NEW YORK STATE MEDICAL INDEMNITY FUND AFFECTS PLANNING FOR GOVERNMENT ENTITLEMENTS

KASSOFF, ROBERT & LERNER, LLP. ATTORNEYS AT LAW 100 Merrick Road West Building Suite 508 Rockville Centre, New York 11570 (516) 766-7700 Fax (516) 766-0738 Joan Lensky Robert NEW YORK STATE MEDICAL INDEMNITY FUND AFFECTS PLANNING FOR GOVERNMENT ENTITLEMENTS I. INTRODUCTION: In an effort to stem the costs of medical malpractice insurance premiums, the New York State legislature enacted the New York Medical Indemnity Fund. 1 The Fund will pay the medical costs of those enrolled 2 and will be primary to Medicare and Medicaid. 3 There are no financial criteria in order for a qualified plaintiff to be enrolled in the Fund and no reimbursement to the State upon the death of the qualified infant plaintiff for the expenditures made from the Fund on his/her behalf. 4 Although the statute itself states that the fund will pay for the health care costs associated with birth related neurological injuries, 5 the regulations implementing the statute 6 and court decisions commenting on this legislation 7 do not limit the medical treatment to conditions causally related to the birth injuries. It thus is a comprehensive Fund to provide all medical care for qualified infant plaintiffs. 8 For those enrolled in the Fund, Medicaid is no longer be needed to enable an infant plaintiff to receive necessary medical care and services. Thus, plaintiffs will rely less upon Special Needs Trusts 9 and government entitlements based upon need. Pursuing legal 1

guardianship, however, for plaintiffs under the age of 18 may be beneficial in order to access settlement funds to pay for special needs of the infant plaintiff. II. PROVISIONS OF THE STATUTE A. Overview The legislation provides a separate fund to pay for birth related neurological injuries caused by the deprivation of oxygen or mechanical injury during the course of labor, delivery or resuscitation that rendered the infant with a permanent and substantial motor impairment or with a developmental disability. 10 The Fund will provide for future medical, dental, rehabilitation, custodial, durable medical equipment, home modifications, vehicle modifications, prescription and non prescription medications and other health care costs. 11 All health care providers shall accept assignments to receive payments from the Fund. 12 Payments will be made to private physicians at 100% of the usual and customary rates, 13 and payments will be made at the Medicaid reimbursement rate for other services. 14 The Fund will pay for all qualifying health care costs of qualified plaintiffs. 15 Qualified plaintiffs are those found by a jury or court to have sustained a birth related neurological injury as a result of alleged medical malpractice or who have settled a lawsuit or claim for such injuries. 16 Qualified plaintiffs will enroll in this fund upon receiving a verdict or settlement of a lawsuit with a defendant for the medical malpractice claim. 17 Private insurance is primary to this fund, 18 but Medicare and Medicaid are secondary to this fund. 19 B. Regulations New York State has promulgated regulations to implement this legislation. 20 These regulations define the services that the Fund may pay for. 21 These regulations also define 2

the services of case managers 22 and the claims submission process, 23 and explain the prior approval process for certain services, 24 including modifications to a home, 25 vehicle, 26 private duty nursing 27 and non-emergency medical transportation. 28 These regulations set forth the procedure to challenge a denial of services. 29 C. Purpose of the Fund This Fund is a new source to pay for future medical care of a neurologically impaired infant who has reached a settlement or verdict in a medical malpractice lawsuit. The anticipated medical costs that will be paid by the Fund will reduce a medical malpractice verdict or be carved out of a settlement. 30 The defendant will not contribute to the fund and hence will pay only for non fund damages. 31 The stated purpose of the legislation is to reduce the medical malpractice premiums, although there is no mandate that premiums be reduced. The defendant will be relieved of paying the plaintiff the amount of future medical care allocated to the fund. Medicaid will be relieved of paying for the future care of qualified plaintiffs. Without a need for Medicaid, Supplemental Needs Trusts may not be needed to preserve ongoing benefits for these qualified plaintiffs. This may enable greater flexibility in the use of nonfund assets for a neurologically impaired infant plaintiff. III. GOVERNMENT ENTITLEMENTS BASED UPON NEED A. Medicaid for Infants 1. Nonwaivered Medicaid Programs: Medicaid provides medical assistance that pays for home health aides, therapies, prescription drugs and hospital and physician s bills. It is a joint federal-state program established by federal law in 1965. 32 Individuals with disabilities of any age as well as those who are medically needy under the age of 21 or over the age of 65 are eligible for Medicaid 3

