By Patrick Hindert and George Luecke
Introduction: Understanding the Path to Today’s Challenges
This article is the fourth in a six-part series examining how structured settlements interact with public benefit programs in an era of rapid legislative, judicial, and administrative change.
As a reminder: Article 1 introduced the One Big Beautiful Bill Act (OBBB), explaining how its shift toward state-level Medicaid authority is transforming settlement planning for claimants who depend on means-tested benefits. The article highlighted the growing need for state-specific strategies and a stronger federal policy foundation to support injured individuals.
Article 2 examined the Social Security Administration’s (SSA) 2025 administrative reforms and their impact on post-settlement planning for Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI) recipients. It emphasized the importance of accurate benefit coordination and the emerging role of structured settlements within evolving SSA eligibility systems.
Article 3 began focusing specifically on Medicaid by analyzing how structured settlements support benefit-sensitive claimants and why their legal treatment under Medicaid diverges from tax-based planning assumptions. It lay the foundation for how the absence of formal statutory guidance combined with the decentralizing aspects of OBBB and the erosion of agency deference per the Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo (Loper Bright) present the need for clearer coordination and integration between these frameworks.
In this article, we now turn to the historic path that brought the structured settlement industry to this point. Structured settlements were born out of tax legislation designed to provide secure, long-term compensation to recipients of personal injury settlements without coordination with means-tested benefits. Over time, however, developments in disability law, Medicaid planning, and special needs trusts enabled structured settlement professionals to gradually address the need to preserve public benefits for the injured.
This evolution, characterized by informal guidance and workaround strategies, has been directionally helpful but not comprehensively effective. Federal statutes, regulations and case law have never squarely addressed the inconsistencies between the treatment of structured settlements under tax statutes, regulations and case law versus their treatment under statutes, regulations and case law applicable to means-tested and disability benefits.
The absence of formal integration between and among these interrelated regimes requires claimants, attorneys, and settlement planners to rely on informal agency interpretations, state-specific practices, and case-by-case tactics, approaches that, while useful, are increasingly problematic in today’s shifting legal and regulatory environments. Addressing these issues is essential both to protect injured claimants’ access to benefits and to facilitate the long-term value and growth of the structured settlement market.
By tracing the product’s origins and its gradual, yet incomplete, intersection with public benefit planning, this article provides essential context for the remaining two articles in the series, which will continue to examine unresolved Medicaid and disability-related legal issues and hopefully initiate an informed, actionable discussion about potential federal solutions that can strengthen both claimant protection and industry expansion.
I. Foundations and Early Focus
When Congress enacted the Periodic Payment Settlement Act of 1982 (PPSA), its primary goal was to address a financial risk facing many injury claimants: the rapid dissipation of lump-sum recoveries. The Act established the tax framework that continues to anchor structured settlements to this day, codifying exclusions from gross income under Internal Revenue Code §§ 104(a)(1) and 104(a)(2) and authorizing qualified assignments under § 130. This legislative foundation has provided structured settlements with strong tax legitimacy, encouraging their use for decades in physical personal injury and workers’ compensation cases to provide secure, long-term compensation.
In its early years, the structured settlement model was not designed to coordinate with means-tested public benefits such as SSI or Medicaid. When the PPSA was enacted, the prevailing assumption, shared by policymakers and structured settlement market participants, was that tax-advantaged structured settlements would reduce the need for means-tested government benefits. Industry priorities at that time centered on tax compliance, case closure, and cost containment, rather than integrating structured settlements with the broader public benefit system.
The public policy and legislative landscape began to shift in the early 1990s. The Americans with Disabilities Act of 1990 (ADA) heightened national awareness of systemic barriers facing individuals with disabilities. Three years later, the Omnibus Budget Reconciliation Act of 1993 (OBRA) created statutory authority for first-party special needs trusts (SNTs) under 42 U.S.C. § 1396p(d)(4)(A) and pooled trusts under § 1396p(d)(4)(C).
These trusts provided a legal mechanism for disabled individuals to qualify for Medicaid who could not otherwise meet the program’s income or resource requirements. Before OBRA, settlement recipients with disabilities frequently faced unattractive or unworkable planning challenges in qualifying for and/or maintaining SSI and Medicaid due to those strict income and resource limits.
