A personal injury settlement can impact eligibility for SSI, Medicaid, and other essential government benefits.
A personal injury settlement can unexpectedly push your financial resources above eligibility thresholds, potentially terminating critical government benefits. In this article, you’ll discover how a settlement interacts with means-tested programs—SSI and Medicaid—alongside entitlement benefits like SSDI and Medicare. You’ll learn about Medicare Set-Asides (MSAs), special needs trusts, structured settlements, spend-down tactics, ABLE accounts, and state-specific rules in Texas. Finally, we map out a proactive timeline and how an expert team can help safeguard your benefits after an accident payout.
How Does a Personal Injury Settlement Impact SSI Benefits?
Supplemental Security Income (SSI) is a federal needs-based benefit for disabled, blind, or elderly individuals with limited income and resources. A personal injury settlement often counts as income in the month received and as a resource thereafter, which means a large lump sum can immediately disqualify you from SSI. Structured planning or trust arrangements can keep settlement funds off your balance sheet and preserve your monthly SSI payments.
What Are SSI Income and Resource Limits?
Below is a summary of the core limits that determine SSI eligibility and how settlement funds may exceed these thresholds.
Meeting these limits is essential because any amount above $2,000 in countable resources or unexcluded income can trigger SSI suspension or termination.
How Can a Lump Sum Settlement Affect SSI Eligibility?
A lump sum settlement is counted as unearned income in the first month, reducing benefits dollar for dollar, then becomes a countable resource in subsequent months. This mechanism means:
- Benefit Reduction – SSI checks stop until your countable resources fall below $2,000.
- Retroactive Reporting – Failure to report within 10 days can incur overpayment obligations.
- Resource Depletion Risk – Unplanned spending can exhaust your settlement and permanently forfeit SSI eligibility.
Understanding these rules highlights the importance of careful financial structuring immediately after receiving funds.
Can Structured Settlements Help Preserve SSI Benefits?
Structured settlements divide your award into periodic payments rather than one lump sum. They:
- Guarantee a steady income stream below SSI’s monthly income cap.
- Prevent large balances from appearing on your resource report.
- Offer tax-free medical and disability payments when properly structured.
Opting for a structured settlement aligns payment amounts with SSI thresholds, maintaining your eligibility for ongoing benefits.
Structured Settlements Just Doubled – Increasing Benefits And Uses
Structured settlements, which provide scheduled payouts over many years rather than a single lump sum, saw a significant increase in use in 2023, with premiums jumping to $8.6 billion. These arrangements offer plaintiffs long-term financial security, tax-free payments, and the ability to design customized payment schedules, making them a valuable tool for managing personal injury awards.
What Strategies Protect SSI Benefits After a Settlement?
Several legal and financial tools can shield settlement funds from SSI resource tests:
- Special Needs Trusts – First-party trusts hold funds for disability-related expenses without counting toward resource limits.
- ABLE Accounts – Tax-advantaged savings for qualified disability expenses, up to $17,000 annual contributions.
- Spend-Down Plans – Timely investment in exempt goods or services (home modifications, medical care) to reduce countable resources.
Implementing one or more of these tactics ensures settlement proceeds support your needs without jeopardizing SSI.
Special Needs Trusts and Personal Injury Settlements
A Special Needs Trust (SNT) is a legal tool that allows individuals with disabilities to hold assets, such as personal injury settlement proceeds, without jeopardizing their eligibility for means-tested government benefits like Medicaid and Supplemental Security Income (SSI). These trusts are crucial for long-term financial security, especially given the high costs of care, and must adhere to strict regulations regarding disbursements to supplement, not supplant, government programs.
How Do Personal Injury Settlements Affect Medicaid Eligibility?
Medicaid provides health coverage for low-income individuals and families. Like SSI, Medicaid is subject to strict income and asset tests. A settlement may trigger a state lien or push your countable resources above permissible limits, resulting in benefit loss or repayment obligations.
What Are Medicaid Income and Asset Limits?
Different Medicaid categories have varying thresholds. The table below outlines typical limits for an adult beneficiary.
Any settlement amount above these limits must be managed or sheltered to maintain Medicaid eligibility.
How Do Medicaid Liens Work on Personal Injury Settlements?
State Medicaid agencies have subrogation rights to recover medical costs paid on your behalf. This process involves:
- Lien Filing – Medicaid places a claim against your settlement proceeds.
- Recovery Negotiation – You or your counsel can negotiate lien reductions based on hardship or reasonableness.
- Mandatory Repayment – Unresolved liens must be satisfied before you access settlement funds.
Proactive negotiation can minimize the repayment amount and preserve more of your settlement.
How Can Special Needs Trusts Protect Medicaid Benefits?
A first-party Special Needs Trust (SNT) holds settlement proceeds for disability-related expenses without counting as a Medicaid asset. Types include:
- Self-Settled (First-Party) SNT – Funded with your own settlement, must name Medicaid as remainder beneficiary.
