How Personal Injury Settlements Affect Medicaid Benefits
January 12, 2016
There are times when Medicaid recipients simply can’t catch a break. They get injured at the hands of another, they sue, they get a settlement offer, and then bam. Their settlement money creates a new problem: no more Medicaid for a while and not much relief for their injuries.
This happens because Medicaid has very strict financial eligibility requirements due to limited funding and budgetary restraints. Once a person is qualified to receive Medicaid benefits, they are only allowed to have a certain amount of “countable resources” at a time, or else they lose eligibility. Settlement awards may therefore cause reduced Medicaid benefits or even a total loss of them for a certain amount of time.
How is financial eligibility determined?
In order to qualify for Medicaid, recipients must meet rigid tests. First, Medicaid determines eligibility by looking at any assets and resources that are available as countable resources. A person’s assets are considered “available” when they can be legally used for support and maintenance. If resources are available, Medicaid will generally view them as countable unless they are properly spent down, or unless an exception applies. Countable resources include liquid assets, real estate, and other personal property that could be sold to provide for an individual’s basic needs. Thus, the more countable resources a person has the less eligible they are for Medicaid benefits.
Sometimes people will try to transfer or dispose of assets in order to gain or preserve Medicaid eligibility. This endeavor usually ends in harsh penalties. Medicaid has “look back” rules that apply to transfers made from an applicant to another person or trust within 60 months of the date the applicant applies for Medicaid benefits. Additionally, Medicaid can apply transfer penalties prospectively from the date that an applicant becomes qualified for benefits. Such penalties often deem an individual as ineligible for benefits for long periods of time, regardless of whether he or she would otherwise be eligible.
Exceptions to Countable Resources Rules
There are several exceptions where certain types of property cannot be deemed as countable. These are a claimant’s principle place of residence up to a maximum value of $500,000; wedding or engagement rings; one automobile; prepaid funeral contracts; life insurance; and assets placed in properly drafted special needs trusts.
Special Needs Trusts
The best way to ensure that personal injury settlements do not jeopardize Medicaid benefits is to set up a special needs trust. However, these trusts are subject to restrictions as provided by the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) and Foster Care Independence Act of 1999. These restrictions preclude individuals from establishing a self-settled trust, naming themselves as beneficiaries, and transferring assets to the trust in order to achieve eligibility.
Under 42 U.S.C. Section 1396(p), a person may establish a special needs trust or “quality of life” trust if he or she (1) owns or is deemed to own countable resources in excess of $2,000, (2) meets Social Security disability requirements, i.e., is unable to engage in substantial gainful employment for a period of time in excess of twelve months, and (3) is under the age of 65. If all requirements are met, then a parent, grandparent, legal guardian, or court can establish the trust for the individual where the assets will be placed and deemed as non-countable for Medicaid eligibility purposes. In order for the assets to be deemed as non-countable, the trust must contain provisions requiring the trustee to repay the State for Medicaid payments made by the State on behalf of the individual during his or her lifetime. Lastly, it is imperative that these trusts are created with the approval and authority of the court. The court order should direct and authorize the transfer of the beneficiary’s assets to the trust.
Although there are many rules associated with Medicaid eligibility, Medicaid recipients should not feel deterred from seeking relief for personal injury claims. At Coleman Law Group, our experienced personal injury attorneys can explain a claimant’s rights, help navigate through Medicaid options, and discuss how to best approach settlements with Medicaid as a factor.