Sonya Lotzer and Bobbi Lerud were in separate collisions. After settling their negligence claims, they funded special needs trusts without first paying Medicaid liens asserted by the State of Minnesota. Norwest Bank filed a declaratory judgment action alleging that Medicaid’s right to recover is deferred until the beneficiary’s death where a third party recovery is placed in a special needs trust. The district court disagreed and the Eighth Circuit affirmed. The Court found there is no conflict between the lien recovery statute, 42 U.S.C. § 1396k, and the eligibility rule found in 42 U.S.C. § 1396p(d)(4)(A). Section 1396k “is designed to maximize the effectiveness of MA by ensuring Medicaid is a payor of last resort.” Section 1396(d)(4)(A) “provides a mechanism by which persons with long-term disabilities can accept funds to be used for their non-medical needs while remaining eligible for [Medicaid]”. The Court found that Norwest’s interpretation of the statute would negate 1396k entirely because it would allow Medicaid recipients to avoid lien recovery by funding a special needs trust. To give meaning to both provisions, the court held that a State may require a Medicaid lien imposed on the proceeds to a personal injury award or settlement to be satisfied before the remaining funds are placed in a special needs trust.
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