- Third-Party SNT – Funded by family or others, no Medicaid remainder requirement.
- Pooled SNT – Held by nonprofit organizations, pooled investments but individual accounts.
By funneling settlement funds into an SNT, you maintain Medicaid eligibility and ensure beneficiary-specific care.
What Are State-Specific Medicaid Rules?
Medicaid regulations vary by state.
In Texas:
- Lien Authority – Texas Health and Human Services can recover costs under Texas Human Resources Code §32.033.
- Coverage Thresholds – Texas follows federal income limits but imposes additional asset verifications.
- Hardship Waivers – Limited waivers may reduce lien amounts if recovery would cause undue hardship.
Local expertise is essential to navigate these nuances and negotiate favorable outcomes.
What Is a Medicare Set-Aside (MSA) and How Does It Relate to Personal Injury Settlements?
A Medicare Set-Aside (MSA) is a portion of your settlement reserved for future Medicare-covered medical expenses related to your injury. MSAs ensure Medicare’s interests are protected, complying with the Medicare Secondary Payer Act.
When Is a Medicare Set-Aside Required?
An MSA is required when:
- You are a Medicare beneficiary at settlement.
- Future medical treatment related to your injury is anticipated.
- Medicare has conditional payments or expects future liability.
Meeting these conditions avoids Medicare recovery actions after your settlement.
An Update on Medicare Set-Asides (MSAs) in Liability Cases
Medicare Set-Asides (MSAs) remain a critical consideration in liability settlements, ensuring Medicare’s future interests are protected in cases where future medical treatment related to an injury is anticipated. While there is no statutory or regulatory mandate for MSAs in liability settlements, plaintiffs’ attorneys must assess the need for an MSA to protect future Medicare coverage for claim-related expenses and educate clients on proper administration.
How Does an MSA Protect Medicare Benefits?
An MSA funds anticipated injury-related care, preventing you from depleting Medicare while still preserving benefits. By allocating settlement dollars to an MSA:
- Medicare remains secondary payer until MSA exhaustion.
- Injured parties avoid out-of-pocket expenses for approved care.
- Medicare liens post-settlement are minimized or eliminated.
This arrangement secures your long-term medical coverage.
What Are the Funding and Administration Options for MSAs?
You can fund and manage an MSA in two primary ways:
How Do Medicare Liens Affect Settlement Amounts?
Medicare’s recovery rights include liens on your settlement to reimburse conditional payments. Lien implications:
- Lien Demand – CMS issues a demand letter specifying the repayment amount.
- Lien Reduction – Negotiation based on actual future care needs can lower the demand.
- Set-Aside Calculation – Formal MSA proposals to CMS lock in the required allocation.
Understanding lien mechanics ensures you retain as much of your award as possible.
How Are SSDI Benefits Affected by Personal Injury Settlements?
Social Security Disability Insurance (SSDI) is an earned benefit based on work history, not need. As such, SSDI remains intact regardless of your personal injury settlement. SSDI eligibility and payment amounts are governed by the Social Security Administration’s wage credits and not by income or assets.
Why Is SSDI Generally Unaffected by Settlements?
SSDI is funded through payroll taxes and tied to your insured status. Since SSDI does not consider resource or income limits, a settlement does not alter your entitlement. This distinction underscores why SSDI beneficiaries can receive awards without losing monthly benefits.
What Considerations Should SSDI Recipients Keep in Mind?
Even though SSDI checks continue:
- Report Other Benefits – You must report any worker’s compensation or public disability income to avoid overpayment.
- Subrogation Offsets – Some settlements allocate for lost wages, which could offset SSDI under coordination-of-benefits rules.
- Timely Notifications – Notify SSA of any change in address or benefit status to prevent interruptions.
These steps preserve SSDI payments and avoid inadvertent overpayments.
What Legal and Financial Strategies Protect Government Benefits After a Settlement?
Implementing the right combination of tools can safeguard settlement funds and maintain benefit eligibility across programs.
How Do Special Needs Trusts (SNTs) Safeguard Benefits?
Special Needs Trusts isolate settlement funds for disability-related expenses without counting them as income or assets. Key features include:
- Trustee Control – A designated trustee manages disbursements for allowable expenses.
- Benefit Preservation – SSI and Medicaid eligibility remain unaffected while trust funds cover supplemental needs.
- Remainder Requirements – First-party SNTs must reimburse Medicaid upon the beneficiary’s death.
Leveraging SNTs is widely recognized as the primary protection strategy for means-tested benefits.
What Are Spend-Down Strategies and How Do They Work?
Spend-down involves converting countable resources into exempt assets before reaching resource caps. Common tactics:
- Medical Purchases – Prepay anticipated care, home health services, or medical equipment.
- Home Improvements – Modify living spaces for accessibility under Medicaid-approved guidelines.
- Prepaid Funeral Plans – Irrevocable burial trusts reduce countable assets.
Timely execution of spend-down strategies aligns your resource profile with eligibility rules.
