THE MEDICAID PAYBACK: HOW DOES IT REALLY WORK?

by Thomas D. Begley, Jr., Esquire, CELA

The Medicaid payback in a personal injury case can often have four components.  These are: the lien against the settlement, Special Needs Trust payback, estate recovery, and ABLE account payback.  This article will briefly discuss each of the four components in a general way, but there are exceptions that are beyond the scope of this article.

 

The Lien Against the Settlement

Medicaid has a lien against a personal injury settlement for monies paid on behalf of the injured plaintiff, but the lien is limited to the monies paid for injuries related to the case.  If the plaintiff was already receiving Medicaid for disabilities unrelated to the case, those Medicaid payments are not part of the lien against the settlement.

An individual bringing an action for damages against a third party shall give notice to the Director of the Division of Medical Assistance and Health Services.[1]  In addition, the recipient of the settlement must promptly notify the Division of any recovery and immediately reimburse the Division in full from the proceeds of any settlement, judgment or other recovery.  The lien is subject to a pro rata reduction for counsel fees, costs or other expenses incurred by the recipient or the recipient’s attorney.  In seeking reduction for procurement costs, attorneys often overlook the reduction for the cost of the case.  Frequently, the Division will send a payoff to the plaintiff’s attorney that includes a reduction for counsel fees, but usually does not include a reduction for costs. The addition reduction for costs could be significant.

For example, let’s suppose there is a settlement of $1,000,000 with a $300,000 Medicaid lien.  Let’s assume counsel fees of one-third, or $333,333, and costs of $50,000 or 5%.  The reduction for counsel fees would be one-third of the lien or $100,000.  The additional reduction for costs at 5% would be $15,000.

It is also possible to reduce the lien based on the Ahlborncase.[2]  In the Ahlborncase, the Supreme Court held that the Medicaid lien applies only to that portion of the recovery that has been allocated to medical expenses.  The Court held that 42 U.S.C. §1396a(a)(25)(H) does not sanction an assignment of rights to payment for anything other than medical expenses – not lost wages, not pain and suffering, not an inheritance, and that federal third party liability provisions require an assignment of no more than the right to recover that portion of a settlement that represents payments for medical care.  The language in Ahlbornwas limited to medical expense, but there was no discussion of future medical expenses.  In the subsequent case,[3]the Court underscored that recovery is available only for expenses already paid by the State in the past, not those expected to be paid in the future.  Therefore, from a third party liability claim there is a payback for the Medicaid lien, but the payback can be limited by both procurement costs and an Alhlbornreduction.

 

Special Needs Trust

In a case where the plaintiff is disabled, Special Needs Trusts are frequently utilized in order to preserve the plaintiff’s public benefits, such as SSI, Medicaid, Section 8 Housing, SNAP (Food Stamps), etc. Under the provisions of federal law,[4]on the death of the trust beneficiary (the plaintiff in the case) the State Medicaid Agency(ies) must be repaid for all benefits paid to the Beneficiary since birth.  This includes medical assistance not related to the injury that was subject to the litigation.  This payback includes any reduction in the lien negotiated at the time of the personal injury settlement.  In the example given above, the lien reduction was $115,000.  Contrary to what many people believe, the balance of the lien was not forgiven, it was simply deferred in this situation.  Therefore, the payback from the Special Needs Trust on the death of the plaintiff trust beneficiary includes all Medicaid benefits paid to the Medicaid beneficiary whether or not related to the injury including the reduction of the Medicaid lien at the time of the personal injury settlement.

 

Estate Recovery

In some personal injury cases, the plaintiff has been receiving Medicaid for many years for conditions not related to the injury suffered in the personal injury action.  At the time of settlement, there is no payback to the extent that the medical assistance payments were not related to the personal injury.  There are also cases where the plaintiff has been receiving Medicaid, elects to take the personal injury settlement, and give up Medicaid and other means-tested public benefits.  In these cases, Medicaid may be entitled to recover on the death of the plaintiff.[5]  Under Medicaid estate recovery, the State is entitled to recover from the estate of a deceased Medicaid recipient for medical assistance payments made for services received on or after age 55.  However, there is no estate recovery if the individual leaves a surviving spouse, or a surviving child under the age of 21, or a surviving children who is blind or permanently and totally disabled.  Again, if the Medicaid lien is reduced through negotiation at the time of settlement but is for services rendered after the plaintiff attained age 55, then this amount would be subject to Medicaid estate recovery.

 

ABLE Accounts

If an individual is disabled prior to age 26, he or she is eligible to establish an ABLE account.  Income earned by an ABLE account is tax-free, but the primary appeal is that the individual with disabilities or a family member can control the account so long as the funds are used for qualified disability expenses. In many third party liability cases involving individuals with disabilities, a Special Needs Trust andan ABLE account are established to work in conjunction with one another.  On the death of the plaintiff, monies in the ABLE account must be used to pay back Medicaid, but only for services received since the date of the establishment of the ABLE account.

 

Medicaid Payback

Type of Claim	Related to Injury	Timing Benefit Received	Reduction/ Postponement
Lien v. Settlement	Yes	Since Injury	Procurement Costs and Ahlborn
Special Needs Trust	No	Since Birth	Death of Beneficiary
Estate Recovery	No	Since Age 55	Spouse, Child under Age 21 or Blind or Disabled
ABLE Account	No	Since Account Established	None

[1]N.J.A.C. 30:4D-7.1

[2]Arkansas Department of Health and Humans Services v. Ahlborn, 547 U.S. 268, 126 S. Ct. 1752 (2006).

[3]Wos v. E.M.A. ex rel Johnson, 133 S. Ct. 1391 (2013)

[4]42 U.S.C. §1396p(d)(4)(A)

[5]42 U.S.C. §1396p(b)(1); N.J.A.C. 10:49-14.1, Medicaid Communication No. 10-08