In a move that caught the special needs planning community by surprise, Congress effectively overruled two recent Supreme Court decisions and made it easier for state Medicaid agencies to recover funds from personal injury settlements. The upshot is that people who are injured by, for example, medical malpractice or negligent drivers could get to keep little or nothing they gain from a lawsuit.
When Congress established the Medicaid program, it stipulated that all beneficiaries had to agree to “assign” the right to any money they might receive from any third party for health-related expenses to the state Medicaid agency. In plain English, this means that if someone is injured and files a personal injury lawsuit against the person who hurt him, before the injured individual can receive any money through an award or a settlement, the state can reach in and take any funds that Medicaid spent on the individual’s care.
However, in order to prevent the states from seizing a beneficiary's entire settlement, the law only allowed states to go after the portion of a settlement that was specifically allocated towards medical expenses. For instance, if the state paid $50,000 for a Medicaid beneficiary's care, and the beneficiary settled his case for $100,000, $25,000 of which counted towards medical expenses, federal law allowed the state to recover only up to $25,000 of its $50,000 claim because that was the only portion of the beneficiary's settlement that was allocated towards medical expenses. The U.S. Supreme Court upheld this interpretation in two recent cases, issuing its most recent analysis this past spring.
Congress has the power to rewrite federal laws when it disagrees with the Supreme Court's interpretation, and in this case it decided to act. In the recent federal budget that President Obama signed into law at the end of December, Congress included a provision that gives states the ability to recover the value of Medicaid services from a beneficiary's entire personal injury settlement. Under the new law, the beneficiary in our previous example would lose $50,000 of his $100,000 settlement, even though only $25,000 of that settlement should have been applied to medical care. In some cases where Medicaid bills are high, this change in law could wipe out a beneficiary's entire personal injury claim, including money he received for pain and suffering and other expenses.
Due to these new rules, in some cases it may make sense to pay for private health insurance rather than face the risk of Medicaid taking your entire personal injury award, but this depends entirely on the circumstances of your particular case. The new rules don't go into effect until October 1, 2014, but it’s not too early to talk with your special needs planner to determine whether the changes could affect you or your family members.
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