Medicaid and Settlements: How Much Can Medicaid Recoup for Medical Expenses?

By Ronald A. Fatoullah, Esq. and Debby Rosenfeld, Esq.

{3:30 minutes to read} Sometimes, when an individual is severely injured due to medical malpractice or the negligence of another, a component of his medical coverage can be paid by the State's Medicaid program. This would be the case if the individual's own insurance was insufficient to cover the cost of care and the person was eligible for Medicaid benefits. If the injured individual is ultimately rewarded funds through a personal injury or medical malpractice claim, the state can recover a portion of such funds in order to reimburse itself for the care it provided.

When an individual is awarded a settlement in a medical malpractice or personal injury suit, it is typically for more than just the medical expenses. A component of the award is often attributable to pain and suffering, loss of wages or an ongoing disability. A commonly asked question is how much can the State's Medicaid program recuperate from the settlement.

Prior to 2006, some states would claim from victims more than just the part of the award or settlement covering the medical expenses regardless of how much of the settlement was specifically earmarked for those expenses. As an illustration, consider that Medicaid paid $200,000 for an injured individual's medical expenses. The individual then arrived at a settlement and received $300,000, of which $100,000 was allocated for medical expenses, $100,000 for lost wages, and $100,000 for pain and suffering. Some states would recover the entire $200,000 laid out by them, leaving the injured person with only $100,000, even though the settlement allocated only $100,000 towards the medical expenses.

In the 2006 decision of Arkansas Department of Health and Human Services, et al. v. Ahlborn, the United States Supreme Court ruled that states could only recover the portion of the Medicaid expenses that the settlement attributed to medical costs. Based on Ahlborn, even if the state paid a higher amount (as reflected in the above example) it could only be reimbursed pursuant to the amount specifically attributable to medical expenses in the settlement agreement, leaving the balance for the recipient.

Despite the Ahlborn decision, Congress amended the Social Security Act in 2013, thereby giving the states the right to recover their entire medical expenses from Medicaid beneficiaries' awards and settlements. The entire amount laid out by the states via their respective Medicaid programs could be reimbursed before the beneficiaries received anything. Since 2013, many attorneys have fought to eliminate this provision and were successful in delaying its implementation until October 2017.

The recent budget deal signed by President Trump on February 9, 2018, has repealed the law in its entirety, thus reinstating the Ahlborn holding. Going forward, a State's Medicaid program will only be able to recover the medical expenses specifically delineated in the settlement agreement, even if such amount is less than what was actually paid. This will enable the injured person who initiates a lawsuit to keep a greater portion of his settlement.

In order to protect these proceeds from future state retrieval, the recipient can transfer the proceeds to a special needs trust. Seeking the counsel of an experienced elder law attorney to help navigate this process is most advisable.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Debby Rosenfeld, Esq. is a senior staff attorney at the firm. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also a partner with Advice Period, a wealth management firm, and he can be reached at 424-256-7273.