What’s Old is New Again: Medicaid Secondary Payer


By Marty Cassavoy, Vice President Medicare Secondary Payer Services

Medicaid conditional payments appear to be dead.  After five years of kicking the can down the road, Congress finally acted to resolve uncertainty surrounding when states will be able to expand their recovery rights.  The recently signed Bipartisan Budget Act of 2018 permanently repeals a 2013 amendment to Federal law that allowed states to recover from non-medical portions of personal injury settlements.  By including a permanent repeal of the provision, Congress breathes new life into two older Supreme Court cases whose holdings had been significantly curtailed by the 2013 amendment.  State Medicaid programs will now be limited once again to proportional recovery from third-party settlements where a Medicaid program pays for medical treatment.

What is "new" again?

The Bipartisan Budget Act of 2018 permanently, and retroactively, repeals the 2013 amendment and Ahlborn and Wos are once again good law.  States are not permitted to encroach upon the "non-medical" portions of a Medicaid beneficiary’s settlement.  At the same time, because states had not updated their recovery schemes to attack the non-medical portions of these settlements, practitioners will see few changes in terms of day-to-day recovery.  While there has been a ton of smoke around this issue for the last several years, there has been very little fire.  That’s not changing, at least with regard to which portion of a settlement is available for a recovery.

How did we get here?

Just like Medicare, state Medicaid agencies are empowered to recover funds from personal injury settlements if the agency pays for medical treatment attributable to the underlying accident.  While each state has its own individual operating rules and recovery preferences, the broad outlines of what states may and may not do are set by Federal law.  Unlike Medicare, Federal law had not allowed Medicaid agencies to recover "dollar for dollar" to the full extent of a beneficiary’s settlement.  Two key US Supreme Court cases over the last dozen years cemented that rationale, limiting the scope of these Medicaid agencies’ recovery rights. 

The first of these cases, Arkansas Dept. of Health & Human Services v. Ahlborn, prevents states from seeking recovery for portions of the settlement allocated to non-medical damages.  Essentially, under Ahlborn, states are limited to proportional recovery of any Medicaid benefits that are related to an underlying personal injury settlement.  If a settlement includes lost wages, pain and suffering, property damage or other non-medical damages, Ahlborn requires Medicaid agencies to put those elements of the settlement to the side and only consider the medical portion.  This is, of course, in contrast to Medicare, where the government may recover in full without regard to the party’s allocation of damages.

The second case, Wos v.E.M.A., was decided in March 2013.  In Wos, the Supreme Court overturned North Carolina’s approach to Medicaid recovery.  North Carolina’s law allowed the state to take up to one-third of any personal injury settlement to reimburse it for injury-related medical payments made by the state.  The Court rejected North Carolina’s scheme because it allowed the state, in some circumstances, to encroach upon non-medical damages.  In rejecting the scheme, the Court explained that Federal law does not and Ahlborn does not "permit the State to take a portion of a Medicaid beneficiary’s tort judgment or settlement not ‘designated as payments for medical care’".

A few short weeks after Wos was decided, Congress acted.  Section 202(b) of the Bipartisan Budget Agreement of 2013 removed the handcuffs that had been placed on Medicaid agencies.  In that section of the huge budget deal, commonly referred to as "Murray-Ryan," Congress amended the Medicaid statute to remove key language that underpinned both Ahlborn and Wos.  By eliminating the phrase "to the extent of such legal liability" and making further modification to the statute, Congress authorized states to alter their recovery schemes to recover without regard to the allocation of damages within a personal injury settlement.  

Although the bill passed in the spring of 2013, Congress set October 1, 2014 as the implementation date for the changes.  Over the next couple of years, Congress continued to kick the can down the line and delayed implementation until October 1, 2017.  Although October 1, 2017 came and went, Medicaid programs made few moves to actually begin recoveries in a "Medicare-style" way.  Some states, such as California, ramped up their investigation and data analysis to identify possible third-party issues.  But without real clarity from Congress, states were reluctant to jump in with two feet.

The National Council of Insurance Legislators proposes a model.

Some states, most notably Rhode Island, have mandated that personal injury claims be matched electronically against the list of state Medicaid beneficiaries. This process gives Rhode Island a leg up identifying claims where the state may have paid benefits involving a bodily injury claim.  While the Rhode Island program has been around for a number of years, it has not caught on nationwide.  The National Council of Insurance Legislators (NCOIL) has even crafted a model act based on the Rhode Island model.

It’s important to separate these two issues.  The repeal of the "Murray-Ryan" changes provides some needed certainty from Congress around what portions of a settlement are susceptible to Medicaid recovery.  These changes have immediate impact on any recovery claims in progress.  The repeal also ensures that states truly understand the rules of the road in this area of the law. 

The issue of where states get the information underlying their recovery activities and how aggressive they are in recovery is a separate matter.   In these areas, no national consensus has evolved as agencies have explored sporadically both broad technological requirements and day-to-day enforcement.  In some states, such as California and Kentucky, states have sent out huge volumes of letters identifying possible claims for enforcement, but have made very little headway in terms of actual recovery.  In others states, recovery proceeds as it has always done (even prior to Ahlborn) and without a significant investment in technology or resources for enforcement.

Medicaid secondary payer issues remain a hot topic that we will continue to follow.  Should you have any questions about claim-by-claim Medicaid recoveries or the ways in which states explore broad-based Medicaid recovery enforcement, contact Marty Cassavoy at 781-517-8085 or marty.cassavoy@examworks-cs.com.