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Rules for Keeping Medicaid After a Settletment

Medicaid is a state-operated, federal-and-state-funded health insurance program for the low-income elderly, the disabled, pregnant women and children. Other populations, such as individuals with cervical or breast cancer, HIV/AIDS, or refugees, are covered under some, but not all, state Medicaid programs. Due to income and resource limits imposed by each state's Medicaid program as a condition of eligibility, you must follow specific rules to dispose of income from a settlement to maintain eligibility.

  1. Income Limit & Spend-Downs

    • Depending on the source of settlement income and other factors, your settlement may be counted as income for the month(s) you receive payment(s), and may be used for the purposes of calculating and imposing a spend-down for that month. You may be required to pay a portion of your medical bills that month prior to Medicaid becoming active. Contact your local or state Medicaid office to determine whether or not your settlement will cause you to have a spend-down.

    Resource Limit

    • State Medicaid programs have resource limits that must be met to remain eligIble. Resources include cash-on-hand, bank accounts, life insurance policies with a cash value, stocks, bonds, IRAs, vehicles (one is not counted if used as the primary form of transportation for the recipient), houses and land (one home and the land it resides on is not counted if it is the primary residence of the recipient) and other resources with a cash value. This resource limit is typically in the $1,500 to $2,000 range for an individual and $2,000 to $3,000 range for a couple. These amounts may also vary depending on the specific type of Medicaid you are enrolled in. You must be able to prove that you have spent enough of the settlement to put you under the resource limit within the month you received it.

    Transfer/Disposal of Assets

    • You cannot give away the settlement money as a gift. If you do, you will have a penalty period when you will be ineligible for Medicaid for up to five years, depending on the amount of the settlement. You must save receipts or other documentation of how all of the settlement money was spent. This is used as proof that you did in fact dispose of the settlement money and aren't keeping it in your possession.

    Irrevocable Trusts

    • You may be able to place the settlement money into an irrevocable trust and not have it count against you for Medicaid eligibility purposes. Withdraws from an irrevocable trust can typically only be made under specific conditions outlined in the trust, such as death of the contributor to the trust.

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