The ADA and OBRA marked the beginning of a gradual but important evolution for structured settlements. Creative structured settlement professionals, often working alongside special needs attorneys, trustees and nonprofit administrators, began to use SNTs and/or pooled trusts to enable disabled claimants to receive structured settlements without losing SSI or Medicaid eligibility.
Yet formal integration between and among the structured settlement, the means-tested benefits and disability regimes still remained limited at best. No federal statute or regulation involving SSI, Medicaid or disability expressly addressed or mentioned structured settlements, leaving practitioners with limited specific guidance.
Viewed in the context of the origins of structured settlements, limited integration with SSI and Medicaid specifically, and means-tested benefits and disability frameworks more generally, was less a strategic omission than a reflection of the times. The structured settlement industry’s initial priority was to secure tax legitimacy and address the most urgent policy goal: protecting claimants from premature dissipation. As disability rights expanded and public benefit planning matured, structured settlements began to take on a new role, one that would increasingly involve coordination with complex and varied benefit eligibility regimes and rules.
II. SSA Guidance and the Limits of Informal Law
The most specific federal interpretation of how structured settlements interact with means-tested public benefits comes from two identical letters issued in January 2006 by Nancy Veillon, then Acting Director of the SSA’s Office of Income Security Programs, to special needs attorneys representing the National Structured Settlements Trade Association (NSSTA).
The Veillon letters confirmed that, for SSI purposes based on policy at that time:
· Structured settlement annuity payments irrevocably assigned to a properly established first-party SNT are not counted as income to the trust beneficiary when paid into the trust, provided the trust itself is not a countable resource.
· The trust’s right to receive future payments is not considered a resource to the beneficiary.
· This favorable treatment continues even if payments are made after the beneficiary turns 65, so long as the irrevocable assignment to the SNT occurred before that age.
As expressly written, the Veillon letters had key limits:
· They applied only to first-party SNTs under § 1396p(d)(4)(A), and did not address pooled trusts under § 1396p(d)(4)(C) or other benefit-preservation arrangements.
· Additions or augmentations to the trust after the beneficiary turns 65 are not covered by the exception and may be treated as income or resources, depending on the source of funds.
· Their conclusions were based on provisions of SSA’s Program Operations Manual System (POMS) in effect at the time, including SI 01120.201J.1 (treatment of additions to trust principal), SI 01120.201J.1.d (treatment of legally assignable payments), and SI 01120.203B.1.b (age 65 limitations).
The Veillon letters provided welcome clarity in 2006 for coordinating structured settlements with SSI. The principles in the Veillon letters also align with certain POMS provisions, such as the treatment of irrevocably assigned payments to a qualifying trust (to be discussed in Article 5).
However, the legal status of the Veillon letter and their usefulness to structured settlements was, and remains, inherently limited for multiple reasons.
First, the letters were informal correspondence, not regulations or binding agency rules, and were not issued through notice-and-comment rulemaking.
Second, although aligned with at least one important POMS provision, structured settlements are not mentioned by name in those POMS. So the Veillon letters remain the only written federal interpretation that applies these SSI trust rules specifically to structured settlement annuities.
Third, SSA jurisdiction extends only to the SSI program under Title XVI of the Social Security Act. Medicaid operates under its own separate statutory framework and oversight: Title XIX, administered at the federal level by the Centers for Medicare & Medicaid Services (CMS) and at the state level by Medicaid agencies.
Most states use SSI criteria for Medicaid eligibility, but a minority, known as “209(b)” states, apply their own, often more restrictive, rules. Even in SSI-linked states, a Medicaid agency is not bound by – and therefore could reach a different conclusion than – the SSA’s analysis in the Veillon letters.
Fourth, the Veillon letters do not address the Deficit Reduction Act (DRA) annuity rules that were enacted in 2005 and created a separate statutory framework for evaluating annuities in Medicaid eligibility determinations. Those annuity provisions (to be discussed in Article 5) focus on disclosure, payment and payback terms, and actuarial soundness.
The DRA annuity rules apply independently of SSI rules and their application for structured settlement annuities has never been fully resolved. The absence of any discussion of the DRA annuity rules in the 2006 Veillon letters therefore represents a further limitation on those letters’ scope and usefulness.
Fifth, the Veillon letters, of course, could not address ABLE accounts as the federal enabling legislation was not enacted until 2014. As discussed below, neither the legislation nor the regulations for ABLE accounts address structured settlements which creates confusion as to whether direct funding of ABLE accounts with structured settlements impacts the Medicaid eligibility of ABLE beneficiaries.
