One of the first steps every personal injury plaintiff should take following an accident, with the assistance of your attorney or structured settlement planner, is to take an inventory of any public benefit programs you are currently taking advantage of and to determine what other programs they may also be entitled to participate in.
This is important because these programs may be needed to provide other sources of income and/or to help pay medical or other costs prior to your case being resolved - which may take several months or even years.
Another reason is that some public benefits are needs-based (“means tested”) and have strict financial eligibility requirements. Without proper planning, a settlement (either lump sum or structured) could disqualify you or prevent you from qualifying for “means tested” public benefits in the future. Examples of “means tested” public benefits include Social Security Income (SSI); Medicaid; Children’s Health Insurance Program (CHIP); Supplemental Nutrition Assistance Program (SNAP); and Subsidized Housing.
Other public benefits, known as “entitlement” benefits, do not have any financial eligibility requirements and therefore cannot be terminated as the result of a settlement. Examples of “entitlement” benefits include: Social Security Disability Insurance (SSDI) and Medicare.
It’s important that your settlement doesn’t disqualify you from receiving these “means-tested” public benefits. Structured Settlement Consultants are very well educated about these programs and often use two techniques to preserve your eligibility: Special Needs Trusts and ABLE Accounts:
Settlement recipients and their advisors regularly use special needs trusts as an important planning tool in many personal injury cases. Receiving and accumulating your settlement in a special needs trusts is a great way to make sure you can maintain and/or qualify for SSI and Medicaid. Structured settlement payments will not be considered income (under Social Security rules) to a special needs trust beneficiary when paid into a special needs trust, nor will the right of the trust to receive the payments be considered a resource to the trust beneficiary, so long as: 1) the beneficiary of the trust “has no right to anticipate, sell or transfer the annuity payments”; and 2) the payments “are irrevocably assigned” to a special needs trust.
An SNT can also fund an ABLE account and structured settlements represent an effective settlement methodology for organizing future ABLE funding. ABLE accounts have become popular settlement planning tools for qualifying disabled individuals since Congress passed The ABLE Act which created IRC 529A in 2014. The ABLE Act allows states to create tax-advantaged savings programs for individuals who become disabled prior to age 26. Funds from these 529A ABLE accounts can help designated beneficiaries pay for “qualified disability expenses”. Distributions are tax-free if used for qualified disability expenses. Although structured settlements cannot currently fund an ABLE account directly, they can do so conveniently and indirectly through an SNT.
What government programs are “needs-based” or “means tested”?
Supplemental Security Income (SSI) is a cash benefit welfare program for aged, blind and disabled persons with limited income and resources to pay for food, clothing and shelter. To qualify as a “disabled” individual, a settlement recipient must meet Social Security’s definition. In general, the income limit for SSI is the federal benefit rate (FBR), which is $783 per month for an individual and $1,175 per month for a couple in 2020. Although the SSI benefit itself is relatively small ($771 per month), SSI benefit status is important because many other needs-based public benefit programs are based upon SSI status. In most states, an SSI recipient automatically qualifies for Medicaid, and disqualification from SSI can also result in the loss of long-term care payments under Medicaid.
Medicaid is a joint federal-state program of medical assistance for low-income individuals who are elderly, blind or disabled. Unlike Medicare, which is an entitlement program, Medicaid is a means-tested welfare program. Qualification for Medicaid includes both income and resource requirements. Since 1989, countable resources have been limited to $2000 for an individual. Many assets, most importantly a home, do not count as resources. Medicaid services vary by state but generally include programs for doctors’ services, hospital stays, physical and occupational therapy, nursing care, prescriptions and community-based medical care.
CHIP is a partnership between the federal and state governments that provides low-cost medical coverage for children whose families earn too much to qualify for Medicaid but cannot afford private healthcare coverage. Each has its own qualification rules and each state program is closely linked with its state Medicaid program. Coverage varies by state but generally includes routine check-ups, immunizations, doctor visits, and prescriptions. To find information about the Medicaid and CHIP programs in your state, visit InsureKidsNow.gov or call 1-877-KIDS-NOW (1-877-543-7669).
SNAP (aka the Food Stamp Program) is a federal program that provides food-purchasing assistance to low income families and individuals. The amount of benefits depends upon a household’s size, income and expenses. There are income and resource requirements for SNAP, as well as specific requirements for immigrants, elderly persons and persons with disabilities. SNAP's statutes, regulations, and waivers provide State agencies with various policy options.
The Housing Act of 1937 created two federal housing programs that provide potential assistance for disabled persons. Section 8 Housing provides rental assistance for low-income families and individuals. To be eligible, an applicant’s income cannot exceed 50 to 80 percent of the family income for the specific geographical area adjusted for family size. Countable income includes Social Security and disability benefits, alimony, pensions, annuities, plus certain welfare payments and third-party contributions. Non-countable income includes gifts, inheritances, medical reimbursements, and insurance payments. Section 202 Housing subsidizes construction and operation of housing to establish below-market rental rates that can be further reduced by a Section 8 subsidy. Unlike Section 8 rental assistance, the Section 202 program has no income restrictions.
Ok, so what programs are considered “entitlements”?
There are no income or resource requirements for SSDI benefits. Most recipients receive between $800 and $1800 per month. To qualify, a person must have a sufficient earnings record and must be unable to work due to a physical or mental impairment which can be expected to result in death or which lasted or can be expected to last for a continuous period of not less than 12 months.
Medicare is a national health insurance program for persons age 65 and over plus some younger persons with disabilities. Like SSDI, there are no income or resource requirements for this benefit. There are four parts to the Medicare program:
- Part A (hospital care)
- Part B (physician and outpatient care)
- Part C (a hybrid combining Parts A and B)
- Part D (drug benefit)
When a personal injury or workers’ compensation settlement includes payments to cover future injury-related medical expenses that would normally be paid by Medicare, Medicare requires the parties to the settlement to “protect Medicare’s interests”. One way to accomplish this requirement is to allocate an appropriate amount of settlement funds into a Medicare set-aside (MSA) account. MSAs are frequently funded with structured settlements because CMS rules provide a significant cost advantage for structured settlements compared with lump sums.
Veterans benefits represent a unique category of public benefits. All veterans who have been honorably discharged are generally eligible for most veterans’ health care benefits. The Veterans Administration (VA) health care system, however, is primarily for veterans with service-connected disabilities, combat veterans, low-income veterans and elderly veterans with wartime service. Qualifying veterans can obtain health care for free or at cost at VA facilities. Enrollment is required for most VA medical benefits. the VA determines annually which priority groups will be enrolled for the following year based upon its budget. The VA has over 150 hospitals nationally and most of these hospitals also provide nursing home care. The Veterans Millennium Health Care and Benefits Act of 1999 added services as alternatives to nursing homes.
As you can see there are lots of things to consider which is why we recommend working with a structured settlement consultant who can guide you through the process and ensure you maintain your eligibility for any program that will be needed for your future income and care in addition to your settlement.