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Medicaid is a program where an individual unable to afford necessary medical treatment may be eligible to receive state and federal Medicaid benefits. This is true even when another person or entity may be legally responsible to pay one’s medical expenses yet the medical bills are unpaid awaiting a jury verdict or a settlement.

Once a settlement or judgment is reached, Medicaid seeks reimbursement of the amounts it paid for medical bills. A landmark ruling from the United States Supreme Court has just clarified the state’s rights under the Medicaid program.

Previously, if, for example, a person applies to Medicaid for benefits and the state pays out say $50,000. The injured party sues a legally responsible party and obtains a settlement in the amount of $60,000. The practice historically was that the state would receive fifty of the sixty thousand–a complete reimbursement of its payments–leaving the injured party with ten thousand dollars. The settlement served to compensate the party for not only medical expenses but also pain and suffering, lost wages, lost future earnings and other recoverable damages.

On May 1, 2006, the Justice Stevens issued the majority opinion of the United States Supreme Court in Arkansas Department of Health and Human Services vs. Heidi Ahlborn clarifying the law with respect to Medicaid liens and a state’s right to recovery.

According to the Court, a state is allowed to recoup only that portion of a jury verdict or settlement related to medical expenses or, in the case where the rights of the Medicaid recipient have been assigned to the state, only the portion of the case related to medical expenses will be assigned, the recipient retaining that aspect of the claim relating to lost wages, lost or earning potential, concious pain and suffering and so forth. This means, such as in the prior example, that if the sixty thousand dollar settlement compensated the party for only a portion of the fifty thousand dollars in medical bills, say thirty thousand, and the remaining to lost wages and pain and suffering, the state would receive only thirty thousand in reimbursement–the amount the Plaintiff received for medical bills paid by the state. The claimant would retain the additional twenty thousand that he or she would previously had returned to the state.

This is a very significant holding and should encourage a larger number of earlier resolutions in situations where there are large Medicaid liens, which sometimes have the effect of discouraging settlement, since the claimant had nothing to lose by trying the case to a jury. The lien laws are complex and should be evaluated by someone with experience in this area before accepting an offer to settle in cases where Medicaid or Medicare liens are at issue.

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