Personal Injury Settlements and Medicaid Eligibility

Yes, a personal injury recovery, also called a personal injury settlement, could prevent a Medicaid applicant from being Medicaid-eligible or cause a current Medicaid beneficiary to lose their Medicaid benefits.

A personal injury claim or personal injury lawsuit can be filed following an automobile accident, slip and fall accident, workplace injury, medical malpractice, or another type of injury that occurred as a result of someone else’s wrongdoing or negligence. When a personal injury claim or personal injury lawsuit is won, the injured person receives a personal injury settlement, or in other words, financial compensation, to cover their damages (i.e., medical expenses, lost income, and pain and suffering). It is usually paid as a lump sum, but is sometimes paid out in structured payments.

Relevant to if a personal injury recovery will result in denial or loss of Medicaid benefits is Medicaid’s financial eligibility criteria. Although income and asset limits are state-specific, the majority of states set their income limit for a single long-term care Medicaid applicant at 300% of the Federal Benefit Rate and the asset limit at $2,000.

Some states, such as Utah, will count a personal injury settlement as income the month it is received. Some expenses can be deducted from the settlement, lowering the amount that is counted as income. Examples of potential deductions include legal fees, attorney fees, and court fees relevant to the settlement, medical bills not covered by insurance or Medicaid, and reimbursement of medical expenses related to the injury paid for by Medicaid. Even with these deductions, a settlement could easily push one over the monthly income limit, making one ineligible for Medicaid. If this is the case, one should “spend down” their income on medical expenses or other allowable expenses, such as paying off debt, making home modifications, or purchasing an Irrevocable Funeral Trust.

Regardless of the state, any remaining personal injury recovery funds the month after receipt are counted towards Medicaid’s asset limit. Therefore, even a small amount of funds remaining can push a Medicaid applicant / recipient over the asset limit, resulting in Medicaid denial or the loss of benefits. Therefore, one must “spend down” the funds or implement a Medicaid planning strategy to lower one’s countable assets and become asset-eligible. Options might include a Pooled Special Needs Trust or creating a Personal Care Agreement with a lump sum payment.

It is vital that one not gift settlement funds to a loved one or charity. Medicaid has a Look-Back Period (generally 60-months), during which Medicaid checks to ensure no assets (including cash) were gifted. While the “look back” is immediately preceding one’s long-term care Medicaid application, Medicaid beneficiaries are also prohibited from gifting assets. At Medicaid redetermination, the Medicaid agency checks for gifted assets. Violating the Look-Back Rule results in a Penalty Period of Medicaid ineligibility.

Federal law requires that Medicaid applicants and current Medicaid beneficiaries report to Medicaid any injury in which another person or business is responsible, as well as any potential personal injury settlement one may receive. This is because Medicaid can (and does) legally seek reimbursement of care costs from a third party who is responsible for the Medicaid recipient’s injury. The name of the program / unit through which a state’s Medicaid agency seeks reimbursement via personal injury settlements is state-specific. For instance, the following states use the following names: California (Medi-Cal Personal Injury Program), New York (Medicaid Casualty Recovery), and Oregon (Personal Injury Liens Unit). If one has received a personal injury settlement prior to Medicaid application, it does not have to be reported.

To seek reimbursement for injury-related treatment, Medicaid places liens against personal injury settlements. A Medicaid lien, a type of medical lien, is a legal claim through which Medicaid recovers costs related to medical care for one’s injuries. Usually, this is limited to the amount that Medicaid paid. Therefore, a Medicaid lien can reduce the amount of one’s settlement. For instance, say one is awarded a settlement of $50,000, but Medicaid paid $35,000 for medical care related to their injuries. After Medicaid is paid, the injured person receives only $15,000 ($50,000 – $35,000 = $15,000).

The best course of action for current Medicaid beneficiaries and persons who plan to apply for Medicaid in the future, it to contact a Certified Medicaid Planner. These professionals have a wealth of experience in assisting persons in implementing Medicaid planning strategies to lower countable income and assets and protecting it as inheritance for loved ones. Incorrectly implementing a planning strategy or “spending down” funds in a way that is not approved by Medicaid can result in Medicaid denial or the loss of Medicaid benefits.