New Law Repeals Excessive Reimbursement to Medicaid

A rare Congressional victory for injured plaintiffs.

Buried within the 600 pages of the federal Bipartisan Budget Act enacted on Friday is an obscure provision that allows some auto accident victims to keep more of their settlement or verdicts.This resolves an ongoing reimbursement battle that has been an ongoing issue in personal issue cases since a catastrophic 1996 Arkansas vehicle collision crash.

All states have statutes requiring tort claimants to repay them for medical expenses paid by their Medicaid programs. But calculating exactly how much of the plaintiff’s verdict or settlement should be reimbursed has caused vexing problems for attorneys.

For example, was it fair that the state be repaid in full while the injured person received little — if any — money? How much of the recovery had been allocated to those medical bills as opposed to other damages? And what happened in those all too frequent cases with difficult liability and damage issues and small insurance policy limits and assets that had affected case valuations in the first place?

With the new law, Medicaid enrollees will no longer be forced to reimburse state agencies from money they recovered for their non-medical expenses. As a result, they will be able to keep more of the funds for their own use.


The 1996 case: Arkansas Dept. of Health and Human Services v. Ahlborn

A young woman named Heidi Ahlborn was severely injured and her medical bills were astronomical. A portion ($215,000.00) was paid by her state’s Medicaid program. The Arkansas Department of Human Services (ADHS) obtained an assignment of rights from Ms. Ahlborn to repay the state from her settlement or verdict.

In 2002 Ms. Ahlborn reached a settlement for $550,000 that included medical expenses, lost income, and pain and suffering. However attorneys believed the case had a verdict value of $3 million.

The settlement did not divide the damages into distinct categories but included a stipulation that the amount represented one-sixth of the reasonable value of her claim. Relying upon this formula, Ahlborn’s attorneys concluded she owed only $35,581.47 — one-sixth of her total medical costs paid by Medicaid. ADHS filed a lien for the entire $215,000 and filed suit when that amount was not paid.

The federal trial court ruled in favor of ADHS. On appeal, the Eighth Circuit Court reversed holding that federal Medicaid laws prohibited the state government from asserting a lien on the recipient’s settlement amount in excess of the amount attributable to medical treatment — the plaintiff’s figure of $35,581.47. In 2006 the U.S. Supreme Court ruled unanimously that a plaintiff was entitled to keep all of his or her non-medical settlement damages.

Post Ahlborn legislation

But this issue was far from being resolved. In 2013 the Bipartisan Budget Act (BBA) legislatively overturned the Supreme Court’s decisions in Ahlborn and Wos v. E.M.A. which struck down a state law in North Carolina that allowed Medicaid to automatically recover one-third of the tort recovery.

The new federal law granted Medicaid the first right of recovery for all medical bills before the plaintiff could recover funds for non-medical damages such as lost wages, loss of wage earning capacity, disfigurement, disability, and pain and suffering. This meant that the injured person might receive nothing.

Fortunately the enactment of the new law was delayed until October of 2016 and postponed until October of 2017. Personal injury victims nervously have been waiting for years to see if they had to repay their proceeds to Medicaid.

Fortunately the new federal law reversed this injustice retroactively.

What does this mean for personal injury victims?

The secondary payer rights permit states to seek reimbursement for Medicaid costs. Texas, like most states, places a lien on future settlements to obtain reimbursement. However the 2013 BBA unfairly expanded this authority to include as much as 100 percent of the settlement, regardless of the plaintiff’s actual damages.

The new provision corrects this inequity. The state is still allowed to recover for the medical bills it paid, but can no longer exceed this amount. This result is fair to plaintiffs as well as to the states that provide important medical care.


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