Recovery in Motor Vehicle Accident Cases and the Impact on Public Benefits Eligibility

1. Recovery in Motor Vehicle Accident Cases and the Impact on Public Benefits Eligibility Bridget O’Brien Swartz, J.D., M.P.A State Bar of Arizona CLE “Winning the Motor Vehicle Accident Case – 2006” November 10, 2006

2. Potential Liability for Personal Injury Attorneys • The Grillo case is often cited by the insurance industry for the proposition that an attorney may be liable for failing to propose a structured settlement. See Grillo v. Petiete et al., Cause No. 96-14509092 and Grillo v. Henry Cause, 96-167943-96, 96th District Court, Tarrant County Texas. • The personal injury attorney arguably has a duty to not over-structure a settlement case as well, leaving the claimant with insufficient funds to meet up front cash needs, as well as overlooking a proper investment allocation of the overall settlement.

3. Potential Liability forPersonal Injury Attorneys (cont.) • The Grillo case stands for the proposition that the personal injury attorney (and guardian ad litem) may be liable for failing to set up a special needs trust where public benefits are concerned. See id.; see also Dept . Of Social Services v. Saunders, 247 Conn. Lexis 25 (1999). • Prior to setting up a special needs trust, all medical claims and liens must be compromised and paid, which includes Medicare claims and AHCCCS liens! See Norwest Bank v. David S. Doth, 159 F.3d 328 (8th Cir. 1998).

4. Potential Liability for Personal Injury Attorneys (cont.) • The U. S. Supreme Court recently upheld the U.S. Court of Appeals opinion in the Ahlborn case, which stands for the proposition that federal law limits a state to placing a lien only on third-party payments made to compensate for past medical care, i.e., not pain and suffering, lost wages, etc. See Arkansas Dept. of Health and Human Services et al. v. Ahlborn (126 S.Ct. 1761, May 1, 2006). • AHCCCS’ response to Ahlborn is that state law only permits it to recover the cost of medical care and that there is no evidence that AHCCCS would recover more than its medical costs, particularly given that it often seeks to recover less than the total settlement.

5. Potential Liability for Personal Injury Attorneys (cont.) In Arizona, there is an automatic “assignment” upon application for Medicaid or AHCCCS benefits, so whether a lien is perfected or not a recipient of benefits arguably has the obligation to pay the lien if there is a third party recovery.

6. Medicare Secondary Payor Be mindful of the fact that an individual who is eligible for and receiving Social Security Disability Insurance (SSDI) will be Medicare-eligible within 24 months and, thus, Medicare may have a claim for reimbursement if the case has not settled prior to that date.

7. Medicare Secondary Payor (cont.) A set-aside arrangement for future medical is required when: • “Reasonable expectation” of Medicare enrollment within 30 months of settlement date. • Anticipated total settlement for future medical expenses greater than $250k. • Medicare currently only enforcing in workers comp, not tort, cases.

8. Not all public benefits are needs-based: Social Security (retirement) Social Security Disability Insurance (SSDI) Medicare Some public benefits are needs-based: Supplemental Security Income (SSI) Medicaid (AHCCCS and ALTCS) Section 8 Housing, TANF (formerly AFDC), and Food Stamps Identifying the Public Benefits for which Your Client is Eligible

9. Social Security Benefits for the Disabled-Social Security Disability • Federal program • “Disabled,” i.e., unable to engage in substantial gainful activity • Based on the claimant’s earnings record or that of a retired or deceased parent if disabled before age 22 • Eligible for Medicare 24 months later

10. Social Security Benefits for the Disabled-Supplemental Security Income • Federal program • Elderly, blind or disabled • Resource limit: $2,000 for single, $3,000 for married • Max monthly benefit of $603 for single, $904 for married (2006) • “Deeming” of parents’ and spouse’s income and resources • Categorically or automatically eligible for AHCCCS acute medical assistance

11. AHCCCS Medical Benefits for the Indigent • Medical benefits for those who meet the resource and income criteria • All AHCCCS programs are income-sensitive (with the exception of Indian Health Services for which Native Americans are eligible) • Some AHCCCS programs are resource-sensitive, namely, the Medical Expense Deduction (MED) program • Many AHCCCS programs are based on the income/resources of the household • AHCCCS eligibility is determined either by the Arizona Department of Economic Security or AHCCCS • See www.ahcccs.state.az.us

12. AHCCCS Medical Benefits for the Disabled • Automatic for those who are eligible for SSI. • SSI-MAO for individual who no longer receive SSI but meet income limits. • Freedom to Work for individuals between the ages of 16-64 who are disabled and working with higher income limits. • Medicare Cost Sharing programs for individuals who are Medicare-eligible and meet income limits. • New SSDI-TMA program for individuals who are SSDI-eligible, not yet Medicare-eligible, and have been eligible for AHCCCS at some time during prior 24 months.

