U.S. Supreme Court clarifies extent of state medicaid lien statutes

Medicaid is the joint federal/state program that pays for long-term health care in a nursing home. A Medicaid recipient must meet numerous eligibility requirements but, in short, must have a very minimal level of income and assets. State law typically allows the state Medicaid agency to file a claim in a deceased Medicaid recipient’s estate to recoup Medicaid benefits paid during the recipient’s lifetime, and also authorizes a statutory lien to the extent of Medicaid benefits paid. Under Iowa law, the lien applies to all monetary claims which the Medicaid recipient may have against third parties (Iowa Code §249A.6). But, while federal law authorizes such state liens on monetary claims the Medicaid recipient may have, it bars placing a lien on a Medicaid recipient’s property (42 U.S.C. §1396k(a)(1)). The state agency must take reasonable steps to determine the legal liability of third parties to pay for the medical care of the Medicaid recipient, and the lien attaches to that obligation. But, a question has existed as to whether a state’s lien is limited to just those portions of any payments a Medicaid recipient is entitled to that are designated as being for medical expenses, or whether the lien applies to all third party payments a recipient is entitled to the extent of Medicaid benefits paid. The U.S. Supreme Court has now answered that question.

The plaintiff was permanently disabled in an automobile accident. During her medical care the plaintiff received benefits under the Arkansas Medicaid program. State law required the plaintiff to assign to the state Medicaid agency her "right to any settlement, judgment, or award" she may receive from third parties, "to the full extent of any amount which may be paid by Medicaid for the benefit of the applicant." The plaintiff received $215,645.30 in Medicaid benefits. A few years later, the plaintiff received $550,000 as the result of a settlement of the litigation involving the auto accident. That total included amounts for past and future pain and suffering, medical claims, loss of earnings and working time, and the plaintiff’s permanent inability to earn income in the future. Only $35,581 of the settlement proceeds were for medical expenses, but the state Medicaid agency asserted a lien against the proceeds for $215,645.30 - the full amount it had paid for the plaintiff’s care.

The plaintiff sought a declaratory judgment that the state Medicaid agency could only recover $35,581, the portion of the settlement that represented her claim to medical expenses. The plaintiff reasoned that the state’s Medicaid recovery was limited to third-party payments for health care services. To do otherwise, the plaintiff claimed, would violate federal Medicaid law, which ensures that a Medicaid recipient's property will not be depleted during the recipient's life by a state seeking reimbursement for its medical assistance. The state Medicaid agency argued that its lien did not conflict with the federal law, because the plaintiff’s third party settlement was not her "property" until the state was fully reimbursed for all funds expended on medical care. The trial court agreed with the state, but the United States Court of Appeals for the Eighth Circuit reversed. According to the Eighth Circuit, while the federal statutory scheme required the plaintiff to assign her rights to recover from third parties for the costs of medical care and services incurred as a result of the accident, it also protected her other property from recovery by the state. The Eighth Circuit sent the case back to the trial court with directions to enter a judgment for the state in the amount of $35,581.47, the amount of the settlement allocated for medical care.

The state asked the U.S. Supreme Court to hear the case. They agreed to do so in the fall of 2005, and have now unanimously agreed with the Eighth Circuit, holding that the federal Medicaid law did not authorize the state to assert a lien on the plaintiff’s settlement in an amount exceeding the $35,000 for medical care, and that the federal anti-lien provision actually barred the state from doing so.

What’s the impact on the Iowa statute? While the Iowa statute (Iowa Code §249A.6(1)) appears to limit the state’s lien to claims a Medicaid recipient has against third parties to the extent of Medicaid benefits paid to the recipient - “… the department shall have a lien, to the extent of those payments [i.e., Medicaid benefits paid to the recipient], upon all monetary claims which the recipient may have against third parties….”, additional language in the same statute providing that, “…A settlement, award, or judgment structured in any manner not to include medical expenses or an action brought by a recipient or on behalf of a recipient which fails to state a claim for recovery of medical expenses does not defeat the department’s lien if there is any recovery on the recipient’s claim.”, would appear to extend the state’s lien to amounts a Medicaid beneficiary is entitled to that are not for medical care. If that is the case, the statute is invalid to the extent it gives the state a right to assert a lien on third party payments that are not for medical care. Arkansas Department of Health and Human Services, et al. v. Ahlborn, 547 U.S. 268 (2006).

Note: The Federal District Court for the Western District of Pennsylvania has held that liens imposed by the state for medical expenses violate the anti-lien and anti-recovery provisions of the federal Medicaid law. While the court noted that the Supreme Court opinion in Ahlborn found that the state may not recover non-medical expenses, the court reasoned that the Supreme Court left open the question as to whether the state could recover medical expenses. Thus, the court held that the state can intervene in cases or directly represent its own interests, but having not done so in the cases before it, it could not impose liens on settlement proceeds. Tristani v. Richman, 609 F. Supp. 2d 423 (W.D. Pa. 2009).