In this week’s column, Phil Moeller, the author of Get What’s Yours for Medicare: Maximize Your Coverage, Minimize Your Costs and co-author of the updated edition of How to Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security, answers a reader question about how an insurance settlement impacts government health benefits.
I’m reaching out because I’ve read several of your pieces online and I’m hoping you may be able to help put me in touch with some local resources for my mother. She is 69 years old and was recently in a car accident that left her with a broken neck. She is completely dependent on the state and is worried that she may lose her benefits because of the settlement she received.
She was awarded the $100,000 policy limit by the auto insurer and has not cashed any of the checks because she’s afraid that her benefits will be taken away if she does. How can we get some help to understand what she is able to keep, invest, or what benefits will be taken away?
Allie — Your mother would not lose her benefits because of this settlement. However, she might well have to pay money to Medicare to continue the benefits she now receives. The exact impact depends on the nature of her settlement and insurance rules in her home state.
I’m assuming she is now getting her Medicare benefits from a Medicaid program for low-income state residents. Roughly nine million people on Medicare with low incomes also qualify for Medicaid and are known as “dually eligible” beneficiaries for both programs.
Most insurance settlements are not taxable income but, again, these details are not clear from your note. The nature of the settlement and how accident-related costs are reflected on a person’s tax return can affect the tax treatment of such a payment. Because your mother does not have much income, the odds are her payment will not be taxable. The insurance company providing these funds should have the answer.
Even if the payment is not taxable income, however, receiving these funds would affect the amount of financial assets your mother possesses. Medicaid has asset as well as income tests to determine eligibility, so the settlement payments still could render her ineligible. This depends on Medicaid rules in her state.
The timing of when her statement Medicaid program would receive notice of the settlement payment is another issue. The insurer should provide her with copies of any tax forms it submits to the IRS and her state’s tax agency. It can take time for this information to make its way to her state’s Medicaid agency.
When this happens, she could receive a notice from the agency that she is being dropped from Medicaid. She then would have to pay for her health coverage through Medicare. Social Security would then become involved. Assuming she is receiving Social Security benefits, her Part B Medicare premiums would be deducted directly from her monthly benefits.
If this occurs, she (or you, acting on her behalf) would also need to get a Part D drug plan and would also have some other Medicare decisions to make. These choices are explained at length in my Medicare book.
My advice is that she cash her settlement checks and that you contact her state’s Medicaid agency to find out how this money would affect her eligibility. If you’re not comfortable identifying her, you might first try to get this information anonymously by saying you’re “calling for a friend.”
Once you have this information, you can do the homework to figure out her best Medicare coverage options and make sure she is enrolled in Medicare on a timely basis so that her health benefits remain in effect. The State Health Insurance Assistance Program (SHIP) provides free Medicare counseling and should be able to help you.