Frank C. Kilcoyne, CSSC

Dual Eligibility for Medicare and Medicaid

Ever thought about this? It is more common than you think, and dealing with it intelligently is an important part of crafting any settlement where the two programs intersect.

Both Medicare and Medicaid offer claimants substantial benefits but the programs themselves also have potential interests in how settlement funds are distributed. Could funding a Medicare set-aside inadvertently disqualify a claimant’s eligibility for Medicaid? You bet, and that’s not a mistake anyone wants to make. Let’s examine how this all works and how to avoid problems.

For clarity, let’s first review what these two programs are and how they run:

• Medicare is a federally administered program that guarantees access to health insurance for Americans aged 65 and older and younger people with qualifying disabilities. Coverage is earned through payroll-deducted payments made over time. On average, Medicare covers about half of the total health care costs for enrollees and the enrollees must cover the rest themselves (remembering that not everything is covered, not everyone enrolls in full coverage, and many people are healthy). Out-of-pocket costs vary from person-to-person and might include uncovered services such as long-term care, dental, hearing, and vision care, and supplemental insurance coverages.

• Medicaid is a healthcare program for poor people which is jointly funded by the federal and state governments but administered by the state. Coverage is not earned through work and payroll deduction, but through the misfortune of poverty. It is the largest source of funding for medical and health-related services for people with low income in the United States. This program is “means-tested”, meaning that a claimant must pass a (low) income and (few) assets test to qualify for care.

These two programs care about the distribution of settlement proceeds because they do not want private parties found liable for injuries to scrape the costs of care off onto taxpayers. They protect themselves, however, in different ways.

• Medicare is protected by enactment of the Medicare “Secondary Payer Provision” (“MSP”) which outlaws doing the above. All past care already provided by Medicare must be repaid at settlement and, to the extent any future care related to the accident is anticipated which would otherwise be covered by Medicare, the parties must “set aside” a sum to cover it. For simplicity’s sake, I am leaving out the argument about in which cases this must be done and how; just know that this is why Medicare cares.(1)

• Medicaid takes a slightly different tack related to their rules for qualification. Since you have to have a low income and nearly no assets to stay in the program, receiving a chunk of settlement money would disqualify you. Instead, you are permitted to set up a “Special Needs Trust” for the purpose of receiving, holding, and distributing settlement funds which will not disqualify you – as long as when you die, any remaining money in the trust is used to pay for prior care received.

Now here is where it gets interesting: the programs do not necessarily cover the same kinds of healthcare, meaning that some claimants really do need both. For example (and most notoriously), Medicare does not cover long-term nursing or home health care. Medicaid does, which makes preserving eligibility for Medicaid a critical issue in any kind of case requiring years of this kind of care.

How then do you ensure that needy claimants hold onto valuable coverage while properly protecting the programs’ legitimate interests in settlement? Smart people have developed some good techniques.

First, you coordinate the coverages. Medicaid typically pays the Medicare premiums and then covers what Medicare doesn’t, subject of course to its own rules. Expenses which neither program covers could then be paid for by funds held in a special needs trust.

Going back to the first issue we raise in our opening paragraph, how do you protect Medicare’s interests without disqualifying a claimant from Medicaid? Create a Medicare set-aside inside a special needs trust. That will preserve eligibility for Medicaid while still looking after Medicare’s interest in the settlement proceeds.

This dual eligibility scenario for Medicare and Medicaid is just one of the many issues you want to develop an awareness of when handling modern-day settlements. Other hurdles still exist, like sorting through the various conflicts of law between the MSP, Medicare policies, and each state’s individual Medicaid statutes and recovery rights. Charting a safe path through these kinds of situations is an essential aspect of our services.

Do you have a case with intricate issues regarding future medical care? Want to know that you have the complexities of today’s settlement environment covered? Call Frank C. Kilcoyne, CSSC at 800-544-5533. I am here to help.


(1) Rules established for Workers’ Compensation, almost certainly on their way for liability cases, but not yet in place.