13. AHCCCS Medical Benefits for the Disabled (cont.) • Arizona Long Term Care System (ALTCS). • ALTCS covers nursing home care, home care, adult foster homes, and assisted living. • ALTCS is based on medical and financial need. • Someone who is “disabled” for purposes of qualifying for disability benefits through the SSA or for services through the Division of Developmental Disabilities through the Arizona Department of Economic Security does not necessarily qualify medically for ALTCS benefits.

14. ALTCS Financial Eligibility Requirements • Income requirements: $1,809/month gross income from all sources for single person (2006). • Resource requirements: $2,000 “available” for single person and ½ “available” resources of marital couple but no more than $99,540 (2006). • Excluded resources: Home if legal ownership interest, one vehicle, burial plot, burial account of $1,500 or irrevocable prepaid burial plan with no limit, household goods and personal effects.

15. Special Needs Trust Counsel and the Life Care Plan • Don’t go it alone – engage special needs trust counsel. • Use the life care plan as a tool in determining the best way to structure (preferably, before mediation). • Identify what services in the life care plan will realistically be used and are anticipated to be covered by public sources.

16. Other Considerations • Is alternative medical coverage available e.g., dependent children may have coverage available through a parent’s employer-sponsored group health plan and may continue to remain dependent indefinitely if disabled and living with that parent. • If your client has no alternative medical coverage available, but does not otherwise have substantial costs in long term care, consider his/her potential eligibility through one of the AHCCCS programs that are income sensitive only.

17. Maintaining SSI and/or ALTCS Eligibility • Spend down options: pay off debts, pre-pay up to one year of services, pay down mortgage, purchase home, purchase vehicle, purchase household goods and personal effects, make burial arrangements, etc. • “Special Needs Trust” or trust established pursuant to 42 U.S.C. Sec. 1396p(d)(4)(A) and A.R.S. Sec. 36-2934.01

18. Special Needs Trusts • Must be “disabled” according to the SSA or medically eligible for ALTCS; • Must be established before age 65; • Must be established by a parent, grandparent, guardian, conservator, or court of law; and • Must provide for reimbursement to AHCCCS up to the cost of medical services provided on termination of the trust (this is in addition to any lien that may have been paid from recovery but is at the capitated rate).

19. Striking a Balance with Structured Settlement Annuities • Consider size of settlement in determining whether to utilize a structure. • Factor into decision up front and long term cash needs, e.g., handicap-equipped vehicle and home. • Don’t put all your eggs in one basket; in other words, treat the structured settlement annuity as part of a diversified investment portfolio (structure = fixed income or bonds).

20. Structured Settlements and Public Benefits • Payments from a structured settlement constitute “income” for purposes of public benefits eligibility. • For purposes of SSI eligibility, “deeming” applies to structured settlements payable to parent of minor, or spouse. • If a special needs trust is established, then the payee on the structured settlement must be the trust. • Consider delaying payment on the structure until such time as a minor has reached the age of majority if AHCCCS eligible based on “indigency” alone. See A.R.S. Sec. 14-5424.D.

21. Stuctured Settlements (cont.) • Contingent payee of a guaranteed period must also be special needs trust to preserve AHCCCS’ reimbursement rights (note, don’t try to circumvent by naming spouse or parents, or else “uncompensated transfer!”). • Consider potential impact of guaranteed period on AHCCCS/ALTCS eligibility if not payable to SNT as AHCCCS has treated such provision as a transfer without fair compensation to the individual, thereby disqualifying him/her from long term care (not acute medical) benefits for a period of time. • Consider potential estate taxation on the death of the payee and include a commutation provision to provide for sufficient liquidity to pay such liability if necessary.

22. Allocation Issues • Consider who other than the “injured” party has a potential claim, such as for loss of consortium. • Ensure that “financially responsible” relatives who have claims receive sufficient funds to purchase large ticket items, such as a home, vehicle, etc. • Consider the fact that “financially responsible” relatives, i.e., spouse and parent of a minor disabled child, cannot be compensated for personal care services from a special needs trust. See A.R.S. Sec. 36-2934.01.

23. Considerations Prior to Funding a Special Needs Trust • State law requires that real property purchased by a special needs trust be titled to the trust, thereby subjecting it to the payback provision on termination. See A.R.S. Sec. 36-2934.01. • State law also requires that a vehicle purchased by a special needs trust be either titled to the trust or that the trust take back a lien equal to the current market value of the vehicle, thereby subjecting it to the payback provision on termination. See id. • Don’t forget to compromise and pay all liens prior to funding a special needs trust! • Given the above, consideration should be given to purchasing a home and vehicle prior to funding a special needs trust with a settlement!

24. Probate Court Involvement In the cases of minors and incapacitated adults, the following is required: • Probate court approval of settlement, its allocation and proposed distributions; • Appointment of conservator (maybe guardian); • Approval of special needs trust and appointment of trustee; • Approval of attorney’s fees and costs; and • Filing of court accountings annually