Preserving Medicaid After a PI Settlement - a Guide for Personal Injury Lawyers
If you are a personal injury attorney in Florida, representing a client who comes to you with Medicaid health insurance, you should note your file so you can advise the client on what to do after a financial recovery is made should your client wish to preserve their Medicaid benefits.
Brief Medicaid 101 for Florida Personal Injury LawyersFirst, 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. But, to satisfy your curiosity, a Medicaid recipient cannot earn more than $2,205.00 per month from all income sources combined (as of 2017 -- this number changes periodically). If a Medicaid recipient's income increase above 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 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 food stamps. Excellent!
But, you should still advise the client to inform the Social Security Administration 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.
There is a sample "CYA" letter at the link below that any of you personal injury attorneys are welcome to use if your client wants to give up their Medicaid or refuses to discuss Medicaid planning with you.
If your Personal Injury Client Wishes to Retain their Medicaid BenefitsSome 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 result in Medicaid ineligibility penalty periods. I should reemphasize here, often Medicaid recipients think that because the IRS allows gifts of up to $14,000 (as of 2017) that giving an amount less than what the IRS allows 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.
When you direct your client to an Elder law attorney who focuses on Medicaid planning, they will be given a menu of options: typically consisting of special needs trusts, personal services contracts and other spend down or other options to convert their excess resources into non-countable or exempt resources. There is no "one size fits all" solution and sometimes a combination of Medicaid strategies can be implemented.