The Alphabet Soup of Public Benefits
Guest blog from our sponsor Synergy Settlement Services. The original blog can be found here.
By Jason D. Lazarus, J.D., LL.M., MSCC, CSSC
Attorneys and clients alike get very confused about which governmental benefits are involved in a case as a result of the accident related disability. The acronyms for the programs are similar and governed by the same or similar government agencies. For example, a disabled client might get Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI). While similar in terms of how you qualify and both provided by the Social Security Administration, how you qualify for each are vastly different. Another example is Medicare and Medicaid. Both involve the same agency, Centers for Medicare & Medicaid Services. However, Medicare is an entitlement that is administered entirely federally while Medicaid is income/asset sensitive and is administered mostly at the state level. All of these benefits have unique issues and different planning solutions must be employed. The remainder of this post will focus on clarifying these programs and the issues raised when a personal injury case is settled involving these benefits.
Government Assistance Programs Primer
Medicaid and Supplemental Security Income (hereinafter SSI) are income and asset sensitive public benefits that require special planning to preserve. In many states, one dollar of SSI benefits automatically provides Medicaid coverage. This is very important, as it is imperative in most situations to preserve some level of SSI benefits if Medicaid coverage is needed in the future. SSI is a cash assistance program administered by the Social Security Administration. It provides financial assistance to needy aged, blind, or disabled individuals. To receive SSI, the individual must be aged (sixty-five or older), blind or disabled and be a U.S. citizen. The recipient must also meet the financial eligibility requirements.[1] Medicaid provides basic health care coverage for those who cannot afford it. It is a state and federally funded program run differently in each state. Eligibility requirements and services available vary by state. Medicaid can be used to supplement Medicare coverage if the client is eligible for both programs (“dual eligible”). For example, Medicaid can pay for prescription drugs as well as Medicare co-payments or deductibles. Because Medicaid and SSI are income and asset sensitive, creation of a special needs trust may be necessary which is discussed in greater detail below.
Medicare and Social Security Disability Income (hereinafter SSDI) benefits are an entitlement and are not income or asset sensitive. Clients who meet Social Security’s definition of disability and have paid in enough quarters into the system can receive disability benefits without regard to their financial situation. The SSDI benefit program is funded by the workforce’s contribution into FICA (social security) or self-employment taxes. Workers earn credits based on their work history and a worker must have enough credits to get SSDI benefits should they become disabled. Medicare is a federal health insurance program. Medicare entitlement commences at age sixty-five or two years after becoming disabled under Social Security’s definition of disability. Medicare coverage is available again without regard to the injury victim’s financial situation. Accordingly a special needs trust is not necessary to protect eligibility for these benefits. However, the MSP may necessitate the use of a Medicare Set Aside discussed in greater detail below.
Real World Planning Example – Jan Smith
To illustrate the analysis from a planning perspective, it is good to look at an exemplar settlement. I will use a fictitious character, Jan Smith, who was the victim of medical malpractice at a hospital. Jan was in her early forties when she decided to have elective surgery on her back for degenerative disc disease. During the surgery, a problem developed while being intubated and the procedure was cancelled. Mrs. Smith was moved to ICU and no neurologic monitoring was performed that evening after being moved from the surgical suite. The next morning Mrs. Smith was found to be quadrparetic. Unfortunately for Mrs. Smith, her condition was irreversible. Suit was brought against multiple defendants with a significant seven figure recovery secured. Mrs. Smith and her family had Medicaid coverage and SSI. She had also applied for SSDI. At the time of settlement, there was the potential for Medicare eligibility since she had been approved for SSDI but wasn’t yet a Medicare beneficiary.
How Do We Protect Mrs. Smith Current and Potential Future Benefits?
Planning Techniques for Keeping Mrs. Smith Eligible for Medicaid/SSI
Since Mrs. Smith receives Medicaid/SSI, a special needs trust can be created to hold the recovery and preserve public benefit eligibility since assets held within a special needs trust are not a countable resource for purposes of Medicaid or SSI eligibility. The creation of a special needs trusts is authorized by the Federal law.[2] Trusts commonly referred to as (d)(4)(a) special needs trusts, named after the Federal code section that authorizes their creation, are for those under the age of sixty five.[3] However, another type of trust is authorized under the Federal law with no age restriction and it is called a pooled trust, commonly referred to as a (d)(4)(c) trust.[4]
The 1396p[5] provisions in the United States Code govern the creation and requirements for such trusts. First and foremost, a client must be disabled in order to create a SNT.[6] There are two primary types of trusts that may be created to hold a personal injury recovery each with its own requirements and restrictions. First is the (d)(4)(A)[7] special needs trust which can be established only for those who are disabled and are under age 65. This trust is established with the personal injury victim’s recovery and is established for the victim’s own benefit. It can only be established by a parent, grandparent, guardian or court order. The injury victim can’t create it on his or her own. Second is a (d)(4)(C)[8] trust typically called a Pooled Trust that may be established with the disabled victim’s funds without regard to age. A pooled trust can be established by the injury victim unlike a (d)(4)(A).