benefits so long as they meet the financial criteria. Individuals eligible for SSI, a federal program that gives a cash stipend to the aged, blind and disabled, automatically receive Medicaid benefits. 33 For infants, eligibility for most Medicaid programs is tied to the economic eligibility of the parents. Children whose parents receive Temporary Assistance to Needy Families and Aid to Families with Dependent Children, both of which are poverty-based programs, are eligible for Medicaid. 34 Children with disabilities who receive SSI also are eligible for Medicaid. 35 Children with disabilities under the age of 21 who are receiving care away from their own homes in state and other schools, hospitals and group homes also are eligible for Medicaid. 36 With traditional Medicaid, if a parent has a cause of action in a child s case and receives a lawsuit settlement, the child will lose SSI and Medicaid benefits that are based upon the parents financial need, even if the child s recovery is placed into a Supplemental Needs Trust, if the parents assets and income will exceed the guidelines of the Medicaid and SSI programs. 37 With those enrolled in the Fund, the parents assets and income no longer affect the child s eligibility for health care services. 2. Waivered Medicaid Home Care Programs: Certain programs waive the federal requirements that the parents be poor in order for the child to receive Medicaid. These programs provide Medicaid coverage for an infant with a disability even if the parents assets and income exceed the financial guidelines set by the Aid to Families with Dependent Children and Home Relief programs. These programs may be found on the website of the New York State Office of Persons with Developmental Disabilities 38 and include: 4

a. The Care at Home Program for physically disabled or developmentally disabled children who might otherwise qualify for hospital or nursing home or intermediate care facility placement. b.. Family Support Services through the OMRDD Developmental Disabilities Services Offices provide respite, recreation, case management, counseling, behavior management, training, transportation and special adaptive equipment. c. Early Intervention Program to enhance the development of infants and toddlers with disabilities or developmental delays provides service coordination, family training, counseling, parent support groups, speech and audiology services, physical therapy, occupational therapy, nursing services, social work services, transportation and assistive technology devices. d.. Physically Handicapped Children s Program serves children with severe chronic illnesses or physical disabilities by providing diagnostic services and evaluation and reimbursement to health care providers for treatment rendered inpatient, or at physician s offices. Families must have low incomes or inadequate private coverage. e. Home and Community Based Services Waiver for Children and Adolescents with Serious Emotional Disturbances provides services and support to families and children to enable them to remain at home and in the community. 3. Parent s Derivative Award A parent s own loss of services award based upon the child s injury will affect the child s eligibility for traditional Medicaid. Children s eligibility for waivered programs paid by Medicaid, however, is not dependent upon the parents financial need. For those not enrolled in the Fund, the child should be evaluated for one of these waivered programs prior to a parent s receiving a lawsuit recovery for his/her own cause of action. Without the Fund, only a minor 5

whose parents assets and income meet the poverty test or who qualifies for a waiver program would receive Medicaid services. Even with a waiver program, the child must be eligible for Medicaid, although the parents assets and resources will not be counted in computing eligibility. Hence Supplemental Needs Trusts 39 are often used to protect the child s assets and eligibility for Medicaid both for the waiver programs and for traditional Medicaid. B. SSI (Supplemental Security Income) SSI, 40 is a federal program that provides a cash stipend to aged, blind and disabled individuals whose available resources and income do not exceed the guidelines of the program. 41 As with Medicaid eligibility for children, the financial eligibility of the disabled child for SSI depends upon the economic situation of the parents. The parents assets and income are deemed available to the child when computing eligibility for SSI for the disabled child. An award to the parent will affect the SSI eligibility of the child. 42 When the infant receives SSI, the use of a Supplemental Needs Trust may affect the child s ongoing eligibility for SSI. Income paid to the parent may disqualify the child for SSI benefits. Some courts will authorize a monthly stipend to a parent caring for a child with a severe disability. This is based on the court s recognition that a parent cannot secure employment if s/he must oversee and provide care to a child with severe disabilities who would otherwise be institutionalized. However, this stipend may exceed the deeming rules of SSI. 43 In addition, paying for food and shelter from a Supplemental Needs Trust also reduces the monthly SSI benefit. 44 IV. SUPPLEMENTAL NEEDS TRUSTS A. Overview 6

