Can My Personal Injury Settlement Affect My Medicaid Benefits?

When you’ve been injured due to someone else’s negligence, securing a personal injury settlement can provide much-needed financial relief. However, if you’re one of the millions of Americans who rely on Medicaid for healthcare, receiving a settlement could raise important questions about your eligibility for benefits. Medicaid is a needs-based program, meaning that your income and assets must stay below certain thresholds to remain eligible. A sudden influx of money from a settlement might jeopardize these benefits if not handled properly.

At John J. Malm & Associates, we understand how crucial Medicaid benefits are for victims of serious accidents. With over 90 years of combined experience, our top-rated Illinois accident attorneys have helped clients navigate the complex intersection of personal injury law and public benefits, ensuring they receive the compensation they deserve without putting their healthcare coverage at risk.

“Our clients shouldn’t have to choose between receiving the compensation they deserve and maintaining access to vital healthcare benefits. We ensure that every step we take protects their Medicaid eligibility, securing both their financial recovery and their future medical care,” -Naperville personal injury attorney, John J. Malm

What is Medicaid, and Why Does Eligibility Matter?

Medicaid is a state and federally funded program that provides healthcare coverage to low-income individuals and families. It covers a wide range of services, including doctor visits, hospital stays, and long-term care. Eligibility is determined by a combination of income and asset limits, which vary by state.

For example, in Illinois, Medicaid eligibility for adults under the Affordable Care Act (ACA) Medicaid expansion requires an annual income at or below 138% of the federal poverty level. For 2023, this translates to approximately $20,120 for a single individual.

Since Medicaid is needs-based, receiving a personal injury settlement could potentially increase your income or assets above the allowable limits, putting your benefits at risk.

How Personal Injury Settlements Can Impact Medicaid Eligibility

A personal injury settlement is typically broken into several components, including compensation for medical expenses, lost wages, and pain and suffering. While these funds are crucial for addressing the damages you’ve suffered in an accident, they are also considered financial resources that Medicaid may take into account.

1. Lump-Sum Settlements

Receiving a lump-sum settlement can cause an immediate spike in your assets. If this amount pushes your resources above your state’s Medicaid limit, you could lose your eligibility.

2. Structured Settlements

Structured settlements, where funds are distributed in periodic payments, may also affect Medicaid eligibility. Regular payments can count as income, potentially disqualifying you from benefits during months when the payments exceed the income limit.

3. Reimbursement Requirements

Medicaid operates under a system of “third-party liability,” meaning it has the right to seek reimbursement for medical expenses it covered that are later compensated by a settlement. This process, known as subrogation, allows Medicaid to claim a portion of your settlement to recover costs.

The Legal Framework: Federal and State Medicaid Rules

Medicaid eligibility and reimbursement rules are governed by a mix of federal and state regulations. Understanding these rules is essential to navigating the potential impact of your settlement.

1. The Medicaid Lien

Under federal law, Medicaid has a right to place a lien on your personal injury settlement. This lien allows Medicaid to recover the costs of medical care it provided that were related to your injury.

2. The Anti-Lien Provision

The federal Medicaid Act includes an “anti-lien provision,” which limits Medicaid’s ability to recover funds from portions of your settlement unrelated to medical expenses. In the landmark U.S. Supreme Court case Arkansas Department of Health and Human Services v. Ahlborn (2006), the court ruled that Medicaid could only recover costs attributable to medical expenses and not to other components, such as pain and suffering or lost wages.

3. The Medicaid Estate Recovery Program

In some cases, Medicaid may seek to recover funds after the recipient’s death through the Medicaid Estate Recovery Program. This program allows states to recover Medicaid payments from the estates of deceased beneficiaries who were 55 or older when they received services.

Strategies to Protect Medicaid Eligibility After a Settlement

Fortunately, there are several strategies available to protect your Medicaid benefits while still receiving the compensation you’re entitled to. An experienced Naperville personal injury attorney and a financial planner familiar with Medicaid rules can help you implement these solutions.

