Introduction
Medicaid provides essential healthcare coverage to millions of low-income individuals in New York. However, when a Medicaid recipient receives a lawsuit settlement—whether from a personal injury claim, medical malpractice, or another legal dispute—they must navigate complex rules to ensure they keep as much of their compensation as possible.
New York’s Medicaid program has strict recovery rules that allow the state to seek reimbursement from settlements. However, beneficiaries can take advantage of legal protections and strategic planning to minimize or avoid losing their settlement money. This guide explains Medicaid’s right to recovery, protected funds, and legal loopholes that can help recipients retain their rightful compensation.
Medicaid’s Right to Recover from Lawsuit Settlements
Under federal and New York State law, Medicaid has a right to be reimbursed from any lawsuit settlement that compensates a beneficiary for medical expenses. This is known as Medicaid’s “right of recovery” or “lien.”
When a Medicaid recipient wins or settles a lawsuit, Medicaid can claim a portion of the settlement equal to the amount it spent on the person’s medical care related to the injury or illness in question. Before the recipient receives any money, the state will typically place a lien on the settlement to recover its costs.
Which Settlement Funds Are Protected?
Not all settlement money is subject to Medicaid recovery. Certain portions of a settlement may be protected, including:
- Pain and Suffering Damages: Compensation for pain and suffering is usually not considered a reimbursement for medical expenses, making it less vulnerable to Medicaid recovery.
- Future Medical Expenses: If structured correctly, funds designated for future medical care may be protected from Medicaid reimbursement.
- Loss of Wages or Earning Capacity: Compensation for lost income is not related to medical costs and may be safeguarded.
- Non-Medical Expenses: If a settlement specifically allocates money for non-medical expenses, Medicaid cannot claim it.
Legal Strategies to Protect Settlement Money
There are several legal ways to protect lawsuit settlements from Medicaid recovery:
1. Establishing a Special Needs Trust (SNT)
A Special Needs Trust (SNT) allows Medicaid recipients to place their settlement funds in a trust, keeping them eligible for Medicaid while using the funds for non-covered expenses. There are two main types:
- First-Party Special Needs Trust: Used for people under 65; any remaining funds after death must be repaid to Medicaid.
- Third-Party Special Needs Trust: Created by someone else (e.g., a family member) and not subject to Medicaid recovery.
2. Creating a Pooled Trust
A pooled trust is managed by a nonprofit organization and can help disabled individuals maintain Medicaid eligibility while using their settlement money for living expenses.
3. Structuring the Settlement Properly
Working with an attorney, the settlement can be structured to separate medical costs from other types of damages (like pain and suffering) to minimize Medicaid’s claim.
4. Spending Down the Settlement
In some cases, Medicaid recipients can spend down the settlement on exempt assets, such as a home, vehicle, or necessary living expenses, to stay within Medicaid’s financial limits.
5. Negotiating with Medicaid
Sometimes, Medicaid may accept a reduced amount in repayment, especially if the recipient needs funds for ongoing care.
Conclusion
Receiving a lawsuit settlement while on Medicaid in New York requires careful planning to ensure beneficiaries keep as much of their compensation as possible. By understanding Medicaid’s recovery rules and using legal strategies like trusts, settlement structuring, and negotiations, recipients can protect their financial future. Consulting an experienced attorney is crucial to navigating these complex rules and securing your rightful settlement funds.