In 1993, federal law authorized those with a disability under the age of 65 to transfer assets to a trust established by a parent, grandparent, legal guardian or by a court without incurring ineligibility for all Medicaid services or for SSI. 45 Prior to this law, establishing a trust resulted in ineligibility for government benefits. 46 The funds will not be considered an available asset when computing eligibility for government entitlements based upon need, 47 and there is no prohibition against the use of income and principal for the trust beneficiary. Prior to this law, only the income of a trust funded with the assets of a Medicaid recipient could be used. 48 These are referred to as Supplemental Needs Trusts. B. Payback to Medicaid 1. Statutory Framework These trusts will shelter the assets of a Medicaid/SSI recipient if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual. 49 New York law provides that such a trust will be an exception to the traditional Medicaid eligibility rules for a trust if upon the death of such individual the state will receive all amounts remaining in the trust up to the total value of all medical assistance paid on behalf of such individual. 50 The payback provision of a Supplemental Needs Trust requires reimbursement from remaining trust assets for all Medicaid provided to the beneficiary. 51 The State is not limited to reimbursement for Medicaid paid after the effective date of the trust. 52 The trust assets must be used to repay the State for all Medicaid provided to the beneficiary, even when a lien has been satisfied for less than the full amount of Medicaid provided at the time of the lawsuit. 53 By relying upon the plain language of the statutes, 54 the court did not limit reimbursement only to causally related Medicaid nor to Medicaid provided after the 7

satisfaction of a Medicaid lien. Rather, by this decision, all Medicaid provided to the individual at any age during his/her lifetime will remain subject to recovery by the State from remaining trust assets. 2. Extent of the Payback The payback to the State upon the death of the trust beneficiary can be much greater when there is an SNT than when there is no SNT. When an individual who received Medicaid for reasons unrelated to a lawsuit brought on his/her behalf establishes an SNT, there will be a payback to the State upon death from remaining trust assets for an amount inclusive of all Medicaid provided to him/her during lifetime. A prior condition will not insulate noncausally related Medicaid from recovery. Medicaid provided in excess of the satisfaction of a Medicaid lien will remain subject to payback. The payback will occur even if the beneficiary is survived by a spouse or child with a disability, 55 and may extend to a home owned by the SNT in which a caregiver child or sibling with an equity interest or disabled or minor child resides. C. An SNT: To Do or Not to Do? The decision to establish an SNT will likely be made when considering the benefits of the SSI program. Although the new Fund appears to eliminate the need for Medicaid for the qualified plaintiff, the funds held by or for the infant will preclude his/her eligibility for SSI. 56 There is no payback to the State for SSI benefits provided to the beneficiary of an SNT upon his/her death. However, if a Medicaid lien imposed against a lawsuit has been greatly compromised, the unpaid portion of the lien will be subject to payback to the State upon the plaintiff s death if s/he has established a Supplemental Needs Trust. If there is no SNT, and the plaintiff foregoes SSI, upon his/her death there will be no reimbursement to the State from the nonfund portion of the assets if there has been no further 8

