On July 4, 2025, Congress enacted, and President Trump signed into law, the One Big Beautiful Bill Act (OBBB), a sweeping piece of legislation with major implications for the U.S. tax code, entitlement programs, and federal spending priorities. While OBBB did not directly amend the structured settlement provisions of the Internal Revenue Code, its reforms, especially in Medicaid, could significantly impact how structured settlements are implemented and coordinated with public benefits.
This article provides a first-look interpretation of key provisions relevant to settlement planning for plaintiffs. Many elements of the legislation remain subject to regulatory clarification or state-level response—particularly with respect to Medicaid. As a result, settlement planners and plaintiff attorneys are strongly encouraged to consult experienced special needs attorneys to assess client-specific impacts and ensure legal compliance before finalizing settlement designs.
Despite these uncertainties, OBBB reshapes the broader environment in which structured settlements operate—particularly for injured claimants who rely on public benefits or are exposed to taxable elements of recovery. The following analysis identifies the key takeaways for those settlement planners and outlines the adjustments needed to preserve benefits and optimize outcomes.
Affordable Care Act (ACA) Under Pressure
For clients who rely on ACA marketplace coverage after a personal injury settlement, OBBB introduces significant risks. The legislation eliminates automatic plan renewals, reduces the period of retroactive coverage from three months to one, and tightens income verification before premium subsidies are granted. These provisions aim to reduce federal expenditures and minimize ineligible enrollment—but they also increase administrative burdens and jeopardize continuity of coverage for vulnerable populations.
The Congressional Budget Office estimates that up to four million people may lose marketplace coverage by 2034 due to OBBB. Younger and healthier enrollees, many of whom rely on simplified renewal processes and grace periods, may be disproportionately affected. Combined with Medicaid eligibility cuts and increased state control, the OBBB sharply curtails the ACA’s post-settlement healthcare safety net.
As a result, structured settlements may need to account for greater out-of-pocket medical costs, particularly during coverage gaps or transitions. Allocating funds to cover COBRA premiums, marketplace plans, or short-term health insurance may become an essential planning function. Moreover, settlement planners must be mindful of how structured payments interact with ACA income thresholds, particularly if clients receive taxable components of a settlement.
Settlement planners should begin reviewing 2025 premium subsidy eligibility assumptions with clients and prepare them for possible re-enrollment delays.
Key takeaway: OBBB increases ACA coverage risks and administrative burdens, requiring settlement planners to budget for potential insurance gaps and income threshold management.
Medicaid: Federal Disengagement and State Divergence
Medicaid is where OBBB arguably hits the hardest. The law reduces federal Medicaid spending by an estimated $880 billion over the next decade, largely by phasing out enhanced match rates for expansion states and promoting block grant and per-capita cap models. But the real impact will depend on how each state responds to its new fiscal and regulatory latitude.
Some states, notably Georgia and Arkansas, have already implemented work requirements or aggressive redetermination protocols. With the Supreme Court’s recent Loper Bright decision limiting Chevron deference, states can be expected to push the envelope even further. For settlement planners, this means Medicaid access is no longer a national entitlement but a variable, politically contingent benefit.
Structured settlements continue to offer strong compliance potential under Medicaid’s rules, particularly when established in accordance with best practices. While state-level scrutiny may increase in light of fiscal constraints, structured annuities remain distinct from conventional financial products due to their tailored design, court approval, and statutory backing under IRC §104(a)(2) and §130.
The 2006 Social Security Administration Nancy Veillon letter, though informal, affirms structured annuity payments can be excluded from Social Security income and resource tests when administered through Special Needs Trusts (SNTs). Although the 2006 Nancy Veillon letter is not legally binding, it is frequently cited in practice as informal support for excluding structured settlement annuity payments from income and resource tests when properly administered through SNTs.
The Deficit Reduction Act of 2005 (DRA) introduced specific requirements for annuities purchased on behalf of Medicaid applicants, including rules on irrevocability, equal payments, and actuarial soundness—but it remains unclear whether and how those provisions apply to structured settlement annuities. To date, to this writer’s knowledge, no federal agency has issued formal regulatory guidance on this question, and no state Medicaid program has adopted a policy expressly reversing the exclusion of structured settlements that satisfy the DRA’s annuity criteria.
Best practices for protecting Medicaid benefits remain crucial:
· Ensure structured annuities are irrevocable, non-assignable, provide equal periodic payments, and are actuarially sound.
· Place structured payments inside a properly drafted SNT or pooled trust.
· Clarify the allocation between medical and non-medical damages in settlement agreements.
For planners, the key is not to avoid structured settlements—but to execute them properly. Structured settlements remain a powerful tool for preserving Medicaid eligibility when integrated into a comprehensive benefits strategy. In fact, their predictable and secure nature can often enhance—not threaten—compliance with asset and income rules. As state Medicaid programs recalibrate, maintaining documentation and working with experienced special needs counsel will remain vital.
Key takeaway: Medicaid eligibility will increasingly vary by state, heightening the importance of proper structured settlement design and collaboration with special needs counsel.
Social Security: Modest Gains and Strategic Considerations
OBBB introduces a temporary “Senior Deduction” of $6,000 for individuals and $12,000 for joint filers from 2025 to 2028, designed to reduce the taxation of Social Security benefits. The law also repeals the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), which previously reduced benefits for public sector workers.
