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What to Consider When Representing a Catastrophically Injured Client With Special Needs

By Jason D. Lazarus, J.D., LL.M., MSCC, CSSC

In the confusing landscape of public benefits and planning issues that arise today for trial lawyers, finding your way can be a daunting task.  Should the client seek Social Security Disability (“SSDI”) benefits and become Medicare eligible?  Doesn’t that trigger the need for a Medicare Set Aside?  What if the client is receiving needs based benefits such as Medicaid and/or Supplemental Security Income (“SSI”)?  Is coverage under the Affordable Care Act (“ACA”)[1] a better or even an available option?  How should the recovery be managed from a financial perspective?  Is a trust appropriate?  Should a structured settlement be considered?  There are no easy answers to these questions.  In the paragraphs that follow, you will find useful information related to these issues that will give trial lawyers the ability to issue spot when settling a case for a catastrophically injured client. 

Let’s use a real world example to identify the issues.   Take Jan Smith who was the victim of medical malpractice at a hospital.  Jan was in her early forties when she decided to have elective surgery on her back for degenerative disc disease.  During the surgery, a problem developed while being intubated and the procedure was cancelled.  Mrs. Smith was moved to the ICU and no neurologic monitoring was performed that evening after being moved from the surgical suite.  The next morning Mrs. Smith was found to be quadriparetic.  Unfortunately for Mrs. Smith, her condition was irreversible.  Suit was brought against multiple defendants with a significant seven figure recovery secured.  Mrs. Smith and her family had Medicaid coverage and SSI.  She had also applied for SSDI.  At the time of settlement, there was no Medicare eligibility since she had not been approved for SSDI and she wasn’t sixty five.  How do you protect the client’s eligibility for public benefits?  Is that the right thing to do?  Should ACA coverage be considered?  What about protection of the monies recovered on Mrs. Smith’s behalf?  Should a trust be created?  What about structured settlements?  Let’s explore these questions further.

Public Benefits versus ACA Coverage

As a starting point, the first question is whether it makes sense for Mrs. Smith to give up her needs based benefits completely by taking the settlement in a lump sum and becoming privately insured through coverage under the Affordable Care Act.  This isn’t a question that can be answered with a simple yes or no.    There are multiple considerations before deciding to eschew coverage afforded by Medicaid and Medicare along with the needs based Social Security benefit, SSI.  First is whether the ACA coverage will be around for the long term.  Will it be repealed at some point?  Will portions of it be repealed making it a non-viable option?  Second, does the case involve needs that aren’t provided for by the affordable care act coverage such as in-home skilled attendant care or long term facility care?  These services can be very costly and may be covered by Medicaid in many states but are not covered by ACA plans.  In Mrs. Smith’s case, she will have a significant amount of attendant care needs that can be covered by certain Medicaid programs available in her home state but not by the ACA.  So does that mean she shouldn’t apply for ACA coverage?  Should she create a special needs trust to protect Medicaid and SSI?  The answer lies in an analysis of the costs of the plans available under the ACA and the amount of spendable income that results if a special needs trust is utilized.

According to a 2013 article authored by Kevin Urbatsch and Scott MacDonald entitled “The Affordable Care and Settlement Planning”[2] the numbers favor combining ACA coverage with a special needs trust.  The following chart illustrates the financial benefits of combining an SNT with ACA coverage in California.







$1 M

$2.868 M

Net Spendable Income — Annual Amount [u][3]

SNT Only [v][4]






No SNT, Buy ACA Insurance [w][5]






SNT with ACA Supplemental [w]






No SNT, Expanded Medi-Cal












Income Percent of Federal Poverty Limit [x][8]


138% [y][9]




Average Annual ACA Premium (Net Subsidy) [z][10]






Average Monthly ACA Premium (Net Subsidy)






Source: Merrill Lynch Wealth Management Analysis through the Wealth Outlook Program, May 2013.

As the chart demonstrates, there can be some distinct advantages from a financial perspective to utilizing ACA coverage but also keeping Medicaid/SSI eligibility.  While that is true, it also is true that a special needs trust, which would preserve Medicaid and SSI, places many restrictions on how settlement monies may be used.  Accordingly, it isn’t a decision that should be made just for financial reasons.  A careful analysis of all of the issues is necessary.  In the case of Mrs. Smith, other considerations outweighed the use of a special needs trust.  She and her family didn’t want the restrictions that come with the special needs trust.   Since monies were allocated to her spouse and their children, all of the family’s assets disqualified her for needs based benefits.

