The Medicaid program doesn't take money that you receive in this fashion. That said, inheritance money can cause you to lose Medicaid coverage. To keep it, you must have no more than $2,000 in assets. You must report any additional money above and beyond that amount within 10 days of receipt to your social services caseworker or local Medicaid representative.
If you receive a small inheritance amount that doesn't force your assets above the threshold, you don't need to worry about it. On the other hand, most insurance policy death benefit payouts are far above and beyond that limit. In many cases, the inheritance recipient no longer needs Medicaid because they can live comfortably and afford standard health insurance. Of course, some people only receive enough money to upend their lives. They lose their Medicaid and the money they receive isn't enough to improve their situation in the long term. Many people who have Medicaid also rely on other government programs, which they can also lose after receiving an inheritance. A recipient also can't give away the money to a loved one to reduce their assets without facing financial and other penalties.
Of course, options do exist that allow recipients to enjoy an inheritance and retain coverage: You receive 30 calendar days without penalty to spend down the amount on items or services necessary for your health and well-being until your assets once again total no more than $2,000. You can also invest in assets that are exempt from the Medicaid assets rules. A special trust placed under the control of someone else is another option. Since a trust transfer can cause penalties, it's important that you speak with an experienced trust attorney before setting up one to find out if this option can help you in your specific situation.