GWEN IFILL: Our next story is about Medicaid. The government health insurance program recently expanded to millions of Americans. Although often considered free health insurance for the poor, federal law requires Medicaid to charge recipients for certain services, and they are sometimes billed after they die. Medicaid then charges the expenses to their leftover assets. It's called estate recovery, and it's making many people think twice.

Sally Schilling, a student at the University of California Berkeley Journalism School, brings us the story.

SALLY SCHILLING: The rollout of the Affordable Care Act and the expansion of Medicaid brought hope to people like Ruth and Rod Morgan, who had gone without health insurance for 10 years.

RUTH MORGAN: When I heard about the Affordable Care Act, we were very excited. We were finally going to have health coverage.

SALLY SCHILLING: The Morgans live in Stockton, California. They are in their early 60s and are retired, aside from Rod's occasional construction jobs.

RUTH MORGAN: We were pretty much forced into retirement because of the economic downturn. There just wasn't any work.

ROD MORGAN: And, I mean, we don't have much. But I would love to give our kids something. I would like to leave them a little something when we're gone.

SALLY SCHILLING: In states that have opted to expand Medicaid, like California, anyone making $16,000 or less per year now qualifies for Medicaid. But the Morgans were hesitant to sign up for California's Medicaid program, Medi-Cal. They had heard that Medi-Cal would bill their estate after they die.

ROD MORGAN: The first person I asked about estate recovery when we started to sign up said, oh, we can't possibly charge you — do something like that for you an insurance policy that we are forcing you to have.

SALLY SCHILLING: With that reassurance, the Morgans signed up.

RUTH MORGAN: And then weeks later, we got a letter in the mail saying, congratulations, congratulations! You qualified for Medi-Cal. And then on the back page, this little paragraph says that you are subject to estate recovery, and do not contact your social worker about this.

SALLY SCHILLING: In 1993, Congress passed a law requiring states to recover the costs of long-term care services spent on Medicaid recipients over the age of 55 after they die, the exact burden the couple was hoping to avoid.

MATT SALO, National Association of Medicaid Directors: If you have the resources to pay for your own care, to pay for your own nursing home care, to pay for your own home health care, you should.

SALLY SCHILLING: Matt Salo is executive director of the National Association of Medicaid Directors. Medicaid recovery helps pay back a little for the massive amount spent on nursing homes and long-term care services.

MATT SALO: Medicaid is the largest payer of long-term care in this country. Medicaid shouldn't and cannot sustain itself if it continues to provide all long-term care to all people, especially those who have the means of paying for some of it on their own.

SALLY SCHILLING: Medi-Cal's managed care premiums are typically hundreds of dollars per month. But recipients aren't notified of how much money is being spent on them. Rod says he asked a Medi-Cal representative how much money he was accruing.

ROD MORGAN: And she said, oh, we don't have any idea. We don't figure that out until after you die.

SALLY SCHILLING: Heirs could receive for a hardship waiver, but only if they can show that their parents' Medicaid bill would cause an undue hardship or that they were a caretaker for their parents in the family home.

Jo Ann Bell lives in Oakland, California, in the home her grandparents purchased in the 1940s. It was here that she cared for her mother with Alzheimer's.

JO ANN BELL: Where I went, she went. We had a wonderful time.

SALLY SCHILLING: Bell put her mother in adult day care while she went to work. Her mother's care was covered by Medi-Cal. Her mother passed away in 2012.

JO ANN BELL: And then I got, bam, this letter from the state of California saying, oh, you owe us $54,000. I was like, what?

SALLY SCHILLING: Bell applied for a hardship waiver. But because the family home was entrusted to her and her three brothers, the state only waived her quarter of the recovery fees. The state now has a lien on the house for $43,000 at 7 percent interest. She worries she might have to sell the family home to pay off Medi-Cal.

JO ANN BELL: And I would never be able to come down Adeline Street (ph) again, because the memories would be — it would be too hard. It would really be too hard.

PAT MCGINNIS, California Advocates for Nursing Home Reform: Having a home is one of the key factors in being able to escape poverty.

SALLY SCHILLING: Pat McGinnis, the executive director of California Advocates for Nursing Home Reform, says estate recovery hurts the people who need inheritance the most.

PAT MCGINNIS: What you're doing, again, destabilizing low-income communities and creating a cycle of poverty that people will never get out.

MATT SALO: In many cases, what we see across this country is people who are trying to — trying to have it both ways, trying to say the family home and the family estate are super important to me and I need to pass them on untouched to my children, but when the time comes to pay for health care, to pay for long-term care, that should be government's responsibility. And that's just not a sustainable policy for Medicaid.

SALLY SCHILLING: Last August, health advocates put forward a bill that would have limited estate recovery in California to the federal minimum requirement, recovering only for long-term care.

It also would have eliminated the rule that allows only portions of a claim to be waived, the problem that Bell ran into. Both houses passed the bill unanimously, but at the advice of his budget staff, Governor Jerry Brown vetoed it. Brown's office declined an interview request. But in a veto message he said: “Allowing more estate protection for the next generation may be a reasonable policy goal. The cost of this change, however, needs to be considered in the budget process next year.”

PAT MCGINNIS: The money we collect from the Medi-Cal recovery program is a drop in the bucket. It's absolutely nothing compared to the misery and the burdens that it causes on the economy. So, if that's — somehow, we can't seem to get that through to the finance people for the governor.

SALLY SCHILLING: So far, three states have scaled back their recovery programs. Washington, Oregon and Connecticut made these changes, citing concerns over estate recovery being a barrier to enrollment.

California will hear a new bill aimed at scaling back estate recovery tomorrow.

For the PBS NewsHour, I'm Sally Schilling in Oakland, California.