One last dig: Medicaid collects at the grave.

Margaret Dugger was able to live independently until she was ninety-one years old, thanks to her son Marion, who nursed her through cancer in their home in Chula Vista, California. But in 1985, after Margaret lost her leg to the disease and suffered several strokes, the Dugger family decided it would be best if she moved into a nursing home. A poor family, the Duggers sought public assistance from Medicaid to pay for Margaret's long-term care. They didn't know that accepting long-term Medicaid might mean losing the family home.

Under the Omnibus Budget Reconciliation Act of 1993, every state must try to get money back from the estates of former Medicaid recipients who were in long-term nursing-home care. The Act, which took effect in 1994, also mandated that states seek reimbursement from the property of such Medicaid recipients while they are alive if they are unlikely to return home.

Medicaid, the nation's health insurance program for the poor, is now the only public assistance program in the United States that requires beneficiaries to pay back some of their benefits.

Although states are allowed to seek recovery on any Medicaid funds used for health services, most states go after only those people in long-term care.

For poor people, this is often the final indignity.

Margaret Dugger never had an easy life. Her husband, Raymond, a Navy veteran of World War 1, died at age thirty-five in 1930, leaving her to raise their six children alone. Marion, her first-born son, was slightly disfigured with a harelip and a cleft palate. and when he was ten years old, some kids tied him to a tree and poked his eve out.

"My mother was left a widow with six kids, and a total income of $120 from her husband's Navy pension and his insurance," says Felix E. Dugger, sixty-nine, Margaret's youngest son. In 1938, she bought a modest, three-bedroom, clapboard house near the center of town with all she could scrape together from her savings. She paid $2,500 for the place, a small fortune at the time, especially for a single mother. But she felt secure knowing her children had a permanent home.

In 1951, when all of the other children had moved out of the house, Marion still lived with his mother and worked as a school custodian in Chula Vista. Marion and Margaret lived in the house for thirty-four years.

When Margaret became ill, Marion was by her side. But when her health problems began to worsen at age ninety-one, the Dugger children decided to place her in a nursing home in nearby Spring Valley.

But the cost was prohibitive -- beginning at $2,500 a month and rising steadily. Between her Navy pension and Social Security, Margaret had an income of only $900 a month. Marion, then in his sixties, was also retired and had few savings.

Within six months, Margaret had spent her remaining life savings on the nursing home. She applied to Medi-Cal, California's Medicaid program, for assistance. Medi-Cal accepted her, but she wasn't aware that there was a catch.

Margaret spent almost ten years in the nursing home. She died in 1995 at age 101. A few months later, Marion got a letter from Medi-Cal. It claimed that he owed the state $110,000 for his mother's nursing-home care. And it said that Medi-Cal was going to collect on the assets Margaret had left behind -- namely, the house.

Felix Dugger says he and his brother were shocked to learn that they had to reimburse Medi-Cal. "We had no idea during this whole time that they would come back after she passed away and say, `Now we want our money back,"' says Dugger. "We didn't know it was a loan."

California Advocates for Nursing Home Reform helped Felix and Marion Dugger file a hardship claim, arguing that although Marion is not technically disabled, he simply didn't have the money to pay back the state and couldn't afford to let go of his home.

The state denied the claim because Marion did not meet the criteria for undue hardship. "Mr. Dugger does not need the equity in the real property to provide him with the necessities of life," the estate-claims analyst found.

Felix says Marion lives on no more than $1,000 a month and would have a very difficult time finding a new place to live on his own. "It would devastate him," Felix says.

Long-term nursing-home care is extraordinarily expensive. The nationwide average cost is about $33,000 a year, but ranges from $25,000 to $140,000 a year. Most senior citizens cannot afford private insurance, which runs about $3,000 to $7,000 a year for long-term care. The costs of nursing-home care are so great that many exhaust their personal resources in the first six months. As a result, about 70 Percent of nursing-home residents turn to Medicaid to pay their bills, according to the Urban Institute, a nonprofit research organization based in Washington, D.C.

