On May 1, 2006, the United States Supreme Court handed down an important Medicaid ruling. The decision, a victory for those who are disabled due to another person's fault, could affect anyone who is injured, is forced to go on Medicaid to receive health coverage, and then wins a legal award or settlement as a result of the injury.

In a unanimous opinion written by Justice Stevens, the Court found that an Arkansas law requiring Medicaid recipients to give to the state all the money they might get from an award or settlement violates federal Medicaid law. Instead, the court ruled that the state may recover only the part of an award or settlement that is specifically for the repayment of medical expenses. Arkansas Department of Health and Human Services, et al. v. Ahlborn, 547 U.S. ___ (2006).

Here are the facts of the case: Heidi Ahlborn was permanently disabled as the result of a car crash. While being treated for her injuries, Ms. Ahlborn applied for and began receiving Medicaid benefits. Ms. Ahlborn subsequently received $550,000 in a lump-sum settlement from the party at fault in the crash. The amount was to cover not just medical expenses, but also lost wages, impairment of her future ability to work, pain and suffering, mental anxiety, and permanent disability. The Arkansas Department of Human Services placed a lien on Ms. Ahlborn's settlement for the total amount of Medicaid benefits it had provided her, $215,645.30.

Ms. Ahlborn sued, arguing that Arkansas could recover only $35,581.47, which was the portion of her settlement that was earmarked to pay for past medical expenses. She said Arkansas was violating the federal "anti-lien statute," which prohibits states from imposing a lien on a person's property prior to his or her death as repayment for Medicaid benefits.

A lower federal court ruled that the state could recover from Ms. Ahlborn's settlement the total amount of Medicaid benefits it had provided, regardless of whether the settlement funds were to repay the cost of medical services. Ms. Ahlborn appealed. The U.S. Court of Appeals for the Eighth Circuit reversed the lower court, ruling that Ms. Ahlborn's right to a settlement was her "property" and that the anti-lien statute prevented the state from taking any more than what was for medical expenses. Ahlborn v. Arkansas Dept. of Human Services (8th Cir., No. 03-3377, Feb. 9, 2005). Arkansas appealed.

The United States Supreme Court agreed with the Court of Appeals, ruling that federal Medicaid law does not permit the state to collect anything more than the amount in Ms. Ahlborn's settlement that was allocated for medical expenses.

Before this ruling, many states -- not just Arkansas -- claimed they could seek recovery from the entire award, regardless of the allocation. The decision means those disabled due to another person's fault will have more assets to place into a supplemental needs trust, a trust designed to hold a Medicaid recipient's assets and preserve the recipient's Medicaid and other government benefits.

For the full text of the Court's decision, go to: http://www.supremecourtus.gov/opinions/05pdf/04-1506.pdf.