Personal Injury Settlements and Medicaid Eligibility
I work with plenty of Florida personal injury attorneys who do tremendous work getting their clients excellent personal injury verdicts and settlements. Whether it is a result of a medical malpractice case, car accident case, slip and fall, or any other way someone is injured due to the negligence of another --funds received from a personal injury lawyer will usually result in knocking a Medicaid recipient out of being eligible to receive their means-tested government benefits (SSI or Medicaid typically). Sometimes this is intentional, other times it is an unwelcome shock to the personal injury client.
If you are a personal injury attorney in Florida, representing a client who comes to you with Medicaid health insurance after a car accident, medical malpractice or any other negligence based action, you should note your file so you can advise the client on what to do after a financial recovery is made. The personal injury client has two options that will be discussed below:
1. voluntarily give up their Medicaid; or
2. take action to preserve their Medicaid.
Brief Medicaid 101 for Personal Injury Lawyers
But, first, a quick Medicaid primer: Medicaid is a means-tested program: meaning that in order to receive Medicaid an individual must meet Medicaid’s low income and asset tests.
Florida Medicaid Income Test / Income Cap
As a personal injury lawyer, the income test probably will not be of concern to you - and different Medicaid programs have different income limits. Suffice it to say, if a Medicaid recipient’s income exceeds the Florida Medicaid income cap level, we have ways of keeping them Medicaid qualified.
But again, as an injury lawyer, unless your settlement is being annuitized, you are likely handing your client a check that will make your client ineligible for Medicaid because that check will cause them to fail the Medicaid asset test.
Florida Medicaid Asset Test
The asset test just says that a Medicaid recipient cannot have more than $2,000.00 in combined countable assets (there are certain Medicaid programs that have slightly higher asset limits). There are a few items that are usually not countable by Medicaid: the most typical of the excluded / non-countable assets are: the value of the homestead and one car. There are other assets that are excluded (i.e. not countable by Medicaid towards the $2,000.00 asset test) but I wanted to keep this article brief.
What is considered a countable asset? Nearly everything else– especially all funds that touch their bank account, brokerage account, etc… So, even though the IRS doesn’t count a personal injury settlement for tax purposes, Medicaid most certainly does when they are evaluating eligibility.
Does the Personal Injury Client Still Want their Medicaid?
The answer may very well be “no.” If, after paying your legal fees, costs, outstanding medical bills, etc., your client (the Medicaid recipient) is going to receive significant personal-injury-case proceeds, they may now be in a position where they can well afford to privately pay for their own health insurance or may no longer need their government benefits. Excellent!
But, you should still advise the client to inform the Social Security Administration (if receiving SSI) and the Department of Children and Families (the agency that runs Florida’s Medicaid programs) that there has been a “change in circumstances” – more detail at the link and how to report the change in circumstance is provided at the end of this article.
The reason why your client must still inform DCF and SSA because if they fail to report the new asset you have provided to them through their personal injury case, and they unwittingly continue to receive benefits when they are no longer eligible, Medicaid will eventually find out and send the former Medicaid recipient a bill, demanding to be reimbursed for funds that Medicaid should not have paid during months eligibility was lost.
If your client is happy to leave the Medicaid program, or refuses to consider Medicaid planning, I would highly suggest you have the client sign a CYA letter substantially similar to the following:
Medicaid CYA Letter for Florida Personal Injury Attorneys
As a Medicaid beneficiary, we have advised you of the need to take action to preserve your benefits (e.g. creating a special needs trust, spending down in the same calendar month funds are received, etc…). As the recipient of a personal-injury settlement, you are putting your Medicaid benefits at risk of being cancelled by the government. If you receive any other government benefits, such as SSI, of which we are not aware, those benefits could be at risk as well.
We have advised you to seek the counsel of a Medicaid-planning attorney.
While our law firm does not handle Medicaid-planning matters, we have offered to put you in touch with a firm that does. Against our advice, you have instructed this firm to disburse funds to you without taking any further action to protect your Medicaid or other government benefits.
Received and Acknowledged this [day] of [month], [year]
[signature of client]
If your Personal Injury Client Wishes to Retain their Medicaid Benefits
Some action must be taken in the same calendar month funds are available to a Medicaid beneficiary. The timing of this is very important (which is why it makes sense for you to talk to a Medicaid-planning lawyer ASAP, and not just when the injury settlement funds are sitting in your trust account). If you hand your client a check on January 2nd, your client has the luxury of being able to figure out how to remain Medicaid-eligible for the rest of January. If, on the other hand, your disburse on January 28th, your client will have to rush to figure out how to preserve their Medicaid eligibility before February 1st.