Medicaid provided. Homes purchased for an infant plaintiff will not be subject to estate recovery if the infant passes away prior to age 55 57 so long as purchased outside of an SNT. The unpaid amount of Medicaid and the nature and amount of assets owned by the qualified plaintiff will be factors to consider when comparing the benefits of SSI with a payback upon death to the State for all Medicaid ever provided from remaining trust assets if a trust is established. V. ACCESS TO THE NONFUND COMPONENT OF THE LAWSUIT A. Funds Pursuant to CPLR Article 12 New York law provides safeguards concerning investment authority and access to funds held for a minor. 58 The statute authorizes that an infant s funds be paid to Guardians, jointly with an officer of the bank or paid for the benefit of an infant pursuant to a structured settlement agreement, but it does not authorize the payment of funds to a Trustee of a Trust. 59 Notwithstanding the lack of clear statutory authority, many trial courts will authorize payments of an infant s funds to the trustee of a trust for an infant plaintiff. 60 The use of trusts with a corporate trustee is one way to unblock some of the funds. Even with a corporate trustee, however, the Trust will often require that investments comport with investments authorized for infants pursuant to the CPLR until the infant reaches 18. 61 Annual accountings may be required, and limitations on expenditures without further court order also often are included both in the Infant Compromise Order and in the trust document itself. Upon the plaintiff s reaching the age of 18, some courts require that an application be brought for legal Guardianship, for ongoing supervision and oversight of the trust. Others release all restrictions on the oversight and use of the trust, but leave the discretion as to its use to an independent, often corporate, trustee. 9

B. Use of Nonfund Assets and Infants When a grievously injured infant with special needs will require extraordinary care and services, a tension exists between the right of the child to receive parental support and the availability of his/her funds to provide for these needs. In particular, the family may have been told that they will be able to purchase a home with the infant s funds and have all other needs and services provided through the infant s assets. When the parents are unable to pay for the necessities and extraordinary services for the infant, but the infant has a large lawsuit recovery, the court must balance its duty to safeguard the infant s funds with the need to provide the infant with services beneficial to him/her. If the nonfund portion of a lawsuit recovery remains in restricted accounts subject to CPLR Article 12, withdrawals of the infant s funds may be made only pursuant to court order. If the parent brings an application for the appointment of a legal guardian of the infant plaintiff, the courts will often entertain applications for approval of a budget or expenditures, and if the Guardian is bonded, the funds are not restricted. Guardians may be appointed either in Supreme Court 62 or in Surrogate s Court. 63 Regardless of the forum, the petition should set forth the items of need, such as a van, house, pool, vacations, the inability of the parents to pay for these extraordinary needs, the reason why these items are related to the infant s special needs and how these items will benefit the infant. When authority is sought to enter into a contract to purchase a house, medical documentation concerning the benefit of a barrier-free environment, for example, or the hypersensitivity of the infant to noise, or danger to the infant in the current environment should be set forth in detail. If the Petition seeks the purchase of furniture or an allocation of maintenance and taxes all to the infant, the Petition should detail services rendered to the infant by the Parent, who often serves as a private case manager and care coordinator, providing hidden uncompensated services to the infant. When a monthly stipend is sought for a parent of a minor 10

child, the services, once again, should be detailed as those provided in addition to parenting for a nondisabled child. In Matter of Marmol, 64 the court analyzed requests for expenditures of an infant s funds in an Article 81 proceeding that did not contain an SNT. The court required that parental income and assets be revealed in order to determine whether an infant s funds should purchase a home. The court also distinguished between necessities, which remained the responsibility of the parents, and extraordinary needs due to the child s disability, which would be provided through the Guardianship funds. This is likely the analysis that will be followed when applications to use the nonfund portion of a lawsuit recovery of a neurologically impaired infant are brought before a Guardianship Part. It also should be noted that even with the Fund and without a Supplemental Needs Trust, the parent of a child with a cognitive disability will never have unfettered access and control over the lawsuit proceeds, whether or not the child receives Medicaid, whether or not the assets remain in an SNT, and whether or not the parent is the Trustee. The courts will likely want to oversee the use of funds of the incapacitated person if the parent is serving as Trustee, or will delegate authority to an independent, corporate trustee. Communicating this to the parents may temper the expectations that the parent may have that the nonfund portion of a lawsuit recovery will be able to support the entire family without limitation. VI. CONCLUSION The Medical Indemnity Fund is intended to reduce medical malpractice premiums for hospitals and the use of Medicaid to pay for infants with profound disabilities. As eligibility for the fund is not means tested, enrollment of the infant in the fund presents planning opportunities for the families. Derivative awards to the parents now will not affect the child s ongoing eligibility for medical coverage. A Supplemental Needs Trust 11

