How a Workman's Comp Lump Sum Affects Your Medicaid Eligibility

Receiving a workman's compensation lump sum can raise concerns about maintaining Medicaid eligibility. Many people worry that this one-time payment could disrupt their benefits. Below, we’ll explore how a lump sum impacts Medicaid eligibility, what counts as income versus assets, and the options available to protect your benefits, particularly in Florida.

Understanding Lump Sums and Medicaid

A workman’s compensation lump sum is typically considered unearned income in the month it is received. For Medicaid purposes, this income could temporarily disqualify you for that specific month if it exceeds the income limit. However, the impact doesn’t necessarily extend to subsequent months, as the payment is not recurring income. The bigger concern is how the lump sum affects your assets if it remains in your bank account.

Medicaid has strict asset limits, typically $2,000 for an individual. If the lump sum pushes your bank account balance above this threshold, it could jeopardize your eligibility unless you take action to manage the funds properly.

Managing the Lump Sum to Maintain Eligibility

To avoid losing Medicaid benefits, you have several options to handle a workman’s comp lump sum. Here are some strategies to consider:

1. Spend on Legitimate Expenses

If you have legitimate expenses that Medicaid allows, such as medical bills, home repairs, or other approved costs, you can use the lump sum to pay these without incurring a penalty. By reducing the lump sum through allowable spending, you can keep your assets below the $2,000 limit and maintain eligibility.

2. First-Party Special Needs Trust

One effective option is to deposit the lump sum into a first-party special needs trust. This trust allows you to use the funds throughout your lifetime for specific needs, such as medical care or personal expenses, without affecting Medicaid eligibility. The trust must follow strict rules, and any remaining funds after your passing may be reclaimed by Medicaid to cover prior benefits paid. Consulting an elder law attorney is crucial to set up this trust correctly.

3. Pooled Trust

A pooled trust is another option, where your funds are combined with others for investment purposes but managed for your benefit. Like a special needs trust, any remaining funds after your death may go to Medicaid. This can be a good choice depending on your circumstances, but professional guidance is recommended.

4. Personal Care Contract

If you have a close family member or friend providing care, you could enter into a personal care contract. This contract allows you to pay them a lump sum for future care based on your estimated life expectancy. The caregiver must report the payment as income for tax purposes, but this can be a way to use the funds without affecting your Medicaid eligibility.

5. Structured Settlements

Instead of receiving a lump sum, you might opt for a structured settlement, where the workman’s comp payment is distributed monthly. If these payments are structured to stay below Medicaid’s income limit, they may not affect your eligibility. A qualified income trust (also called a Miller trust) can also help manage excess income to maintain benefits.

Reporting Requirements

Medicaid requires you to report any changes in income or assets, including a workman’s comp lump sum. Failing to report could lead to complications with your benefits. However, reporting doesn’t automatically mean disqualification. By taking proactive steps, such as those listed above, you can manage the funds to stay eligible.

Why Consult an Elder Law Attorney?

The best approach depends on your unique situation, including the size of the lump sum, your Medicaid program, and your state’s rules (e.g., Florida has specific options). An elder law attorney can assess your circumstances and recommend the most suitable strategy, whether it’s a trust, structured settlement, or another solution. This is especially important for larger lump sums, as improper handling could lead to a loss of benefits.

Key Takeaways

• A workman’s comp lump sum is treated as income in the month received but becomes an asset if it remains in your bank account.

• If your assets exceed $2,000, you risk losing Medicaid eligibility unless you take action.

• Options like special needs trusts, pooled trusts, personal care contracts, or structured settlements can help protect your benefits.

• Always report changes in income or assets to Medicaid.

• Consulting an elder law attorney is critical to navigate these options effectively, especially in Florida.

If you’re in Florida and need guidance, contact an elder law attorney to discuss your specific situation. Protect your Medicaid benefits while making the most of your workman’s comp settlement.

Note: This information is based on general Medicaid rules and may vary by state. Always seek professional legal advice for your specific circumstances. Contact atCause Law for a free consultation.