Many in Congress view long-term care as the Medicaid budget buster. Nursing-home costs accounted for 25 percent of the $150 billion federal share of the Medicaid budget for 1995 (states contribute an almost equal share to the Medicaid program, bringing the total annual program budget to about $300 billion), according to the Health Care Financing Administration (HCFA). The HCFA, part of the Department of Health and Human Services, provides funds to the states' Medicaid and Medicare programs and monitors elderly and disabled health-care costs.

The proportion of the budget spent on long-term care is expected to increase. "People are living longer, and there's a higher utilization of nursing-home care, and the cost of care is more expensive." says an HCFA spokesman.

To reconcile the costs. Congress mandated that the states collect $395 million from beneficiaries using "estate recovery programs" in the five years after the Omnibus Budget Reconciliation Act of 1993 passed. More than $395 million has already been collected, says the HCFA spokesman, but the states can continue to collect funds from beneficiaries "as long as it's law."

To qualify for Medicaid, individuals usually cannot have personal resources in excess of $2,000. Under federal law, some personal assets are exempted from that provision. These include primary residences, one car, burial funds up to about $5,000, a wedding ring, some home furnishings, and a small life-insurance policy.

Those exemptions, critics say, allow senior citizens to hide their assets so that they can qualify for Medicaid and not spend a dime. Stephen Moses, a former inspector general for Health and Human Services, argues that savvy middle-class and wealthy seniors who want a free ride on Medicaid health benefits simply consult attorneys to exempt their assets. Moses, who currently works for Long Term Care, Inc., a private insurance broker, has advised several state Medicaid programs to boost their estate recovery programs and to hire private collection agencies to crack down on senior citizens who hide their assets.

"Virtually anyone, regardless of income or assets, can qualify for nursing home care paid for by the government within thirty days," Moses told the Concord Coalition, a group of fiscal conservatives based in Boston.

"That's a stretch," says Brian Burwell, vice president at the Medstat Group, a health-care information company based in Ann Arbor, Michigan. But Burwell, whose specialty is in Medicaid financing and estate planning, says "people with a good Medicaid estate planner and a lot of income and assets can manipulate their assets and qualify for Medicaid a lot easier than people think." The 1993 law made such manipulations a lot harder, though, he adds.

The HCFA spokesman says some asset-shuffling "does go on, but not to the extent that people think it does. A lot of families spend down a lot of money in order to become eligible for medical care."

Advocates for the elderly say that instead of going after those who may be shielding their assets, the government is pursuing those who don't have the wherewithal to defend themselves.

"Those who have the least money have the least access to lawyers. They are the ones who get recovered against," says Charles Sabatino, the assistant director of the American Bar Association's Commission on Legal Problems of the Elderly. He says the 1993 law "works to the disadvantage of the poorest of the Medicaid recipients because more middle-class people who have been forced to back into Medicaid because of nursing-home costs are more likely to have consulted a lawyer."

Many recipients, like Margaret Dugger, are not aware that when they sign up for long-term care assistance under Medicaid that they are essentially getting a loan, says Sabatino. What's more, state Medicaid plans are not required to provide the sort of financial disclosure under federal truth-in-lending laws that banks must when processing a loan. "Disclosure is pretty muddy under Medicaid," he says.

Not so, says Russell Mack Porterfield, chief of the recovery section of the California Medi-Cal program. "When individuals apply for the program they are given notification that their estates may be subject to having to repay the program," he says. "We send a notice twice a year to everyone who is over fifty-five years of age advising them of the recovery program. I realize that when they apply for Medi-Cal that there are a lot of papers to fill out, and they may not understand it, but they are notified."

