Ark. Dep't of Human Servs. v. Ahlborn


If a party receives Medicaid benefits for an injury, and later receives a settlement payment from a third party, can the state force the party to use the entire settlement to repay the state's Medicaid expenses?

Oral argument: 
February 27, 2006

Medicaid provides certain needy individuals with funds for medical treatment. The program is administered by the states with federal funding and statutory guidelines. Federal Medicaid law generally forbids states from placing liens on the "pre-death" property of Medicaid beneficiaries. The Arkansas Medicaid program requires beneficiaries to sign over their interest in any future legal claim before receiving benefits. Technically, this case will decide whether the federal statutes prohibit states from doing this. More importantly, the decision will determine to what extent states can recoup Medicare expenses from private tort judgments and settlements, and could have a profound effect on how the costs of the Medicaid are distributed between the states and private parties.


Heidi Ahlborn suffered severe, permanently disabling injuries in a 1996 car accident. Ahlborn v. Arkansas Dep't of Human Services, 397 F.3d 620, 622 (8th Cir. 2005). She sought and received roughly $215,000 in medical benefits through Arkansas's Medicaid program. Id. Under Arkansas law, participants in the Medicaid program must assign their right to any settlement they might receive from third parties "to the full extent of any amount which may be paid by Medicaid for the benefit of the applicant." Id.

In 2002, Ahlborn received a $550,000 settlement from her insurance company and the people allegedly responsible for the accident. Id. The Arkansas Department of Human Services ("ADHS") asserted a lien against her entire settlement for the amount of her medical benefits. Id. Ahlborn sought declaratory relief, arguing that the settlement covered not only her claim for past medical expenses, but also claims for lost earnings, pain and suffering, and the like. See Id. She argued that under Federal Medicaid laws, the state could only attach the portion of the settlement payment, roughly seventeen percent, that represented her opponents' liability for past medical care. Id.

The trial court believed that the federal statutes allowed ADHS to attach the entire settlement, and granted their motion for summary judgment. Id. The appellate court took the opposite view, holding that the state could only establish a lien "to the extent that a settlement . . . constitutes payment by the third party for medical expenses incurred by the recipient." Id. at 626. The Supreme Court granted certiorari on September 27, 2005. 126 S. Ct. 35 (2005).


Federal Medicaid Statutes

Medicaid is a "publicly funded program designed to pay medical costs for individuals whose income and resources are insufficient to meet the cost of medical care and services that they need." Brief for Petitioner at 10. It was enacted in 1965 as Title XIX of the Social Security Act ("Act"). See Id.Since there are limited resources to spend on welfare, however, Congress intended Medicaid to be "the payer of last resort." See Id. States choose whether to participate in the Medicaid program on an individual basis, but if they choose to participate, they must comply with all of the requirements of the Act. See Id. If a state is not complying with the federal requirements, then the federal government may reduce or completely withhold federal funding to the state. See Id.

However, an issue arises when a Medicaid client needs medical care as a result of third-party negligence. In these scenarios, the Act does not authorize the federal government to recover Medicaid expenditures directly from the third-party. Brief for Petitioner at 11. Instead, when a third-party is responsible for the injuries underlying medical expenses, states are required to pursue reimbursement from the liable third-party. See Id.

A state's right to be reimbursed for Medicaid expenses is limited, however, by the federal anti-lien statute. The anti-lien statute is a separate but relevant provision of the Act, which protects a Medicaid recipient's "property" during his or her lifetime from liens related to Medicaid program expenditures. See Idat 14.

Both parties in this case agree that the State can recover some portion of Ahlborn's settlement proceeds for the medical costs incurred in her case. See Id.However, the parties disagree as to how much the State can recover from the settlement proceeds without violating the anti-lien statute. See 14. The answer to this question turns on whether the settlement proceeds not delineated for medical costs are considered property under the anti-lien statute.

"Property" Under the Anti-Lien Statute

The State argues that a Medicaid recipient such as Ahlborn has no property interest in settlement proceeds until the State has been reimbursed for Medicaid related expenses. Petitioner's Brief at 26. It rationalizes that as a result of the assignment, the settlement money becomes property of the Medicaid program and therefore any lien placed on it is not a lien upon the property of the recipient. See Id. In essence, it is as though the Medicaid recipient is holding the property in "constructive trust" until after Medicaid is reimbursed. See Id. This position is strengthened by two state supreme court cases from Washington and Utah. See Id. at 17.

