A recent Pennsylvania case raises a flag of warning for personal injury attorneys who use annuities in structured settlements. Personal injury, products liability, and workmen’s compensation cases are frequently settled in return for an annuity that provides long term periodic payments to the injured party.
Structured settlements are a well recognized method of providing income to meet the ongoing needs of the claimant while reducing the risk of improvident dissipation (i.e. “blowing the money”) that accompanies a lump sum settlement.
Where the injured party may need Medicaid benefits in the future, the lawyer must consider the Medicaid implications of settlement arrangements. Medicaid rules are particularly complex and represent a significant trap for the unwary claimant and his or her lawyer. Consider the recent Pennsylvania case of Dustin Sams.
Sams v. Department of Public Welfare
Mr. Sams received a brain injury when his motorcycle was struck by another vehicle. His injury lawsuit was eventually settled. As part of the settlement Sams’ guardian agreed to accept a structured settlement annuity for $232,474.15. Thereafter, the guardian began receiving monthly payments of $967.23, payable at an annual interest rate of 3% for 360 months to continue for the remainder of Sams’s life. His sister was named as secondary beneficiary of the annuity in the event of Sams’ death during the guaranteed payment period.
Prior to receiving the annuity payments, Sams was receiving Medicaid financed Home and Community Based Long Term Care Services (HCBS-LTC). Because of the monthly annuity payments, Sams had to reapply for HCBS-LTC. When he did, the County Assistance Office informed him that he was ineligible for further medical assistance.
DRA Sets Requirements for Annuities
Sams was no longer eligible for home care benefits because his annuity did not comply with the Medicaid requirements for annuities enacted as part of the Deficit Reduction Act of 2005 (DRA). Section 602 of the DRA governs the treatment of annuities in regards to qualification for Medicaid long term care services such as those needed by Mr. Sams.
As a result of its non-compliance with the DRA, Sams’ annuity purchase was determined to be a disposition of assets without receiving fair market value, which meant that Sams would be ineligible for further HCBS-LTC benefits for a long time. The CAO imposed a period of ineligibility to run for over two years, from July 1, 2012, to November 22, 2014.
Sams’ appeal to an administrative law judge and then to the Pennsylvania’s Commonwealth Court were denied. Sams v. Department of Public Welfare (PA Commonwealth Court, August 21, 2013).
Bad Result Could Have Been Avoided with Medicaid Planning
Mr. Sams could have continued to receive Medicaid funded home care benefits without interruption had his annuity complied with the DRA.
One company that helps Pennsylvania lawyers purchase annuities that meet the full requirements of Medicaid law is PCM, located in Williamsport, PA. The PCM website (www.paannuity.com) contains a lot of information on DRA compliant annuities. DRA annuities have been used for years to ensure the eligibility of individuals and married couples for Medicaid.
Mr. Sams had options that would have allowed his eligibility for Medicaid home care benefits to be preserved. The use of a DRA compliant annuity would have worked. Another common Medicaid planning option that could have been considered was the “special needs trust.” These tools can be used to protect an injured claimant’s entitlement to future Medicaid benefits.
The Sams case illustrates that the injury lawyer needs to take care to consider their client’s potential need for Medicaid Long Term Care benefits before they settle. So should a company issuing a settlement annuity. A lack of effective Medicaid advance planning can be disastrous for the client.
Further Reading on Medicaid Annuities and Special Needs Trusts:
Disclosure: I am a shareholder in PCM which is referred to in this post.