Thus, the Veillon letters – while the only specific written federal statements on structured settlements and SSI – raise issues of jurisdictional authority and leave other substantial issues unaddressed. These unresolved issues combined with the OBBB and the Loper Bright decision, make strategic reliance on informal, program-specific interpretations derived from the Veillon letters increasingly uncertain.
III. ABLE Accounts and Interpretive Confusion
While SNTs and pooled trusts have been important in preserving Medicaid eligibility for some individuals with disabilities, each has limitations that the Achieving a Better Life Experience (ABLE) Act of 2014 was enacted to address. ABLE created tax-advantaged savings accounts, modeled on 529 college savings plans, for disability-related expenses.
Earnings in an ABLE account grow tax-free, and withdrawals for “qualified disability expenses” do not affect eligibility for SSI or Medicaid, provided the account stays within federal limits, including an annual contribution cap matching the gift tax exclusion ($19,000 in 2025) and a $100,000 balance threshold for continued SSI payments.
Two eligibility requirements define the program:
· Social Security Disability Standard: The beneficiary must meet the Social Security definition of blindness or disability, either through SSI/SSDI entitlement or a physician’s certification of “marked and severe functional limitations.”
· Age of Onset: The disability must have begun before age 26; beginning January 1, 2026, eligibility expands to disabilities with onset before age 46 under the OBBB’s ABLE Age Adjustment Act.
ABLE accounts and structured settlements both aim to promote long-term financial security for similar individuals – respectively, individuals with age-qualifying disabilities and individuals with physical personal injuries many of whom have resulting disabilities.
However, when the ABLE legislation was enacted and its regulatory framework created, structured settlements were not specifically addressed. As a result, interpretive confusion still exists more than 10 years following ABLE’s original enactment as to whether direct funding of ABLE accounts with structured settlements impacts an ABLE beneficiary’s SSI and Medicaid eligibility.
Unfortunately, the SSA views structured settlement payments made directly into an ABLE account as countable income in the month received for SSI purposes, irrespective of their exclusion from gross income under IRC § 104(a)(2). Because the majority of states determine Medicaid eligibility using SSI’s income methodology, this same income classification can also trigger Medicaid ineligibility for that month, potentially interrupting coverage for essential medical services.
To avoid the possibility of this adverse treatment, creative settlement planners sometimes direct structured settlement payments into a first-party (d)(4)(A) SNT and then, with trustee discretion, into an ABLE account. This strategy can be used to preserve Medicaid (or SSI) eligibility but adds cost, complexity, and uncertainty as to the trustee’s future commitment, essentially limiting the strategy’s usefulness in large cases and precluding use altogether in smaller cases.
At best, the lack of explicit statutory, regulatory and/or guidance for direct funding of ABLE accounts with structured settlement payments leaves room for inconsistent application across SSA field offices and state Medicaid programs.
The resulting confusion also represents a missed opportunity for more seamless coordination and integration between and among the structured settlement, SSI, Medicaid and ABLE frameworks, a coordination and integration that could improve financial security for eligible claimants while reducing costs, complexity, and administrative burden.
IV. Legal Shifts and the Case for Re-evaluating the Scope of Industry Policy Strategy
Two recent developments, the One Big Beautiful Bill Act (OBBB) and the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo (Loper Bright), are reshaping the legal environment for Medicaid. Each development increases the likelihood that future eligibility rules, benefit coordination, and treatment of structured settlements will vary more sharply from state to state.
This anticipated variability, however, is not limited to new frontiers. It will likely also extend into areas where federal law has long been silent or unsettled, such as SSI income treatment for structured settlement payments into SNTs, the definition and scope of DRA-compliant annuities, and the permissibility of direct ABLE funding.
The foregoing are precisely the areas where structured settlement planning intersects with Medicaid, and where the industry has historically relied on informal, dated agency guidance rather than clear statutory or regulatory rules or guidance.
While the anticipated changes resulting from OBBB and Loper Bright present uncertainty for structured settlements, they also highlight a timely opportunity to broaden the scope and impact of the overall public policy and strategy of the structured settlement industry.
For decades, structured settlement advocacy has focused primarily on federal tax provisions and protecting structured settlement recipients from factoring abuse. The current legal shifts make it timely to also address Medicaid-specific concerns, including how complex arrangements are understood, and sometimes misunderstood, by state agencies. By anticipating the pressures and discretion that states now face, the industry can help shape consistent, benefit-protective standards before divergent interpretations become more of an issue.
