In Texas, a Private Firm Took Over Medicaid Estate Recovery Cases on September 1. The Homestead Hardship Exemption Just Rose to $150,000

Picture a Dallas daughter opening her late mother’s mail three months after the funeral. Medicaid covered four years in a nursing home, and now a letter arrives on unfamiliar letterhead: Stellarware Corporation, in place of the contractor who used to handle these files. The debt still belongs to Texas, and state law still governs every claim, exemption, and settlement. Stellarware runs the paperwork. On September 1, 2026, it took over day-to-day operations of the Medicaid Estate Recovery Program (MERP) for the Texas Health and Human Services Commission.

The timing is like clockwork. Just days earlier, Texas rewrote several MERP rules, including raising the homestead hardship exemption from $100,000 to $150,000. That extra $50,000 sounds like a gift to grieving families, yet the exemption requires an application, and the same rule package gave the state more time to come after the estate.

What MERP Recovers, and What Just Changed

Texas can seek reimbursement from the probate estate of a Medicaid recipient who received covered long-term-care services after age 55. The claim runs against the estate itself; relatives owe nothing merely because they are related. Here is where families conflate the two big federal programs. Medicare, the age-65 health insurance program, does not run an estate recovery program. Medicaid does.

The August rewrite changed the mechanics:

• MERP now has 60 calendar days after learning of the death to send its Notice of Intent, doubled from 30.
• It has 120 days after actual notice of death to file its claim, up from 70.
• The recoverable-estate threshold below which a claim is uneconomical rose from $10,000 to $15,000.
• The separate Medicaid-cost threshold rose from $3,000 to $5,000.
• The homestead hardship amount rose from $100,000 to $150,000.

Claiming the $150,000 Protection Takes Paperwork

This is the piece most families miss. A $140,000 house still requires an affirmative filing to shield itself, and each heir has to qualify individually after the Notice of Intent arrives.

The rules Texas applies:

• The amount uses the tax-appraisal-district value for the most recent tax year at the time of death.
• If the home is worth more than $150,000, the first $150,000 is exempted and the remaining equity stays subject to recovery.
• The property must pass to a sibling or direct descendant of the recipient.
• Each heir claiming protection must have gross family income below 300% of the applicable federal poverty threshold, based on the prior year’s tax return.
• When only some heirs qualify, only their shares receive the protection.

Medicaid is state-administered, and estate recovery varies sharply. Some states pursue non-probate transfers such as life estates and payable-on-death accounts. Texas generally recovers only through probate, which makes how the house was titled matter as much as what it’s worth (we put the full titling and beneficiary checklist in a free estate guide for exactly this reason).

Heirs Still Have Only 60 Days to Respond

Here is the trap. The new 60- and 120-day windows extend the state’s runway. The heir’s response deadline stayed put: a hardship request and its supporting documents are still due within 60 days of the Notice of Intent. The same 60 days apply to requesting deductions for documented home-maintenance costs, property taxes, or caregiving that delayed institutionalization.

Months of silence after death may just mean Stellarware hasn’t sent the letter yet.

Separate from the hardship waiver, federal law forces Texas to skip recovery entirely when the recipient leaves behind:

• A surviving spouse.
• A child younger than 21.
• A child of any age who is blind or disabled under the federal definition.
• A qualifying unmarried adult child who lived continuously in the homestead for at least the 12 months immediately before the recipient’s death.

Check these mandatory exemptions before ever running the hardship math.

When the Stellarware Envelope Arrives

• Confirm the letter is genuine using contact information from the current HHSC MERP guide, rather than the numbers printed on the letter itself.
• Compare the claim against the recipient’s Medicaid service dates and ask for clarification of any gap.
• Determine whether a mandatory exemption applies before starting hardship paperwork.

When claiming the homestead protection, file within 60 days with the appraisal value, the prior-year tax return, proof of relationship, and documentation of ownership share. Submit maintenance, tax, and caregiving receipts on the same timetable. And leave the estate undistributed while the claim remains open.

Texas gave its recovery program a longer clock and low-income heirs another $50,000 of potential homestead protection. Only one of those changes happens automatically. The state gets its extension without asking. The family gets the hardship exemption only if it qualifies, documents it, and answers the letter within 60 days.

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