The Utah Supreme Court holds that previous Medicaid expenditures must be repaid before insurance benefits can be used to establish a supplemental needs trust.
Sixteen-year-old S.S. was permanently disabled when the motorcycle upon which he was riding was struck by a drunk driver. S.S.'s parents were divorced; at the time of the accident he was living with his father, Richard S., although his mother had custody. Richard S. applied for and received Medicaid on S.S.'s behalf and assigned his son's rights to any insurance recovery to the state. S.S.'s three older brothers, appointed conservators of his estate, petitioned the trial court for authorization to settle several insurance claims and to place the funds in a supplemental needs trust (SNT) for S.S. After the court approved settlement of two insurance claims, the state asserted its statutory lien on an amount equaling the nursing home costs paid by Medicaid, totaling $44,455. The trial court held that the state's assignment was not valid because it had not been executed by the court-appointed conservators or by a legal guardian; the state had not perfected its lien on the insurance proceeds by delivering notice of its lien to the third parties; and the proceeds could be placed in an SNT without reimbursement to the state for Medicaid expenditures. The state appealed.
The court reverses the judgment of the trial court. On the assignment issue, the court notes that under Utah statutes a recipient's acceptance of Medicaid payments operates to create an assignment. As to the state's failure to perfect its lien, the court rules that statutory requirements do not apply under the present circumstances, observing that "payments made by a third party do not legally become the property of the recipient until after a valid settlement, which necessarily must include reimbursement to Medicaid." Finally, on the reimbursement of Medicaid prior to funding of the SNT, the court fails to see an irreconcilable conflict between SNT statutes (both federal and state), which call for reimbursement of medical assistance upon the death of the beneficiary, and previously enacted estate recovery statutes, which provide for reimbursement to the state when there has been an insurance recovery. "Thus," the court writes, "we may conclude, without doing violence to either statute, that recoveries from third parties liable for the same expenses covered by Medicaid belong to the State, but any remaining balance not owed to the State may be used to fund a properly structured supplemental needs trust."
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