New Solutions for Dealing with a Pesky Old Problem
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Remember the (bad old) days when people could be excluded from health insurance coverage because of a “pre-existing condition?” If you or a loved one had the misfortune of becoming sick or injured while under crappy or no coverage, you could be in big trouble going forward. You could effectively be made “uninsurable.”
I know this can be a touchy subject politically, but if you were in the business of resolving personal injury claims, this exclusion caused real problems. Fortunately, those days are over - but that doesn’t mean things are any easier. Better, yes; easier, no.
Passage of the Patient Protection and Affordable Care Act (ACA) outlawed exclusions for pre-existing conditions; the injured and sick can now buy health insurance just like everyone else. But that does not mean that every claimant will actually have insurance, or the same kind of insurance.
Although the ACA contains a “personal mandate” that says everyone must buy health insurance, there is no way to force them to actually do it; they can elect to pay a penalty instead. This means you have to dig down into each claimant’s situation and learn what coverage they have or don’t have. Most people think in terms of Medicare, Medicaid, or private insurance and, of course, the new ACA plan coverages. Let’s examine each of these in turn:
Medicare certainly covers the most people – generally, working people over 65 and certain disabled persons – but you can’t put Medicare to work when settling personal injury claims because it’s against the law. Under the Medicare Secondary Payer Act, no primarily responsible party can settle a claim which shifts future accident-related costs to Medicare. How this law is applied in settlement of a liability case (as opposed to Worker’s Compensation) is rife with confusion and anxiety. In the old days, it could effectively mean that Medicaid was an injured claimant’s only option for future medical care.
Medicaid is a healthcare program for poor people jointly funded by the federal and state governments and administered by the states. 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 an income (low) and assets (few) test to qualify for care.
As stated above, prior to the ACA, many claimants had to rely on Medicaid alone for their future medical care, but this is no longer the case. They may now be able to receive more - and higher quality - healthcare through private insurance newly available through the ACA (but with no Medicaid lien or payback provision, further discussed below).
The ACA offers a comprehensive package of items and services, known as “Essential Health Benefits.”(1) These benefits are available to all injured claimants regardless of the type or severity of their injury or medical condition. ACA plans may not impose an annual or lifetime dollar limit on the cost of any essential health care. However, just like Medicare, the ACA does not cover long-term care services, either in facilities or at home. Since, in many serious injury cases, this can be the single most expensive component of future medical care, the ACA alone doesn’t solve all your problems.
So…this is where it all gets interesting. As you can see, these programs do not necessarily cover the same kinds of healthcare and some claimants really do need both. Preserving eligibility for Medicaid then becomes a critical issue. How do you ensure that needy claimants secure the ability to pay for an ACA healthcare plan while preserving their eligibility for Medicaid? You coordinate the coverages.
A Special Needs Trust (SNT) can be established for the benefit of a disabled person in order to supplement their standard of living without otherwise disqualifying them from public benefits. The SNT can essentially pay for anything not food, clothing or shelter. However, if any funds remain upon death, such a trust is required to reimburse the state for the associated medical care that was provided via Medicaid. While the primary purpose of an SNT is to preserve access to state-provided medical care, payment for private health insurance premiums is a completely legitimate use of trust funds.
So here’s what you do: establish an SNT through the settlement of a personal injury claim and set aside an appropriate sum for immediate and unpredictable expenses. Then you fund the predictable and lifetime expenses with a non-taxable, lifetime-guaranteed structured settlement. You build in a specific allowance for future ACA premiums and out-of-pocket expenses over the claimant’s actuarial life expectancy. The Trustee then uses these funds to pay for the plan which covers future medical care over the claimant/beneficiary’s lifetime. Since the cost for Essential Medical Care was not born by Medicaid, there is no lien to be repaid upon termination of the trust for those components of care funded by the ACA plan.
Whether a person needs Medicaid benefits is a distinct and separate question from whether a special needs trust is appropriate. Claimants who would have been appropriate candidates for a special needs trust before the ACA will likely remain appropriate candidates in the post-ACA environment. Whether or not an ACA private health plan is deemed appropriate, the special needs trust keeps the Medicaid option open.
This scenario is just one of the many strategies one might craft in the modern-day settlement environment. Do you have a case with intricate issues regarding future medical care? Call Frank C. Kilcoyne, CSSC at 800-544-5533. I am here to help.
(1) https://www.healthcare.gov/glossary/essential-health-benefits/
