by: Begley Law Group

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


Lien v. Settlement

The State of New Jersey has a lien against a personal injury settlement.  The Division of Medical Assistance and Health Service (DMAHS), Beneficiary Administrative Action Unit recovers money from legally-responsible third parties.  Recovery is for Medicaid benefits including New Jersey Family Care.  The individual or their representative must provide DMAHS with written notice upon filing of a claim or action against a third party, and must immediately reimburse DMAHS from any recovery for that claim or action.[1]  It should be noted that the claim of the State is subject to a pro rata deduction for counsel fees, costs, or other expenses incurred by the recipient or the recipient’s attorney.  Typically, when the Personal Injury attorney writes for the amount of the claim Medicaid responds with the amount of the claim minus counsel fees, but does not grant a reduction for costs.  The reduction for costs could add significantly to the reduction of the lien amount.  In a typical case with a competent adult plaintiff and a 33% counsel fee, if the costs were an additional 5% the total deduction should be 38% not 33%.  A $300,000 Medicaid lien should be reduced not by $100,000 in that case, but by $114, 000.  The Personal Injury attorney should be aware of this provision and attempt to obtain the maximum reduction for the client.


Another limitation on Medicaid recoveries is that the medical assistance must be related to the injury.  Many times the Medicaid payoff will include a claim for medical assistance provided to the plaintiff that is not related to the injury subject to the personal injury action.  Claim statements should be carefully reviewed.


Surprisingly, frequently Personal Injury attorneys forget that Medicaid has been making payments and may have a claim against the settlement.  Cases are settled without taking the Medicaid lien into account.  While this is almost always inadvertent, it does create a huge problem.  The Medicaid claim should be paid from the proceeds of the personal injury settlement.  Typically, Personal Injury attorneys will deduct the fees, costs and liens from the settlement received and remit the difference to or on behalf of the plaintiff.  There are a number of cases around the country where Medicaid has sued the Personal Injury attorney for failing to pay the claim from the settlement.


Self-Settled Special Needs Trust


A Self-Settled Special Needs Trust (SSSNT) is a useful tool for plaintiffs suffering from a disability who are entitled to means-tested public benefits such as SSI, Medicaid, Federally-Assisted Housing, and SNAP (Food Stamps).


To be eligible for SSI and certain Medicaid programs, the recipient cannot have more than $2,000 of assets.  However, monies placed in an SSSNT established under 42 USC §1396p(d)(4)(A) are not counted as assets.  There are many requirements for the establishment of an SSSNT.  One of those requirement is that upon the death of the trust beneficiary, the plaintiff, the State is the first remainder beneficiary and must receive all amounts remaining in the trust up to an amount equal to the total amount of Medicaid benefits provided, minus any reimbursement or recovery of Medicaid payments previously received by the State and administrative costs in connection with terminating the trust.  New Jersey interprets this to mean that the payback includes all Medicaid received by the trust beneficiary since birth.  If there has been a reduction of a Medicaid lien against a settlement, as discussed in the preceding section, New Jersey will claim the pro rata reduction amount as part of the Medicaid payback.  In other words, the amount of the reduction is deferred not forgiven.


The payback to Medicaid must be made either upon the earlier of the death of the trust beneficiary or the termination of the trust during the lifetime of the beneficiary.  The payback must be made not only to the State of New Jersey, but to all other States that provided Medicaid to the trust beneficiary.  If the amount remaining in the trust on the beneficiary’s death is insufficient to satisfy all State claims, then the claims are satisfied on a pro rata basis.


Estate Recovery


Under federal and state law, the New Jersey Division of Medical Assistance and Health Services (DMAHS) is required to recover funds from estates of certain deceased Medicaid beneficiaries.  The recovery is for all Medicaid program services received on or after age 55.  Services include capitation payments made to managed care organizations regardless of whether any services were actually received by the individual.  For Medicaid estate recovery purposes, an estate includes any property that belonged to the decedent at the time of death or at the moment immediately prior to death.  This includes property such as a decedent’s home or share of a home, bank accounts, trusts and annuities, and stocks and bonds.  Even if the decedent’s share passes to a survivor(s), it continues to be considered part of the estate for Medicaid estate recovery purposes.  This would be true of jointly-owned property or real estate held as tenants by the entirety.


Estate recovery is deferred when the deceased has a surviving spouse, surviving children under age 21, or surviving children of any age who are blind or permanently and totally disabled in accordance with the Social Security Act, or when a family member of a deceased Medicaid beneficiary resided in the home owned by the Medicaid recipient at the time of the recipient’s death and the home was the Medicaid recipient’s primary residence and remains the family member’s primary residence.  In that event, the claim will not be enforced until the property is sold or the spouse, eligible child or other family member dies.  In the case of a child under the age of 21, Medicaid will seek recovery immediately upon that child attaining age 21.  The amount of the lien is for all medical assistance received after age 55.  Proceeds of life insurance policies are not subject to estate recovery, unless they are payable to the estate.  If there are excess funds in a burial policy or burial trust, the excess must be paid by the funeral director to the State Medicaid Agency.  Prior to estate recovery, reasonable funeral expenses, reasonable costs and expenses related to administration of the estate, and debts owed to the Office of the Public Guardian of Elderly Adults can be paid prior to paying DMAHS.  The Executor or Administrator of an estate must contact DMAHS in writing to determine whether DMAHS has a claim against the estate.


ABLE Accounts


ABLE accounts are frequently used by personal injury victims.  They are often used in tandem with Self-Settled Special Needs Trusts.  On the death of the designated beneficiary, all medical assistance paid for that individual after establishment of the account must be repaid to Medicaid.

[1] NJSA 30:4D-7.1.