would be beneficial only to secure SSI. While legal guardianship may present the best manner in which to access these funds, parents should be aware that their child s incapacity will likely subject the use of the funds to ongoing court oversight or control by a corporate, independent fiduciary for the child s lifetime. Nonetheless, if the Fund works smoothly to provide all medical care for the qualified plaintiff for life, eliminating the financial criteria to obtain medical coverage for these infants may prove beneficial to the infant and to the family. Private physicians will be paid not at the Medicaid reimbursement rate but at the customary rate, 65 resulting in more physicians available to the infant previously limited to Medicaid providers. Enrollment in the Fund and the absence of a Supplemental Needs Trust will eliminate the Department of Social Services scrutiny concerning the use of the qualified infant plaintiff s funds. 66 This may facilitate the use of an infant s funds for his/her benefit to enhance the infant s quality of life. Whether the Fund will operate as efficiently as set forth in the regulations, of course, remains to be seen. Notwithstanding this concern, the Fund does present planning options at this time different from those utilized by infants dependent upon Medicaid for their medical needs. 1 N.Y. Pub. Health L. 2999-g. The purpose of the fund is to provide a funding source for future health care costs associated with birth related neurological injuries, in order to reduce premium costs for medical malpractice insurance coverage. Id. 2 Id. at 2999-h(3). 3 Id. at 2999-j(3). 4 Id. at 2999-h(4). 5 Id. at 2999-g. 6 See discussion at Section II B, infra. 7 See FN 30, infra. 8 Those expenses that will or can be covered as qualifying health care cots are defined as broadly as defined by the statute. Preamble, 10 N.Y.C.R.R. 69-10. 9 42 U.S.C. 1396p(d)(4)(A); N.Y. Soc. Serv. L. 366(2)(b)(2)(iii)(A). 10 N.Y. Pub. Health L. 2999-h(1). 11 Id. at 2999-h(3). 12 Id. at 2999-j(8). 13 Id. at 2999-j(4)(a). 12