In these cases, the state courts interpreted the federal statue as permitting states to recover the Medicaid costs they paid from all settlement monies up to the full amount of care provided. See Id. These cases support giving blanket assignment of all rights against third parties to the states. See Id. Additional support for this position can be found in an agency opinion letter written by the Secretary of the of Health and Human Services which explains the statute as requiring full Medicaid reimbursement before a recipient may collect ant proceeds from a third party settlement. See Id. at 36.

The State also points to Congressional intent and the policy considerations for their position. See Id. at 24. The State argues that it "is highly unlikely that Congress intended property to have such a broad definition considering the legislative history, which shows a consistent trend toward strengthening the third party liability provisions. See Id. at 29. The Department of Justice who also supports the State's position explains that Congress intended to structure a system where the state would be entitled to payment for all medical costs that were incurred as a result of third party action. See 28. They claim that this reading of the statute is consistent with the notion that "Medicaid be the payer of last resort." See Id.

Although the State's arguments may be persuasive, Ahlborn's position is also compelling and supported by the decision from the Eighth Circuit Court of Appeals. Respondent's Brief at 11. Ahlborn and the Eighth Circuit assert that the federal Medicaid statutes prohibits states from being reimbursed for Medicaid costs from settlement proceeds that were intended to cover items other than medical expenses such as lost wages. Respondent's Brief at 12. Support for this position comes from a state supreme court case in Minnesota which held that "the anti-lien statute protected the property of the Medicaid recipient in the form of her cause of action, but also assigned to the State the right to recover in full from a responsible third party for medical expenses paid." See Id.

Ahlborn submits that a holistic interpretation of the federal Medicaid statutes would reveal that Congress did not intend for the assignment process to permit states to delve into a Medicaid recipient's settlement proceeds beyond the monies earmarked for medical costs. See 14. Additionally, Ahlborn and the Eighth Circuit Court of Appeals argue that contrary to the State's view, the Secretary of the of Health and Human Services' do not warrant judicial deference since it was merely an opinion letter and not a conclusion reached after careful deliberation in an adjudicatory process. See 19.


In deciding this case, the Supreme Court will clarify state statutes which require the assignment of a Medicaid recipient's rights to third-party payments, but prohibit placing a lien on their property. See Brief for Petitioner at i. The Court will decide whether settlement monies received for things other than medical costs, such as lost wages, are considered property under the anti-lien statute, thereby limiting the state's recovery. See Id. Depending on whether the Court finds for Ahlborn or ADHS, its decision will affect one of the nation's largest public welfare programs, as well as state and local government budgets.

A decision for ADHS would mean that the cash portion of a settlement would never be considered property under an anti-lien statute, regardless of whether the cash is for medical or non-medical damages. Brief for Petitioner at 23. As a result, states would be allowed to recover the entire amount for medical costs from the Medicaid victim.

For example, in this case ADHS paid a total of $215,645.30 for medical expenses related to Ahlbron's case. See Brief for Petitioner at 8. ADHS believes they are now entitled to recover that full amount from Ahlborn's settlement package. See Id. It claims thatany other decision would encourage manipulation during the settlement process since it would be in the best interest of the Medicaid client to reach an agreement that stipulates a low percentage marked for medical costs (thereby giving ADHS a lower reimbursement). See Brief for Petitioner at 23.

In addition, fairness may warrant the Court finding for ADHS. If the Medicaid client had been billed directly by medical providers then he or she would have been liable up to the full amount of medical costs from any third-party settlement. See Id. A result that would prohibit the states from recovering the full amount is thus unfair and prejudicial to the States. See Id.As ADHS points out in its brief, surely Congress did not intend to put Medicaid in a less favorable position than a for-profit organization. See Id.

Lastly, a decision for Ahlborn would force states to intervene in ongoing litigation or to file independent litigation to recover against third-party tortfeasors in order to recover their Medicaid expenditures. See Id. This would lead to higher costs to the state, and perhaps result in less money being put into Medicaid programs. See Id.

However, there are other equity considerations at play in this case which could affect the legal property rights of Medicaid recipients. If the Court finds for ADHS, then states would be given a broad power to require a Medicaid applicant to assign to the state other interests in property as well, such as future wages, lottery winnings, or real property, in order to reimburse ADHS for health care expenditures under Medicaid. Ahlborn v. Arkansas Dep't of Human Services, 397 F.3d 620 (8th Cir. 2005).


In this case, the Court will be forced to choose to protect either the assets of poor injury victims or the states. On the one hand, a decision for Ahlborn would ensure that injury victims are properly compensated for lost wages. On the other hand, a victory for the states would ensure that victims don't improperly structure injury settlements. What is clear, is that one side will end up with less money.

Andrew Nieland

Melissa Colon