California has had an estate recovery program in place since 1980, when the state legislature passed a law permitting the Medi-Cal program to go after the estates of some Medi-Cal recipients. In the late 1980s, Citizens Action League challenged the measure in a class-action suit against the state, and won in federal court. But the Omnibus Budget Reconciliation Act of 1993 superseded that ruling and allowed California once again to send out the dogs.

Porterfield says the Omnibus Budget Reconciliation Act of 1993 has helped him recover an additional $5 million to $6 million each year. Last year, his department culled some $32 million from its estate-recovery program. "It costs a lot of money to fund the Medi-Cal program, and this is a way of recouping some of those expenses and putting them back into the system," he says. "Since the individuals are no longer alive, they have no need for those assets."

Pat McGinnis, executive director of California Advocates for Nursing Home Reform, disagrees. "We're not talking about $32 million in cash, we're talking about $32 million from people's homes," she says. "The people in this system who end up being screwed are poor people. It shouldn't just be the rich who are allowed to keep their family homes for their kids."

Gregory Wilcox is an attorney in Oakland who represents clients slapped with estate claims. "What I see is people of extremely modest means who want to help preserve the family home," he says. "It's not the wealthy by any means. There are a lot of people who really need the small inheritance they're getting, and they wind up being the subject of quite aggressive collection actions by the state."

Medi-Cal recipient Jewel L. DeMille and her husband Lynn Roy DeMille in 1976 bought a parcel of land for their mobile home in Fort Bragg, a small working-class town just a short drive from the vacationers' haven of Mendocino on the California coast. In the early 1990s, Jewel's daughter, Lynda, moved her own mobile home onto the property to care for her aging parents. Jewel died at seventy-two in 1993, and shortly thereafter, the state of California informed Lynn Roy that it was placing a lien on the family property for $8,400.

Lynda, however, was still living on the property with her father, caring for him as well as for her four young children, one of whom is disabled. Lynn Roy wanted Lynda to be guaranteed a place to live when he died, and he wanted to divide the small plot between her and his two stepsons.

Infuriated by the lien, Lynn Roy became the named plaintiff in a class action suit filed in 1994 against the state Department of Health Services on behalf of at least 300 spouses of Medicaid recipients. In 1995, a U.S. district court judge imposed a permanent injunction on the state, saying that it had to release all the current liens on the homes of spouses. The state has since stopped its practice of pursuing such liens.

Under federal law, the state cannot make an estate claim if there is a surviving spouse, or a child who is disabled, blind, or under the age of eighteen. And states must establish a procedure for waivers of estate claims if the family can prove that it would cause undue hardship to heirs or survivors.

But states often ignore these safeguards. When Medi-Cal recipient Jane Longshore died in August 1995, she was survived by four children, two of whom suffer from multiple sclerosis and have been classified under state and federal law as "permanently and totally disabled." Nevertheless, in March 1996, the California Department of Health Services filed a creditor's claim for more than $157,000 against Longshore's estate.

When advocates for Longshore's children informed Medi-Cal of their disabilities, the state did not shelve its claim. It merely cut it in half. The Longshores, along with other families facing similar claims, filed a class action suit against the state in January 1997. The plaintiffs charge "that they will be unable to care for themselves or for their disabled siblings and other family members."

Today, according to the HCFA, all but five states have implemented an estate recovery program. Georgia, Rhode Island, and Tennessee are still struggling to put a program in place. Texas and Michigan have refused to follow the federal mandate, and the HCFA has notified them that they are out of compliance with federal regulations. If the Department of Health and Human Services pursues them, they stand to lose some or all of their administrative funds for the Medicaid program, says the HCFA spokesman.

Most states seek recovery through public agencies, but according to a 1996 report that the American Association of Retired Persons commissioned, at least five states -- Arizona, Colorado, Florida, Iowa, and West Virginia -- subcontract their estate claims work to private collection agencies.

At the time of the study, Montana and Hawaii were also in the process of hiring private contractors. Private agencies are said to be even more zealous in going after any money left to the relatives of the deceased beneficiaries.