Even though she was currently ineligible for needs based benefits, that didn’t mean she could never become eligible again in the future.  Because she might need means tested benefits such as Medicaid/SSI in the future and could become a Medicare beneficiary at some point as well, a trust with provisions that would protect these benefits was created.  The trust was created had provisions that would allow the trustee to move money into a “special needs sub-trust” and a “Medicare set aside sub-trust”.  The set aside sub-trust was contained within the “special needs sub-trust” so that in the event that the client was “dual eligible”, the set aside wouldn’t cause an eligibility problem for needs based benefits.  This planning technique will make more sense after the explanation below about the different types of public benefits and planning that can protect such benefits.  Also, let’s now make the assumption that the ACA coverage isn’t an option or perhaps might not be around well into the future.  What are the types of benefits an injury victim should be concerned about preserving and what are the techniques used to preserve them? 

Public Assistance Primer

Because Mrs. Smith is eligible for Medicaid and SSI as well as having applied for SSDI, further explanation of these benefits makes sense to adequately understand the issues involved in planning for her recovery.  There are two primary public benefit programs that are available to those that are injured and disabled.  The first is the Medicaid program and the intertwined Supplemental Security Income benefit (“SSI”).  The second is the Medicare program and the related Social Security Disability Income/Retirement benefit (“SSDI”).  Both programs can be adversely impacted by an injury victim’s receipt of a personal injury recovery.  Understanding the basics of these programs and their differences is imperative to protecting the client’s eligibility for these benefits.

Medicaid and Supplemental Security Income (hereinafter SSI) are income and asset sensitive public benefits that require special planning to preserve.  In many states, one dollar of SSI benefits automatically provides Medicaid coverage.  This is very important, as it is imperative in most situations to preserve some level of SSI benefits if Medicaid coverage is needed in the future.  SSI is a cash assistance program administered by the Social Security Administration.  It provides financial assistance to needy aged, blind, or disabled individuals.  To receive SSI, the individual must be aged (sixty-five or older), blind or disabled and be a U.S. citizen.  The recipient must also meet the financial eligibility requirements.[11]  Medicaid provides basic health care coverage for those who cannot afford it.  It is a state and federally funded program run differently in each state.  Eligibility requirements and services available vary by state.  Medicaid can be used to supplement Medicare coverage if the client is eligible for both programs (“dual eligible”).  For example, Medicaid can pay for prescription drugs as well as Medicare co-payments or deductibles.  Because Medicaid and SSI are income and asset sensitive, creation of a special needs trust may be necessary which is discussed in greater detail below.

Medicare and Social Security Disability Income (hereinafter SSDI) benefits are an entitlement and are not income or asset sensitive.  Clients who meet Social Security’s definition of disability and have paid in enough quarters into the system can receive disability benefits without regard to their financial situation.  The SSDI benefit program is funded by the workforce’s contribution into FICA (social security) or self-employment taxes.  Workers earn credits based on their work history and a worker must have enough credits to get SSDI benefits should they become disabled.  Medicare is a federal health insurance program.  Medicare entitlement commences at age sixty-five or two years after becoming disabled under Social Security’s definition of disability.  Medicare coverage is available again without regard to the injury victim’s financial situation.  Accordingly a special needs trust is not necessary to protect eligibility for these benefits.  However, the MSP may necessitate the use of a Medicare Set Aside discussed in greater detail below.

How Do We Protect Mrs. Smith Current and Potential Future Benefits? 