Planning Techniques for Making Sure Mrs. Smith Will Not Lose Medicare Coverage in the Future
Mrs. Smith has applied for SSDI which means technically, according to CMS guidance, she has a “reasonable expectation of becoming a Medicare beneficiary within 30 months”. A client who is a current Medicare beneficiary or reasonably expected to become one within 30 months should concern every trial lawyer because of the implications of the Medicare Secondary Payer Act (“MSP”). Since under the MSP Medicare isn’t supposed to pay for future medical expenses covered by a liability or Workers’ Compensation settlement, judgment or award, CMS recommends that injury victims set aside a sufficient amount to cover future medical expenses that are Medicare covered. CMS’ recommended way to protect an injury victim’s future Medicare benefit eligibility is establishment of a Medicare Set Aside (“MSA”) to pay for injury related care until exhaustion.
In certain cases a Medicare Set Aside may be advisable in order to preserve future eligibility for Medicare coverage. A Medicare set aside allows an injury victim to preserve Medicare benefits by setting aside a portion of the settlement money in a segregated account to pay for future Medicare covered healthcare. The funds in the set aside can only be used for Medicare covered expenses for the client’s injury related care. Once the set aside account is exhausted, the client gets full Medicare coverage without Medicare ever looking to their remaining settlement dollars to provide for any Medicare covered health care. In certain circumstances, Medicare approves the amount to be set aside in writing and agrees to be responsible for all future expenses once the set aside funds are depleted.
Dual Eligibility: The Intersection of Medicare and Medicaid – SNT/MSA
Since Mrs. Smith is potentially a Medicaid and Medicare recipient, extra planning is in order. If it is determined that a Medicare Set Aside is appropriate or needed in the future, it raises some issues with continued Medicaid eligibility. A Medicare Set Aside account is considered an available resource for purposes of needs based benefits such as SSI/Medicaid. If the Medicare Set Aside account is not set up inside a Special Need Trust, the client will lose Medicaid/SSI eligibility. Therefore, in order for someone with dual eligibility to maintain their Medicaid/SSI benefits the MSA must be put inside a Special Needs Trust. In this instance you would have a hybrid trust which addresses both Medicaid and Medicare. It is a complicated planning tool but one that is essential when you have a client with dual eligibility.
What Do You Do if You Represent Mrs. Smith?
When a case, such as Mrs. Smith’s arises, which involves the protection of public benefits or settlement assets, outside counsel is typically retained to assist with the trust devices commonly used to protect the client. Lawyers who are well versed in “settlement law” or “settlement planning” can be found and relied upon to assist with these difficult and complicated issues. The legal fees for creation of the trusts to protect the settlement monies or public benefit eligibility are normally paid for out of the injury victim’s recovery. Fees can vary but the normal range is from $3,000 to $7,500 depending on the complexity of the issues.
Also, companies such as Synergy deal with these issues on a daily basis. Having a consultant familiar with the planning issues and who has access to the right solutions is imperative. This is where Synergy’s settlement consulting/planning team really shines and can be an invaluable member of your settlement team. Having the knowledge of the public benefit programs along with issues such as Affordable Care Act coverage and options is a non-negotiable these days given the complex settlement landscape.
[1] An individual can only receive up to $552.00 per month ($829.00 for couples) and no more than $2,000 in countable resources.
[2] 42 U.S.C. §1396p (d)(4).
[3] 42 U.S.C. §1396p (d)(4)(A).
[4] 42 U.S.C. §1396p (d)(4)(C).
[5] 42 U.S.C. §1396p.
[6] To be considered disabled for purposes of creating an SNT, the SNT beneficiary must meet the definition of disability for SSDI found at 42 U.S.C. §1382c.
[7] 42 U.S.C. §1396p (d)(4)(A).
[8] 42 U.S.C. §1396p (d)(4)(C).