It is not often that the United States Supreme Court takes up issues involving Medicaid, the federal-state medical care program. In a case out of Arkansas last week, however, the high court unanimously ordered states to revise how they calculate their claims against personal injury settlements and judgments awarded to Medicaid recipients.

Heidi Ahlborn, then a 19-year-old college student, was horribly injured in an automobile accident in 1996. She was seriously brain-injured, and she was unable to continue her college education. Obviously, she endured significant pain and suffering, and she lost most of her future earnings potential. She also had large medical bills; the Arkansas Medicaid agency paid a total of $215,645.30 for her medical care after the accident.

Ms. Ahlborn’s lawyers filed suit against two individuals who might have been at fault for her accident. Because their insurance coverage was limited, and liability was not completely clear, the lawyers ended up settling Ms. Ahlborn’s claims for a total of $550,000. If there had been clear liability and unlimited insurance coverage, the best estimate of the value of her claims would have been more like $3,000,000.

Once the lawsuit settled, the State of Arkansas wanted to recover all the Medicaid money it had paid out. Ms. Ahlborn’s lawyers filed another lawsuit, this time in United States District Court, arguing that Arkansas’ position amounted to the state trying to take a portion of the recovery for Ms. Ahlborn’s lost wages and pain and suffering, and that federal Medicaid law did not permit the state to assert a claim on anything but the medical costs part of her settlement.

The trial judge, and later the U.S. Circuit Court of Appeals, agreed with Medicaid, and ordered Ms. Ahlborn to turn over nearly half her entire settlement. Then the Supreme Court got involved.

The high court agreed with Ms. Ahlborn’s arguments. Indeed, some portion of her $550,000 recovery was for pain and suffering, and some for her lost wages. Since Ms. Ahlborn only received about 1/6 of the total value of her claim, Arkansas’ claim against her recovery should be similarly reduced. Medicaid’s lien against her settlement was reduced to $35,581.47. Arkansas Department of Health and Human Services v. Ahlborn, May 1, 2006.

That does not mean that Ms. Ahlborn gets to keep the rest of the money. In addition to attorney’s fees and costs, some portion of her recovery will be subject to income taxes (since a portion of the amount will be attributed to wages). Any balance she retains will presumably affect her eligibility for future government benefits, and so a special needs trust may be appropriate. In the meantime, however, the Medicaid agency’s claim has been substantially reduced.

Would you like to subscribe to Elder Law Issues? Simply provide your e-mail address and name below, and click "Subscribe". At the same time, you may choose to also subscribe to The Voice, the newsletter of the Special Needs Alliance.

Privacy note: We do not ever use your e-mail address or name for any purpose other than to send out our subscription-based newsletter. You can rest assured that we will not sell, trade or share this information with any other person or entity. We have no ancillary or associated companies or entities to which we could provide your e-mail address, either.

© 1993-2009 Fleming & Curti, P.L.C.
330 N. Granada Avenue, Tucson, Arizona 85701
520-622-0400 /  FAX: 520-203-0240