States Can Now Recover from Entire Injury Settlement In Surprise Move, Ahlborn Case is Reversed

In an unexpected addition to the recent federal budget agreement that could have far-reaching consequences, Congress has negated the U.S. Supreme Court's decisions in Arkansas Department of Health and Human Services v. Ahlborn and Wos vs. E.M.A. and has given states the ability to recover Medicaid costs from a beneficiary's entire personal injury settlement or award.

When a Medicaid beneficiary settles a personal injury lawsuit or wins a personal injury case, the state may assert a claim for recovery of medical expenses provided through the Medicaid program, since Medicaid is supposed to be the payer of last resort. However, in 2006 a unanimous Supreme Court issued its Ahlborndecision, finding that under the anti-lien restrictions of the Social Security Act, states had a right to recover only from the portion of a settlement or award that was allocated to medical expenses. Seven years later, in Wos, the court struck down a state statute imposing a mandatory Medicaid lien on up to one-third of a recovery, reiterating that "[a]n irrebuttable, one-size-fits-all statutory presumption is incompatible with the Medicaid Act's clear mandate that a State may not demand any portion of a beneficiary's tort recovery except the share that is attributable to medical expenses."

This system is now scheduled to change on October 1, 2014, when Section 202 of the Bipartisan Budget Act of 2013 kicks in. Without any warning or hints that changes were on the horizon, Congress inserted language into the recent budget compromise amending the Social Security Act to give states the right to recover from Medicaid beneficiaries' entire settlements, and the bill - signed into law by President Obama - also gives states the right to place a lien on those settlements or awards.

The budget proposal's details first became public this past December. Given the timing of the legislation, it was impossible for advocates, many of whom were taken by surprise, to mount any serious opposition.

Because the change allowing Medicaid to recover from the full settlement is not retroactive, it is not clear whether the legislation will allow Medicaid to recover against all settlements that take place after October 1st, 2014 or recover against all beneficiaries who assigned their recovery rights to Medicaid after the change on October 1st, 2014.