Looking Back at the Arkansas Department of Human Services v Ahlborn Case
Back in 2006, the Federal Court decided what would become a landmark case. Arkansas Department of Human Services v Ahlborn, raised the question of whether Medicaid was entitled to your entire settlement in a personal injury case.
The plaintiff had been involved in a terrible car accident. She had no insurance and Medicaid covered her medical expenses. The total amount billed under Medicaid was about $215,000. The plaintiff later sued for her car accident. Her case was estimated to be worth about $3 million. Her attorney settled her case for less than 20% of what it was worth. The final settlement was for $550,000.
When Medicaid saw that Ahlborn has settled her case, they demanded that they be reimbursed the entire $215,000. Ahlborn’s attorney argued that his client shouldn’t have to pay the entire thing. He claimed that the pain and suffering portion of her settlement was not subject to a lien by Medicaid or the State.
The Court ultimately decided that Ahlborn’s attorney was right. In a nutshell, the Federal Court held that a legal settlement is the property of the plaintiff, not the State. And that even though the State was entitled to reimbursement, they were only entitled to the settlement money identified as medical expenses.
Obviously, the State wasn’t happy. The Court held that Federal law trumped and that State statute allowing for a lien against the entire settlement was not applicable. This decision has led to a nightmare when it comes to its practical application.
There are several questions that Ahlborn didn’t answer. These questions have made it very confusing for lawyers, plaintiffs, defendants, and the States. Here are some of the issues that persist even after the Court’s decision in Ahlborn:
Are attorneys going to take advantage of the ruling?
Attorneys have the ability to negotiate how a settlement is structured. For example, they can inflate the amount that is paid toward pain and suffering to reduce the amount that is subject to a Medicaid lien. It makes no difference to the insurance company or the defense attorneys how this plays out. In fact, there could be an unwritten agreement that the overall settlement will be reduced if the defense is willing to pay heavier amounts in pain and suffering.
How does Ahlborn impact the issue of attorney fees?
Attorneys don’t handle cases out of the goodness of their heart. Personal injury attorneys are entitled to a portion of their client’s recovery. Most attorneys take about a third of their client’s settlement. The question is whether they get their percentage before or after Medicaid?
Will the States just write new legislation to over the holding in Ahlborn?
At a certain point, the states will find a way to get around the Ahlborn decision. If they write new legislation or revise existing legislation, they may be able to avoid having Ahlborn impact their reimbursement amounts. If they do this, plaintiffs will be forced once again to argue their issues before a federal court. There is no guarantee that today’s federal court justices would come to the same conclusion as the judges did in 2006.
Does Ahlborn apply to Medicare reimbursement?
The Ahlborn case applies only to Medicaid. The courts have not uniformly said how the law impacts Medicare reimbursement. This has led to confusion for both attorneys and the states.
To date, the courts have held that Ahlborn doesn’t apply to Medicare payments. However, arguments have been made on both sides and there are questions as to how the courts will rule on this issue in future.
What are the implications for private insurance?
This is where there is probably the most confusion. The courts have indicated that when deciding the issue of ERISA liens, the court should look to equity. This means that, while private insurance companies may be forced to accept lower reimbursement as a result of Ahlborn, there is no clear-cut application of the rule. When determining fair and equitable relief, the courts have to make decisions on a case by case basis. This creates uncertainty and confusion for all involved.
The bottom line is the future of Ahlborn is uncertain at best. It has been over ten years and, so far, no court has overturned the decision. This doesn’t mean, however, that the states are content to sit back and allow plaintiffs to avoid Medicaid reimbursement. There will come a time in the near future when this issue is raised once again.