Is Life Insurance Subject to Medicaid Estate Recovery Claims?

The short answer is “no.” Although the Department of Community Health takes a contrary position, Georgia law does not support their position, at least unless the legislature changes the law.

O.C.G.A. § 33-25-11 Cash surrender value and proceeds of life insurance policies and annuity contracts not liable to attachment, garnishment, or legal process in favor of creditors; proceeds becoming part of insured’s estate
(a) Whenever any person residing in the state shall die leaving insurance on his or her life, such insurance shall inure exclusively to the benefit of the person for whose use and benefit such insurance is designated in the policy, and the proceeds thereof shall be exempt from the claims of creditors of the insured unless the insurance policy or a valid assignment thereof provides otherwise. Whenever the insurance, by designation or otherwise, is payable to the insured or to the insured’s estate or to his or her executors, administrators, or assigns, the insurance proceeds shall become a part of the insured’s estate for all purposes and shall be administered by the personal representative of the estate of the insured in accordance with the probate laws of the state in like manner as other assets of the insured’s estate.
(b) Payments as directed in this Code section shall, in every such case, discharge the insurer from any further liability under the policy, and the insurer shall in no event be responsible for, or be required to see to, the application of such payments.
(c) The cash surrender values of life insurance policies issued upon the lives of citizens or residents of this state, upon whatever form, shall not in any case be liable to attachment, garnishment, or legal process in favor of any creditor of the person whose life is so insured unless the insurance policy was assigned to or was effected for the benefit of such creditor or unless the purchase, sale, or transfer of the policy is made with the intent to defraud creditors.

In Speedway Motorsports, Inc. v. Pinnacle Bank, 315 Ga. App. 320, 727 S.E.2d 151, 2012 Ga. App. LEXIS 366, 2012 Fulton County D. Rep. 1334, 2012 WL 1058579, the Court of Appeals affirmed dismissal of a claim against a life insurance policy. Speadway sued a decedent’s survivors, in the trial court (Georgia) for (1) unjust enrichment, (2) avoidance of transfers under the Uniform Fraudulent Transfers Act, O.C.G.A. § 18-2-70 et seq., (3) recognition of constructive trusts or equitable liens on assets, and (4) a declaratory judgment that such assets were the investor’s property. One of the issues in this case was whether Speadway could reach proceeds from a life insurance policy payable to the decedent’s spouse and children. Relying on O.C.G.A. § 33-25-11, the Court held it could not reach the policy proceeds and dismissed that portion of Speadway’s claim.

A Medicaid Estate Recovery claim is essentially a creditor claim for reimbursement. Therefore, unless the legislature changes Georgia insurance law, life insurance porceeds are not recoverable by Georgia’s Medicaid Agency.