These changes do not affect benefit amounts directly but offer planning opportunities. Elderly claimants receiving taxable structured income can now benefit from a more favorable tax treatment by timing taxable distributions to coincide with deduction windows and managing their adjusted gross income (AGI) strategically. For example, a 66-year-old client receiving structured taxable payments may benefit by adjusting the payment start date to coincide with the Senior Deduction window, reducing AGI and preserving benefit eligibility.
Key takeaway: OBBB’s temporary Senior Deduction and repeal of WEP/GPO create new opportunities to time taxable structured payments for older claimants.
ABLE Accounts: Increased Contribution Limits
The OBBB Act permanently maintains and indexes for inflation the enhanced contribution options for ABLE (Achieving a Better Life Experience) accounts — originally set to expire under prior law. While the basic annual contribution limit remains tied to the gift tax exclusion (now $19,000 per person in 2025), eligible working individuals may still contribute additional earned income up to the federal poverty level, potentially allowing total contributions to exceed $19,000 depending on income. Additionally, the ABLE Age Adjustment Act—enacted in December 2022 and effective in 2026—raises the age of onset for ABLE account eligibility from 26 to 46, potentially expanding access for many injured claimants who previously did not qualify.
However, the law does not provide any clarification regarding whether structured settlement annuity payments can be made directly into ABLE accounts. Contributions must still be made in cash and remain subject to annual limits and eligibility criteria.
This ongoing lack of clarity highlights the continuing importance of a regulatory or legislative solution that would explicitly authorize structured settlement funding of ABLE accounts—a reform that could enhance post-settlement planning options for claimants with disabilities. This omission underscores Congress’s ongoing failure to modernize rules that would allow ABLE accounts to serve as direct recipients of structured annuity payments.
Key takeaway: Expanded ABLE eligibility and contribution options enhance planning flexibility, but regulatory uncertainty continues to limit structured annuity funding.
Attorney Fees: Partial Relief and Persistent Double Tax Risk
One lesser-known provision of OBBB partially restores the miscellaneous itemized deduction for attorney fees in certain taxable claims, primarily those arising from employment, civil rights, or whistleblower statutes. These deductions, however, are limited to amounts exceeding 2% of AGI and remain below-the-line, offering only modest relief. This change does not affect most other taxable claims, which continue to be subject to what has become known as the “Plaintiff Double Tax.”
First enacted under the 2017 Tax Cuts and Jobs Act, the Double Tax arises when plaintiffs in taxable cases are unable to deduct legal fees from their gross recovery. As a result, both the plaintiff and their attorney pay tax on the same income, significantly reducing the plaintiff’s net recovery and diminishing the available funds for structured settlements. Plaintiffs may require a larger up-front payment to cover tax obligations, which in turn reduces the amount that can be structured.
Importantly, attorney fee deferrals that comply with Childs v. Commissioner remain unaffected by OBBB, provided they are properly structured and meet established legal requirements.
Settlement planners should ask whether the claim falls under one of the few exceptions now carved out by OBBB or consider structured deferrals early in the negotiation process.
Key takeaway: Limited restoration of fee deductions offers some relief, but most plaintiffs still face double taxation, reinforcing the importance of Childs-compliant deferrals.
Tax Rates and the Indirect Impact on Structured Settlements
Although structured settlement payments remain exempt from federal income taxation under IRC §104(a)(2), the value of that exemption depends on prevailing tax rates. OBBB reduces marginal tax rates for many middle-income earners while preserving lower brackets for lower-income households. For high-income individuals, some deductions are pared back, but no new surtaxes were added.
These changes have an indirect impact on structured settlements. For injured claimants who might otherwise receive lump-sum settlements subject to taxation (in non-physical injury cases, or structured attorney fees), the tax deferral and avoidance benefits of structured solutions become even more pronounced.
In contrast, for physical injury claimants whose entire recovery is tax-exempt, lower overall rates may slightly reduce the perceived financial advantage of structured versus lump-sum arrangements, but do not eliminate the long-term risk protection, benefit coordination, and income management value structured settlements offer.
Settlement planners should re-run post-OBBB tax modeling software to ensure structured proposals are aligned with the new tax brackets and potential AGI thresholds for deductions or benefit phase-outs.
Key takeaway: Lower tax rates may affect structured settlement valuations and should prompt recalibration of modeling software and AGI strategies.
Conclusion: Adaptive Planning in a Post-OBBB World
The One Big Beautiful Bill signals a turning point in public benefit planning. Federal retrenchment—especially in Medicaid—places greater pressure on states, clients, plaintiff attorneys and settlement professionals. Structured settlements remain a powerful planning vehicle, but they must now be deployed with greater precision and coordination.
For settlement planners, the One Big Beautiful Bill represents an opportunity—and a necessity—for thoughtful reconsideration of existing settlement planning practices. While IRC §§ 104(a)(2) and 130 remain intact, the surrounding legal and regulatory landscape has shifted in ways that require greater attention to benefit preservation, income timing, and strategic coordination. Structured settlements continue to offer meaningful advantages, but they must now be evaluated within a more complex and evolving policy environment.
This article represents a first analysis. Settlement professionals are encouraged to monitor further guidance from CMS, SSA, IRS, and their own state agencies as OBBB implementation evolves. Future rulemaking, litigation, and state responses will continue to shape this landscape. Remaining nimble and informed will be key to effective advocacy and planning.
Key takeaway: Structured settlements remain valuable but must now be deployed with more strategic precision amid shifting laws and benefit structures.
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. Attorneys considering deferring their fees must rely on their own independent legal, tax, and financial advisors to evaluate the potential benefits, risks, and consequences of any transaction.
