A recent change to the federal Medicaid Act will permit the various states more freedom when seeking recovery from a personal injury victim’s recovery in a lawsuit.  Currently, pursuant to two decisions of the United States Supreme Court, the various states are limited as to what portion of the lawsuit award they can seek recovery against.

Currently, the states are only able to seek recovery against that portion of the award that compensates the victim for medical expenses he incurred.  The Bipartisan Budget Act of 2013 will change that effective October 1, 2014, permitting the states to recover against the entire award in a personal injury lawsuit.

To explain what this means, it is best to use an example.  Assume that Mr. Smith is injured in an automobile accident.  As a result of the accident, Mr. Smith incurs significant medical expenses and can no longer work.  Unable to keep up with his medical bills and his general living expenses because he can no longer work, Mr. Smith qualifies for Medicaid benefits.

Medicaid is a health insurance program for needy individuals.  In order to qualify for Medicaid benefits, an individual must have limited assets and income.  Because of Mr. Smith’s situation, he is now a “needy individual” within the meaning of the Medicaid Act and he qualifies for Medicaid.

The Medicaid program pays for a number of Mr. Smith’s medical bills that relate to the injuries he incurred in the accident.

Mr. Smith sues the driver who hit him, hoping to recover the money he lost paying for medical expenses, the money he lost due to missing work, and for his pain and suffering.  Eventually, Mr. Smith wins the lawsuit and recovers $1,000,000.  Of that $1,000,000, $300,000 of the award is allocated to compensate Mr. Smith for the money he lost paying his medical bills, $300,000 is allocated to compensate him for lost wages, and $400,000 is allocated to compensate him for his pain and suffering.

Pursuant to the two decisions of the United States Supreme Court, the state of New Jersey, which paid Medicaid benefits on behalf of Mr. Smith, could only recover against the $300,000 he received to compensate him for the medical expenses he paid.  Since the Medicaid program paid some (or all) of those expenses, the theory goes, the Medicaid program should be permitted to recover against that portion of Mr. Smith’s personal injury award.

The other portions of the award—the portion designed to compensated Mr. Smith for lost wages and the portion designed to compensate Mr. Smith for his pain and suffering—have nothing to do with the Medicaid benefits Mr. Smith received, so New Jersey should not be permitted to seek recovery for Medicaid benefits paid on his behalf against those portions of the award.  Or, so that is what the Supreme Court held.

The new portion of the Medicaid Act permits New Jersey (and the other states) to recover against Mr. Smith’s entire award, including those portions designed to compensate Mr. Smith for lost wages and his pain and suffering.  So, if New Jersey paid $500,000 in Medicaid benefits for Mr. Smith, New Jersey can now (or will be able to effective October 1, 2014) recovery against Mr. Smith’s entire lawsuit award and receive full recovery.

While this sounds good and just, the fact of the matter is, it leaves people such as Mr. Smith, who may need care for the remainder of his life, with little money to pay for that care.  Mr. Smith may need a home health aide or medical equipment, and the less money with which he is left means the less money he has to pay for his care, not to mention his basic living expenses.