For example, if a surviving spouse or disabled child is still living in the home, recovery can sometimes be delayed or avoided altogether. While these aren’t permanent solutions, they can provide more breathing room and protect your family from sudden hardship. 

Estate Planning Puts You Back in Control

Big changes like losing Medicaid coverage are a good time to revisit the foundation of your estate plan. That means:

• Updating your will or trust to reflect your current situation.
• Reviewing your retirement and life insurance beneficiaries.
• Avoiding common mistakes like not funding your trust.
• Running through an estate planning checklist to make sure nothing falls through the cracks.

Losing Medicaid coverage is a stressful situation, but it doesn’t mean you have to go without protection. The right estate plan can secure your assets, help you care for your loved ones, and even position you to re-qualify for benefits down the road.

At Phelps LaClair, we’ve helped Arizona families navigate every aspect of estate planning for decades. Whether you’re adjusting to a loss of coverage or simply preparing for any possibility, our team can guide you through the next best steps.

Contact us today to schedule a free consultation, and take back control of your future.

Images used under creative commons license – commercial use (9/12/2025). Photo by Elina Fairytale on Pexels