14 Id. at 2999-j(4)(b). 15 Id. at 2999-j(1). See also 10 N.Y.C.R.R. 69-10.1. 16 N.Y. Pub. Health L. 2999-h(4). 17 Id. at 2999-j(6). 18 Id. at 2999-j(12). 19 Id. 20 10 N.Y.C.R.R. 69-10. 21 Id. at 69-10.1(j),(m),(n),(p),(s),(z),(cc). 22 Id. at 69-10.4. 23 Id. at 69-10.5. 24 Id. at 69-10.6. 25 Id. at 69-10.7. 26 Id. at 69-10.8. 27 Id. at 69-10.10. 28 Id. at 69-10.13. 29 Id. at 69-10.15. 30 Id. at 2999-j(6)(b). 31 See discussion concerning the allocation between fund and nonfund damages in Mendez v. NY Presbyterian Hospital 934 N.Y.S.2d 662 (Sup. Ct. Bronx Co. 2011). 32 42 U.S.C. 1396; N.Y. Soc. Serv. L. 366; 42 CFR 430; and 18 N.Y.C.R.R. 360.1. 33 N.Y. Soc. Serv. L. 366(1)(a)(2). 34 18 NY.C.R.R. 360-3.3(a). 35 N.Y. Soc. Serv. L. 366(1)(a)(2). 36 N.Y. Soc. Serv. L. 366(1)(a)(3). 37 Parents assets and income are deemed available to children with disabilities under the age of 18. 20 C.F.R. 416.1160. 38 www.opwdd.ny.gov. 39 42 U.S.C. 1396p(d)(4)(A); N.Y. Soc. Serv. L. 366(2)(b)(2)(iii)(A); EPTL 7-1.12. See discussion IV, infra. 40 42 U.S.C. 1381 et seq. 41 An individual may have $2,000 in available resources, with a $1,500 burial fund, while a couple may have $3,000 and a $3,000 separate burial fund. See generally, 42 U.S.C. 1382a, b. The home in which one resides is an exempt asset. 20 C.F.R. 416.1212. An individual eligible for SSI automatically qualifies for Medicaid in New York State. N.Y. Soc. Serv.L. 366(1)(a)(2). 42 20 C.F.R. 416.1160. 43 Id. 44 POMS SI 01120.200E(1)(b), available at http://www.ssa.gov. 45 42 U.S.C. 1396p(d)(4)(A); 42 U.S.C. 1396p(c)(2)(B)(iv); N.Y. Soc. Serv. L. 366(5)(e)(4)(ii)(D). 46 See generally, 42 U.S.C. 1396p(d)(4)(A). 47 42 U.S.C. 1396p(d)(4)(A); N.Y. Soc. Serv. L. 366(2)(b)(2)(iii)(A); EPTL 7-1.12. 48 See 42 U.S.C. 1396p(c). 49 42 U.S.C. 1396p(d)(4)(A). 50 N.Y. Soc. Serv. L. 366(2)(b)(2)(iii)(A). 51 In the Matter of Abraham XX, Deceased, 11 N.Y.3d 429 (N.Y. 2008). 52 Id. 53 Id. See, e.g., Arkansas Dept. of Health & Human Services v. Ahlborn, 547 U.S. 268, 126 S. Ct. 1752 (2006), which does not require reimbursement dollar for dollar of a Medicaid lien filed against a lawsuit. 54 42 U.S.C. 1396p(d)(4)(A); N.Y. Soc. Serv. L. 366(2)(b)(2)(iii)(A). 55 Cf. N.Y. Soc. Serv. L. 369. 56 See FN 41, supra. 57 N.Y. Soc. Serv. L. 369(a)(b). 13

58 See generally, N.Y. C.P.L.R. Article 12. 59 N.Y. C.P.L.R. 1206. But see DiGennaro v. Community Hospital of Glen Cove, 204 A.D.2d 259, 611 N.Y.S.2d 591 (2d Dept. 1994), stating that an infant s funds could be paid to a trustee. 60 See, e.g., Santiago v. Castillo, Index No. 1750/06 (Sup. Ct. Bronx Co. March 21, 2012) in which the court appointed a corporate trustee to hold $1,750,000 representing the nonfund portion of a lawsuit recovery of a qualified plaintiff. This court authorized only $1,500/year to be spent on clothing, $5,000/year for vacation for the infant plaintiff and camp tuition. No other disbursements were authorized without further order of the court, and the plaintiff s mother was directed to make application for the appointment of a legal guardian for her son prior to his turning 18. Id. 61 N.Y. C.P.L.R 1206(c), 1210(d). 62 N.Y. Ment. Hyg. L. 81.01 et seq. 63 SCPA 17-A. 64 640 N.Y.S.2d 969 (Sup. Ct. N.Y. Co. 1996). 65 N.Y. Pub. Health L. 2999-j(4)(a). 66 The Department of Social Services is to receive assets remaining in a Supplemental Needs Trust up to the total Medicaid benefits provided to the beneficiary. 42 U.S.C. 1396p(d)(4)(A); N.Y. Soc. Serv. L. 366(2)(b)(2)(iii)(A). New York State regulations require that prior notification be given to the Department in advance of certain transactions from a payback trust. 18 N.Y.C.R.R. 360-4.5(b)(iii)(c). The Department receives annual accountings of the SNT and may challenge expenditures if not made for the sole benefit of the beneficiary. Without Medicaid and without an SNT, the Department of Social Services is no longer an interested party in the use of the funds of a qualified plaintiff. Joan Lensky Robert is a member of Kassoff, Robert & Lerner, LLP, Rockville Centre, New York practicing in the areas of elder law and special needs planning. She is a past Chair of the NYS Bar Association Elder Law Section, a past Director of the Nassau County Bar Association and Past President of the National Academy of Elder Law Attorneys, New York Chapter. 14