Medicare vs. Medicaid: How Will a Settlement Affect Your Client’s Benefits?

Understanding government-sponsored healthcare options is essential now more than ever. Medicare and Medicaid are key programs that cover medical expenses but have different purposes and eligibility requirements.

Keep reading to learn more about each program and the potential impact a personal physical injury settlement may have on each. We highly encourage your clients to reach out to their local government benefit offices to answer questions and review any changes to programs and regulations.

Medicare

Medicare is a federal healthcare program designed for individuals aged 65 and older and those with certain disabilities. Medicare is an entitlement benefit, so eligibility is not dependent on income or asset limits.

Medicare benefits are unaffected by personal physical injury settlements. However, if a settlement includes future medicals, a portion may need to be reserved in a Medicare Set-Aside due to requirements under the Medicare Secondary Payer (MSP) Act. Per MSP provisions, if Medicare benefits pay for expenses that should have been paid out of the settlement funds, the beneficiary risks financial penalties and loss of coverage.

Medicaid

Medicaid, on the other hand, is a state and federally funded healthcare program. MAGI Medicaid uses income to determine eligibility. Non-MAGI Medicaid provides healthcare coverage to low-income individuals and individuals who are over 65, disabled, or blind.

Settlements are typically considered assets, so if your client receives MAGI Medicaid, the settlement may not affect their eligibility. However, your client should contact their local Medicaid office to discuss their individual situation as eligibility requirements can differ by state.

Non-MAGI Medicaid uses an asset test to determine eligibility. In most states, the threshold is only $2000 ($3000 if married). A settlement will likely exceed this amount, resulting in the loss of Medicaid eligibility. In some instances, a special needs trust may help protect Non-MAGI Medicaid eligibility by sheltering the settlement funds from being counted as an asset.

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