Planning Techniques for Keeping Mrs. Smith Eligible for Medicaid/SSI

Since Mrs. Smith receives Medicaid/SSI, a special needs trust can be created to hold the recovery and preserve public benefit eligibility since assets held within a special needs trust are not a countable resource for purposes of Medicaid or SSI eligibility.  The creation of a special needs trust is authorized by Federal law.[12]  Trusts commonly referred to as (d)(4)(a) special needs trusts, named after the Federal code section that authorizes their creation, are for those under the age of sixty five.[13]  However, another type of trust is authorized under the Federal law with no age restriction and it is called a pooled trust, commonly referred to as a (d)(4)(c) trust.[14] 

The 1396p[15] provisions in the United States Code govern the creation and requirements for such trusts.  First and foremost, a client must be disabled in order to create a SNT.[16]  There are two primary types of trusts that may be created to hold a personal injury recovery each with its own requirements and restrictions.  First is the (d)(4)(A)[17] special needs trust which can be established only for those who are disabled and are under age 65.  This trust is established with the personal injury victim’s recovery and is established for the victim’s own benefit.  It can only be established by a parent, grandparent, guardian or court order.  The injury victim can’t create it on his or her own.  Second is a (d)(4)(C)[18] trust typically called a Pooled Trust that may be established with the disabled victim’s funds without regard to age.  A pooled trust can be established by the injury victim unlike a (d)(4)(A). 

Planning Techniques for Making Sure Mrs. Smith Will Not Lose Medicare Coverage in the Future

Mrs. Smith has applied for SSDI which means technically, according to CMS guidance, she has a “reasonable expectation of becoming a Medicare beneficiary within 30 months”.  A client who is a current Medicare beneficiary or reasonably expected to become one within 30 months should concern every trial lawyer because of the implications of the Medicare Secondary Payer Act (“MSP”).  Under the MSP, Medicare isn’t supposed to pay for future medical expenses covered by a liability or Workers’ Compensation settlement, judgment or award.  CMS recommends that injury victims set aside a sufficient amount to cover future medical expenses that are Medicare covered.  CMS’ recommended way to protect an injury victim’s future Medicare benefit eligibility is establishment of a Medicare Set Aside (“MSA”) to pay for injury related care until exhaustion. 

In certain cases, a Medicare Set Aside may be advisable in order to preserve future eligibility for Medicare coverage. A Medicare set aside allows an injury victim to preserve Medicare benefits by setting aside a portion of the settlement money in a segregated account to pay for future Medicare covered healthcare. The funds in the set aside can only be used for Medicare covered expenses for the client’s injury related care. Once the set aside account is exhausted, the client gets full Medicare coverage without Medicare ever looking to their remaining settlement dollars to provide for any Medicare covered health care. In certain circumstances, Medicare approves the amount to be set aside in writing and agrees to be responsible for all future expenses once the set aside funds are depleted.

Dual Eligibility: The Intersection of Medicare and Medicaid – SNT/MSA

Since Mrs. Smith is potentially a Medicaid and Medicare recipient, extra planning is in order.  If it is determined that a Medicare Set Aside is appropriate or needed in the future, it raises some issues with continued Medicaid eligibility.  A Medicare Set Aside account is considered an available resource for purposes of needs based benefits such as SSI/Medicaid.  If the Medicare Set Aside account is not set up inside a Special Need Trust, the client will lose Medicaid/SSI eligibility.  Therefore, in order for someone with dual eligibility to maintain their Medicaid/SSI benefits the MSA must be put inside a Special Needs Trust.  In this instance you would have a hybrid trust which addresses both Medicaid and Medicare.  It is a complicated planning tool but one that is essential when you have a client with dual eligibility.

Financial Settlement Planning Considerations

While we have discussed Mrs. Smith’s public benefit preservation issues above, what about the management of her significant recovery?  Should a part of it be in the form of a structured settlement?  What about ongoing management of her financial affairs?  Will she need help from a fiduciary such as a corporate trustee?  There are noright or wrong answers to these questions.  Instead, there are options for Mrs. Smith to consider and they should be presented so that she can make an informed decision. 

The first option is to take all of the personal injury recovery in a single lump sum.  If this option is selected, the lump sum is not taxable, but once invested, the gains become taxable and the receipt of the money will impact his or her ability to receive public assistance.[19]  A lump sum recovery does not provide any spendthrift protection and leaves the recovery at risk for creditor claims, judgments and wasting.  The personal injury victim has the burden of managing the money to provide for their future needs be it lost wages or future medical. Needs based public benefits would be lost if a lump sum is taken and any reduction in the premium costs for the ACA insurance programs would also be lost. 

The second option is receiving “periodic payments” known as a structured settlement[20] instead of a single lump sum payment.   A structured settlement’s investment gains are never taxed[21], it offers spendthrift protection and the money has en

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