1. Create a Special Needs Trust (SNT)

A Special Needs Trust is one of the most effective tools for preserving Medicaid eligibility after a settlement. Funds placed in an Special Needs Trust are not counted as assets for Medicaid purposes, allowing you to use the money for approved expenses without jeopardizing your benefits.

• Types of SNTs:
  • First-Party Special Needs Trusts: Funded with the beneficiary’s own money, such as a settlement. These trusts must include a Medicaid payback provision, meaning any remaining funds after the beneficiary’s death are used to reimburse Medicaid.
  • Third-Party Special Needs Trusts: Funded by someone other than the beneficiary, such as a family member. These trusts do not require Medicaid payback.
• Approved Expenses: Funds in an Special Needs Trust can be used for a wide range of purposes, including medical equipment, transportation, education, and recreational activities.

2. Spend Down the Settlement

Another option is to “spend down” the settlement by using it to purchase exempt assets that Medicaid does not count toward eligibility. Examples of exempt assets include:

• A primary residence (if you live in it)
• A vehicle
• Household goods and personal items
• Prepaid funeral arrangements

By converting your settlement into exempt assets, you can reduce your countable resources and maintain your Medicaid eligibility.

3. Utilize a Pooled Trust

A Pooled Trust is similar to a Special Needs Trust but is managed by a nonprofit organization. Beneficiaries pool their funds together for investment purposes while retaining individual accounts. Pooled trusts are particularly beneficial for smaller settlements that may not justify the cost of establishing an individual Special Needs Trust.

4. Structured Settlements

Opting for a structured settlement can help manage the impact on your Medicaid eligibility by spreading payments over time. However, this approach must be carefully planned to ensure that monthly payments do not exceed Medicaid’s income limits.

5. Seek a Fair Allocation of Settlement Funds

Work with your attorney to ensure the settlement is properly allocated among different categories of damages. For example, allocating a larger portion to pain and suffering (which Medicaid does not typically count as income) rather than medical expenses can reduce the impact on your benefits.

Why You Need an Experienced Illinois Personal Injury Attorney

Navigating the intersection of personal injury settlements and Medicaid benefits requires in-depth knowledge of both areas of law. An experienced injury attorney can:

• Negotiate Fair Allocations: Ensure your settlement is structured to minimize the impact on your Medicaid eligibility.
• Coordinate with Financial Experts: Work with financial planners to establish trusts or other protective measures.
• Advocate for Reduced Liens: Negotiate with Medicaid to reduce the amount of its lien and maximize the funds you retain.

At John J. Malm & Associates, our award-winning team has helped countless clients protect their benefits while securing the compensation they deserve. We work tirelessly to address the unique challenges faced by Medicaid recipients, ensuring their legal and financial interests are safeguarded.

FAQs About Personal Injury Settlements and Medicaid

1. Will Medicaid take all of my settlement?

No, Medicaid can only recover funds spent on medical care directly related to your injury. They cannot claim portions of your settlement allocated to pain and suffering, lost wages, or other damages.

2. Can I lose my Medicaid benefits permanently after a settlement?

If your settlement increases your income or assets above Medicaid’s limits and you do not take steps to protect your eligibility, you could lose benefits. However, tools like Special Needs Trusts can help preserve eligibility.

3. Can Medicaid recover funds after my death?

Yes, under the Medicaid Estate Recovery Program, Medicaid may recover funds from your estate if you were 55 or older when you received benefits. However, certain assets, such as those in an Special Needs Trust, are protected.

Contact the Award-Winning Illinois Personal Injury Lawyers at John J. Malm & Associates

A personal injury settlement is an essential step toward recovering from an accident, but it also brings financial complexities that can impact your Medicaid benefits. By understanding how settlements affect eligibility and taking proactive steps to protect your benefits, you can navigate this process successfully.

At John J. Malm & Associates, we are committed to guiding clients through these challenges. With decades of experience and a proven track record of securing results, our Naperville injury attorneys provide the expertise you need to protect your Medicaid benefits and secure the compensation you deserve.

If you have questions about how a personal injury settlement might affect your Medicaid benefits, contact us today for a free consultation. Let us help you navigate this complex process with confidence.