"When you get into private collectors, they're basically getting a bounty for each account on which they collect and that means you start to run into all kinds of problems with due process," says Patricia B. Nemore, staff attorney with the National Senior Citizens Law Center in Washington. "It removes the issue one step out of public accountability."

Private collection on Medicaid is becoming a profitable industry. The two private contractors best known for "estate recovery" are Health Management Systems, Inc. (HMS), based in Washington, D.C., and the Public Consulting Group (PCG), based in Boston.

HMS does estate recovery work for at least four states: Colorado, Arizona, Iowa, and New Jersey. Last year in Colorado, it helped the state recover $2.6 million from the estates of deceased Medicaid recipients. The company earns 16 percent of what it recovers. Colorado instituted private collection back in 1992 because "it was economically more practical to do it this way," says Mark Seevers, estate recovery specialist for the Colorado Department of Health Care Policy and Financing, which administers the Medicaid program. "To set up a whole program would be expensive, plus the employees it would take to maintain it."

Linda Rad, a manager of the Colorado Medicaid program, defends the use of private contractors. "We have due process built into the whole program," she says. "Our vendor goes after those assets that are recoverable but they have many, many safeguards in place for those people who are affected."

PCG operates collection programs for the state Medicaid programs of Florida and West Virginia. The Florida Agency for Health Care Administration, which runs the state's Medicaid program, currently contracts with PCG and pays the company 12.5 percent of the funds recovered from each estate. "We pay them a contingency fee so there's no risk to the agency," says Judy Hefren, who coordinates the program.

Some critics say that this policy of seeking Medicaid reimbursement is dubious, whether private companies are doing the collecting or the states themselves. Faith Mullen, a senior policy analyst for the American Association of Retired Persons' Public Policy Institute in Washington, finds the Medicaid recovery program discriminatory because the federal government requires states to go after only those recipients who get long-term care. "The intent was to make people share some of the health-care costs if they were able," she said. "What becomes more baffling about that is if you have other health-care costs you are not expected to bear the costs in the same way. If you need a liver transplant, for example, which is a fabulously expensive procedure, it is likely to be covered by Medicaid. But if you have Alzheimer's and you need a certain type of long-term care, that may not be covered."

Attorney Wilcox detests the double standard. "I tell my clients that they have the wrong disease," he says.

Joshua M. Wiener, principal research associate for the Urban Institute, says it is unwise to believe that the government will be able to balance the public benefits budget on the backs of recipients and their families. "Within the elderly population, very old, disabled widows are the lowest income group in the population," says Wiener. "They simply don't have a lot."

Sabatino of the American Bar Association says expecting these elderly to contribute significant funds to offset the cost of Medicaid is unreasonable. "I don't think trying to squeeze the last drop of blood out of a turnip is the right solution," he says. "Trying to solve the bigger issue is the problem. We need to do that through the front door rather than the back door of Medicaid recovery."

There has, as yet, been no attempt to challenge estate recovery on the federal level. But California Advocates for Nursing Home Reform has filed three class action suits against the state of California in federal court. In all three cases, the court imposed injunctions prohibiting the state from certain types of recovery, such as placing liens on the homes of surviving spouses or claims on living trusts.

McGinnis is still in the process of challenging the state's case against the Duggers, and recently the state reduced its claim from $110,000 to $33,000, acknowledging that they had originally sought too much reimbursement. It's still a sum that is far out of reach for Marion Dugger -- though, according to his brother, Felix, the state is "hounding him for it."

The deadline for payment was January 5, 1998, but the Duggers couldn't pay. The last the brothers heard from Medi-Cal, the recovery unit said their case would be turned over to the state attorney general.

McGinnis is still trying to find affordable legal representation for the family. None of the other Dugger children are particularly interested in moving back into the house, which is ninety-five years old and was last assessed at $20,000. "It's an old house and it's not very big, but it's the family house, and it's all my brother's got to live in." Felix says.