Can ABLE Accounts Help Protect Benefits?
ABLE accounts permit tax-advantaged savings for qualified disability expenses, offering:
- Exclusion from Resource Tests – Up to $100,000 in ABLE funds does not count toward SSI asset limits.
- Qualified Expense Coverage – Housing, education, transportation, and health costs are permitted.
- Annual Contribution Cap – $17,000 per year (2024) from family, friends, or self.
ABLE accounts complement SNTs and structured settlements for holistic protection.
How Do Structured Settlements Compare to Lump Sums for Benefit Protection?
Structured settlements and lump sums differ across five critical dimensions:
What Are the State-Specific Considerations for Personal Injury Settlements Affecting Benefits?
Rules for liens, eligibility, and recovery vary by jurisdiction. In Texas, specific statutes and agency practices influence outcomes.
How Does Texas Medicaid Handle Liens and Recovery?
Under Texas Human Resources Code §32.033, the state can claim against your settlement for medical costs paid. Key points:
- Mandatory Notice – Texas Medicaid must be notified of pending settlements.
- Lien Calculation – Based on actual Medicaid expenditures, not estimates.
- Hardship Exceptions – Qualifying circumstances may reduce the recovery amount.
Navigating these statutes is critical to minimize Texas Medicaid’s reimbursement demands.
What Are Texas SSI and Medicaid Resource Limits?
Texas follows federal SSI limits and applies the same asset tests for Medicaid:
- SSI Resource Cap – $2,000 per individual or $3,000 per couple.
- Medicaid Asset Limit – $2,000 for aged or disabled adults.
- Income Thresholds – Matches federal income limits with occasional state supplements.
Staying within these parameters preserves both SSI and Medicaid benefits in Texas.
Why Is Local Legal Expertise Important for Benefit Protection?
State-specific rules and administrative procedures differ substantially. An attorney with Texas practice experience can:
- Interpret recovery statutes and negotiate liens under §32.033.
- Structure trusts and settlements in compliance with Texas Health and Human Services rules.
- Coordinate with local agencies to secure waivers or hardship exceptions.
Local counsel ensures your plan aligns with Texas requirements and maximizes benefit preservation.
When Should You Start Planning to Protect Your Government Benefits After a Personal Injury Settlement?
Early planning is the cornerstone of benefit protection. Addressing eligibility rules before settlement disbursement avoids costly mistakes and ensures a seamless transition.
Why Is Early Planning Crucial for Benefit Preservation?
Planning before settlement receipt prevents unintended disqualification:
- Avoids Overpayments – Timely structuring reduces repayment obligations to SSA and CMS.
- Optimizes Trust Setup – Establishing an SNT or ABLE account in advance avoids late-filing penalties.
- Secures Funding Vehicles – Designing a structured settlement or MSA early locks in favorable terms.
Proactive measures eliminate last-minute scrambling and protect your ongoing benefits.
Who Should Be on Your Expert Team?
A multidisciplinary team ensures comprehensive planning:
- Personal Injury Attorney – Negotiates award elements and advocates for structured payouts.
- Special Needs Trust Attorney – Drafts and administers trusts to shelter funds correctly.
- Financial Planner – Designs spend-down schedules and ABLE account contributions.
Coordinated expertise aligns all strategies for maximal benefit preservation.
What Are the Key Steps in a Proactive Planning Timeline?
Implement this timeline for seamless benefit protection:
- Pre-Settlement Consultation – Review benefit rules, asset tests, and lien exposures.
- Settlement Structuring – Choose lump sum allocation, structured payments, and trust vehicles.
- Post-Settlement Execution – Fund SNTs, open ABLE accounts, complete spend-down transactions.
- Ongoing Compliance – Monitor resource balances, report to agencies, adjust distributions as needed.
Following this roadmap secures your benefits and optimizes settlement utilization.
Injured individuals facing the complexities of government benefits need clear, actionable planning from day one. By understanding SSI, Medicaid, Medicare, and SSDI rules—and leveraging trusts, structured settlements, and ABLE accounts—you preserve essential support while maximizing your settlement’s value. Engage experienced legal and financial professionals early to craft a tailored strategy that aligns with federal and Texas-specific regulations. With proactive guidance and precise execution, you can protect your government benefits and focus on recovery without financial fear.
Protect Your Benefits While Pursuing the Compensation You Deserve
A personal injury settlement should help you move forward — not put your Medicaid, SSI, or Medicare coverage at risk. At Howard, Lotspeich, Alexander & Williams, PLLC (HLAW), we understand the need to structure settlements and coordinate with benefit programs to protect your long-term care and financial security.
Schedule a free, no-obligation case evaluation today. Call us at 817-993-9249 or fill out our online contact form to speak directly with an experienced Texas personal injury attorney. Let us help you maximize your recovery while safeguarding the government benefits you rely on.
About the Author: Jesse Lotspeich, Partner – Howard Lotspeich Alexander & Williams, PLLC
