The Bipartisan Budget Act of 2018 Reinstates Limits on Medicaid's Third-Party Rights to Settlement Awards

In the landmark Supreme Court decision of Arkansas Dept. of Health Services v. Ahlborn , the Court affirmed the Eighth Circuit's ruling that an Arkansas state law permitting the state to place a Medicaid lien on settlement proceeds meant to compensate the recipient for damages distinct from medical costs was unenforceable. The Court's basis for finding the law unenforceable was that it contravened the anti-lien provision of the federal Medicaid law.

With the passing of the Bipartisan Budget Act of 2013, Congress legislatively overruled Ahlborn and expanded Medicaid's third-party rights regarding settlement awards pursuant to Section 202(b), which allowed Medicaid to recover from a recipient's entire settlement. This was significant in that it allowed Medicaid to pursue the entirety of a settlement award, regardless of the specific allocations of that award towards non-treatment-related compensation.

On February 9, 2018, the Bipartisan Budget Act of 2018 was passed by Congress and signed into law by President Trump. Within the act is a repeal of a Section 202(b) of the Bipartisan Budget Act of 2013. By fully repealing that section of the 2013 law, Congress effectively reinstated the standard set by the Supreme Court in Ahlborn, limiting Medicaid's recovery to an amount of the settlement designated as payment for past medical expenses. Significantly, the repeal of Section 202(b) of the 2013 law was done in a retroactive fashion as of September 30, 2017, one day prior to the law's effective date of October 1, 2017.

By resurrecting the standard set forth in Ahlborn—legislatively limiting the scope of Medicaid's right to reimbursement—Congress has mitigated the risk that a plaintiff in a personal injury suit may be forced to forfeit much or all of settlement proceeds to satisfy a lien. Importantly, however, is that neither the Bipartisan Budget Act nor the Supreme Court decisions referenced above allow the recipient of a settlement to allocate away the state's interest entirely.

The impact of the Bipartisan Budget Act of 2018 on future settlements is important for several reasons. From a practical standpoint, attorneys may look to agree in advance to allocate a percentage of a settlement for past medical expenses. A prearranged agreement eliminates the need for additional court intervention as to that issue, and guarantees that the plaintiff will receive the portion of the settlement meant to compensate for non-economic loss. Moreover, a case that involves large Medicaid costs can be put into suit without fear that any settlement award will inevitably belong to the state in order to satisfy the entirety of Medicaid costs.

While some questions still remain, such as the effect on structured settlements and settlements reached after October 1, 2017, the Bipartisan Budget Act of 2018's repeal of section 202(b) reinstates Ahlborn and expressly delineates the rights of both a recipient of a settlement and the third-party of rights Medicaid.