No Gifting! | Don't Give Away Assets and Expect to Remain Medicaid Eligible.
The biggest mistake your client can make after receiving personal injury proceeds is giving any portion of it away (usually they want to give the money to a family member or friend). Gifts can result in Medicaid ineligibility penalty periods. I should reemphasize here, often Medicaid recipients think that because the IRS allows gifts of up to $16,000 (as of 2022), that giving away an amount less than what the IRS standard will allow them to retain their Medicaid.
It will not. This line of thinking often gets those who want Medicaid in trouble. Medicaid gifting rules have nothing to do with IRS gifting rules.
However, your client will certainly have options on how to remain Medicaid eligible:
Common Medicaid Preservation Techniques for Florida Personal Injury Clients
1. Spend Down: Medicaid recipients can spend their money (in the same calendar month personal injury proceeds become available to them). This typically makes the most sense for small personal injury settlements. They are free to buy clothing, pay off credit card debts or other loans, buying a big-screen TV, going out to a nice dinner, travel expenses, making repairs to the home or car, and more. As long as they can spend the amount (over $2,000) in the same calendar month in which it is received, they can report same to DCF/SSA and retain their Medicaid benefits.
2. Special Needs Trust: If under the age of 65, the Medicaid beneficiary can utilize a self-settled special needs trust (also referred to as a “d4A special needs trust”). If over the age of 65, the Medicaid recipient will only have access to a pooled special needs trust (also referred to as a “d4C special needs trust”). Click this link to read a more about the intricacies of Medicaid Special Needs Trusts). Essentially, the government allows the use of special needs trusts to preserve Medicaid benefits. They are very commonly used after a Medicaid beneficiary receives a sudden influx of money – such as from an inheritance or personal injury settlement. A trustee – usually a family member or trusted friend (in a d4A special needs trust) or professional trustee (in a d4C special needs trust) manages the money and can only distribute money to pay for services and products not currently provided by Medicaid. This is often some of the same items described in the spend down section above, such as entertainment, travel, home improvements, paying off debt, and other approved expenses. Another article I have written describes what a special needs trust can pay for. If your client is age 65 or older, then they must utilize a professionally-managed special needs trust.
3. Personal Services Contract: The personal services contract (also called a family caregiver agreement) is explained in more detail here: (what is a personal service contract?). But, essentially, a Medicaid recipient can transfer money to a caregiver after this services contract is properly signed. If done properly, Medicaid will not deem the transfer of assets to be a gift, but rather a payment for the fair market value of services to be received. The primary drawbacks to personal service contracts are: loss of control of the money (it literally becomes the assigned caregiver’s money, subject to their creditors, divorce, gambling habits, etc…). In addition, there is likely an income-tax consequence to the caregiver (who, again, is receiving money for services to be rendered). We don't give tax advice, so this is an issue they will need to discuss with an accountant or tax adviser.
4. Annuities: There are Medicaid compliant annuities (not to be confused with regular annuities that most financial advisor's are familiar with) that can convert a personal injury settlement into an income stream. The income will be counted against Medicaid eligibility, but the asset will not. This is a particularly useful medicaid-preservation tool when the Florida-Medicaid recipient is married to a non-Medicaid recipient.
A Medicaid-planning lawyer will have other creative ways of protecting medical malpractice or personal injury settlement in order to maintain Medicaid eligibility, but this provides some basic information of what you should bethinking about to preserve Medicaid benefits after a personal injury client receives their portion of the financial recovery.
It is also very important to note that SSI and Florida Medicaid have different standards (meaning the planning techniques that work for one, will not necessarily work for another).
Whether the client is voluntarily going off the Medicaid program or if they wish to remain eligible, a change in circumstances must be reported to SSA and/or DCF.
How to report a change in circumstances to Medicaid
SSA-8150-EV must be filled out and sent to the SSA district office associated with the client's zip code (if on a Medicaid program associated with Social Security Income (SSI).You can use the Social Security office locator by clicking on the link and entering your zip code.
The Florida DCF Change in Circumstances Form can be found at the link.
Video Explaining How to Keep Medicaid After a Personal Injury Settlement