In Wisconsin, Medicaid (sometimes also called Medical Assistance) covers 1 in 9 adults and 1 in 3 children; in fact, 16% of the Wisconsin population gets its health care coverage through Medicaid. Unlike the similar sounding Medicare, Medicaid is a means tested, needs-based health care coverage program, which means there are various income and asset limits that determine a person’s, or his/her family’s, eligibility.
By virtue of being a means tested program, Medicaid eligibility can be affected by receipt of funds, such as a personal injury settlement, if proper steps are not taken. For example, to qualify for Medicaid, a single person can have no more than $2,000 in total countable assets. If that Medicaid recipient receives a personal injury settlement of $25,000, he or she is going to be above the asset limit and at risk to lose Medicaid coverage. Considering the exorbitant cost of medical procedures and medications, the loss of Medicaid coverage, or any needs-based benefits, can be devastating.
No injury victim should face the choice of being fully and fairly compensated for his or her injuries versus keeping his or her health care coverage. Such a harsh outcome can be avoided by transferring the settlement funds to a properly drafted “special needs trust.” Under normal rules, if a Medicaid recipient gives away or transfers assets to someone else, or to a trust, this results in disqualification from Medicaid (a penalty period). A special needs trust is a type of trust that is specifically allowed under the Medicaid rules as an exception to the asset transfer rule. A Medicaid recipient can transfer assets to a special needs trust without disqualification, and the recipient will no longer be over the asset limit. Although the injury victim no longer has access to the funds, the trustee of the special needs trust can make distributions for his or her benefit, and there will be no loss of public benefits.
For example, our hypothetical accident victim, Courtney, receives a $25,000 settlement but is on Medicaid and Social Security Income (SSI), which are public benefits with asset limits. Courtney wants to save this money for a car (a non-countable asset) or other items but is not sure what she would like to purchase. If she is going to stay on public benefits, she only has ten days to report that she has received the money, and then will receive a notice that her benefits will be terminated. Instead, Courtney’s attorney creates a special needs trust for Courtney, naming her mother as the trustee. Courtney transfers the $25,000 to the trust without any disqualification for public benefits. Later, Courtney decides she wants to buy a car with the settlement proceeds. The car is bought and paid for by the special needs trust; the funds to buy the car come directly from the special needs trust, not Courtney. Courtney gets her car and continues to receive Medicaid and SSI.
It is important to remember that Medicaid and SSI are just a couple examples of means tested/needs-based public benefits that could be affected by receipt of personal injury settlement funds. This all serves to highlight the risk of going it alone following an accident or injury, as well as the need to hire a skilled attorney. To be sure, when the insurance adjuster is pressuring you to settle your claim, the insurance company is not going to care whether the settlement will cause you to lose your public benefits.