A. The OBBB and Expanded State Discretion
As discussed in Article 1, the OBBB shifts substantial Medicaid authority from the federal government to the states. This expanded discretion matters most in areas where federal law is silent or unsettled, precisely the issues flagged in this article, including Medicaid and SSI income treatment for structured settlement payments to SNTs, pooled trusts or ABLE accounts and lifetime or indexed annuity payments under the DRA. With more room to interpret these provisions, states are free to adopt approaches that diverge from each other and from past federal practice.
The OBBB also reduces the flow of federal Medicaid dollars to the states. Fiscal pressure of this kind can drive states to tighten eligibility rules, take narrower views of allowable planning strategies, and scrutinize complex arrangements more closely.
Structured settlements, with their specialized assignment documents and non-standard payment flows, are unlikely to be well understood by many state Medicaid agencies, particularly where the industry has devoted limited resources to conduct state-level education.
These dynamics underscore why the two reforms proposed in Article 6 should be viewed as timely and valuable. In an environment where state discretion is expanding and fiscal resources are constrained, clear statutory and regulatory guideposts can help align state practices with established federal objectives. By doing so, they reduce the likelihood of inconsistent treatment, support informed attorney recommendations, and give claimants greater confidence that their structured settlements will function as intended.
B. Loper Bright and the Uncertain Future of Agency Deference
The Loper Bright decision overturned decades of judicial deference to federal agency interpretations, replacing relative certainty with a more open, and unpredictable, legal environment. For Medicaid, the implications are not clear-cut. Where statutory language is explicit, courts will still enforce it as written. But in the many areas where the law is silent, ambiguous, or internally inconsistent, state agencies, litigants, and judges will have more latitude to define their own interpretations, potentially diverging from past federal guidance.
For structured settlements, this creates both opportunity and risk. Regarding opportunity, reduced deference could allow courts to adopt narrower, text-based readings of statutes that favor established benefit-protection strategies, particularly where the statutory record supports them.
Regarding risk, reduced deference could do the opposite: allowing courts to interpret statutes in ways that limit benefit-protection strategies. Also on the risk side of the equation, the potential loss or disregard of a single, authoritative agency interpretation increases the likelihood of inconsistent treatment across states, case types, and even individual hearing officers, especially in complex arrangements involving qualified assignments, SNTs, pooled trusts, ABLE accounts, or DRA-compliant annuities.
In this evolving environment, settlement planners will need to combine more rigorous state-specific research with careful documentation of ownership, assignment, payment flows, and compliance with federal disclosure rules. They may also need to anticipate disputes and preserve contemporaneous evidence to defend benefit-sensitive structures.
V. Conclusion
Over four decades, structured settlements have evolved from a tax-focused claims solution into an essential, if only partially integrated, tool in public-benefit planning. That evolution occurred largely without comprehensive statutory or regulatory direction under Titles XVI and XIX, leaving claimants and their advisors to navigate by informal guidance and variable state administration. In today’s environment, marked by expanding state discretion and reduced judicial deference to regulatory interpretations and guidance, that informal approach presents increasing risks.
In Article 5, we will map two unresolved areas of federal law that shape this connection: (1) SSI’s statutory definition of “income” and its role in Medicaid determinations; and (2) the DRA’s annuity provisions as applied to structured settlements funding (d)(4)(A) and (d)(4)(C) trusts.
In Article 6, we will build on our earlier articles with two narrowly targeted federal refinements, codifying an SSI exclusion for structured settlement payments assigned to benefit-protection vehicles (e.g., SNTs, pooled trusts and ABLE accounts), and formalizing a CMS interpretation that structured settlement annuities fall outside the DRA’s substantive restrictions.
As this series has emphasized, claimants should not have to choose between the security of structured settlements and continued access to essential government benefits. Strengthening the loose bonds that connect the structured settlements, means-tested benefits and disability frameworks is both a protection for claimants and a strategic path to sustainable industry growth.
By moving from historical context to the current legal landscape then on to focused, achievable reforms, the industry will be equipped with a stronger, more predictable framework for benefit-sensitive settlement planning.
Independent Life Insurance Company does not provide tax, legal, or financial advice. The information contained herein is for general informational and educational purposes only and is not intended to serve as a substitute for personalized advice from qualified professionals.
