By Patrick Hindert & George Luecke
I. Introduction: A Growing Market Meets a Shifting Regulatory Landscape
In 2024, the structured settlement market reached a historic milestone, generating $9.5 billion in annuity premium, the highest annual volume to date. Some industry experts have suggested the industry could reach an aspirational goal of $15 billion in annual production by 2030. This trajectory highlights the continuing evolution of structured settlements as a comprehensive planning solution: offering claimants many advantages including stable income, tax reduction, and safeguards against premature dissipation.
We agree that there is much upside potential for the industry, and that annual production could even exceed the above-mentioned aspirational goal. Doing so, however, will require exploring and unlocking untapped areas of opportunity aimed at expanding the use of structured settlements into both existing and new applications. In that regard, the structured settlement market could benefit substantially if its legal tax framework was better integrated with Medicaid’s legal framework.
Structured settlements already rest on a strong tax foundation, Internal Revenue Code §§ 104(a)(1), 104(a)(2), and 130, the legislative provisions which have anchored the tax treatment of periodic payments for physical personal injury and workers’ compensation claims for more than four decades.
However, the statutory and regulatory structure under Title XIX of the Social Security Act, which governs the Medicaid program, has not developed alongside the structured settlement tax framework in an integrated manner, one important result of which is that structured settlements have never been formally excluded from countable income under SSI, Medicaid, or other major means-tested benefit programs.
Absent a statutory or regulatory exclusion, structured settlement payments are generally treated as Social Security income unless specifically sheltered through a qualifying (d)(4)(A) special needs trust (SNT) or (d)(4)(C) pooled trust. This omission has persisted for decades, due in part to the complexity of federal and state Medicaid rules, the absence of coordinated federal guidance, and historical assumptions about structured settlements’ primary tax-based function.
Today, in the context of settlement planning, structured settlements interact with a growing number of public benefit programs that influence post-injury financial security, including Medicaid, SSI, Medicare (especially through Workers’ Compensation Medicare Set-Asides or WCMSAs), Section 8 housing, and the Supplemental Nutritional Assistance Program (SNAP).
This article is the third in a six-part series examining how recent legislative, judicial, and administrative developments are reshaping the legal environment for structured settlements in public benefit planning. Along with the next three articles, it focuses on Medicaid, where recent legislative and judicial developments have introduced important changes that warrant closer examination by the structured settlement and settlement planning professionals.
Other government programs, such WCMSAs, also intersect with structured settlement planning and are similarly influenced by informal agency practices rather than formal rulemaking. These programs raise comparable concerns about long-term consistency and reliability. Among them, however, Medicaid stands out as having undergone the most immediate and consequential changes in the wake of recent legislative and judicial developments.
Two recent developments have made the Medicaid-related legislative and regulatory omission for structured settlements more difficult to ignore:
· The One Big Beautiful Bill Act (OBBB), enacted in 2025, has shifted more Medicaid policymaking power to the states—accelerating divergence in eligibility rules and planning norms.
· The U.S. Supreme Court’s decision in Loper Bright Enterprises v. Raimondo (2024) eliminated judicial deference to federal agency interpretations of ambiguous statutes, undermining the long-standing reliance on sub-regulatory guidance.
As this series will demonstrate, OBBB and Loper Bright highlight why it is timely and important for the structured settlement industry to re-examine the interrelationship between structured settlements and Medicaid. Structured settlements were originally developed as a tax-advantaged claims-settlement product, primarily focused on physical injury resolution. Over time, however, they have taken on a broader role in post-injury settlement planning, especially for claimants with disabilities who rely on Medicaid for long-term services and essential supports
It is worth noting that many structured settlement recipients rely on health coverage obtained through the Affordable Care Act (ACA) instead of Medicaid. Like Medicaid, the ACA has been significantly impacted by the OBBB. However, this series does not address the ACA because the ACA is not a means-tested program and involves a different set of eligibility and coordination considerations.
II. Summary of the Six Articles in this Series
The 6 articles in this series are summarized here:
Article 1 (previously released) – 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 (previously released) – examined the Social Security Administration’s 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 (this one) begins 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 lays the foundation for how the absence of formal statutory guidance regarding the interplay of the structured settlement and Medicaid frameworks and the erosion of agency deference per Loper Bright present the need for clearer integration between these frameworks.
Article 4 (to be released) will trace the historical evolution of structured settlements in relation to Medicaid and SSI, highlighting how a tax-centered product gradually became entwined with disability planning and public benefits. It reviews the limited and informal federal guidance, such as the Veillon letters and SSA’s POMS, and explains how their incomplete treatment of ABLE accounts, combined with recent legal developments, now necessitates a strategic reassessment of structured settlement practices.
Article 5 analyzes how expansive social security definitions of “income” and the absence of structured settlement–specific rules in the SSI statute, regulations, and POMS create uncertainty for benefit eligibility. It also examines the ambiguous applicability of the DRA’s Medicaid annuity rules and explains why recent developments, including the OBBB’s expansion of state discretion and Loper Bright’s rejection of Chevron deference, have made informal guidance insufficient to support consistent planning.
Article 6 presents two narrowly tailored federal proposals designed not as legislative imperatives, but as opportunities for our industry to initiate policy discussions: one to codify an SSI exclusion for structured settlement payments irrevocably assigned to first-party special needs trusts, pooled trusts, or ABLE accounts; and another to update and more specifically affirm CMS’s interpretation that qualified-assignment-funded structured settlement annuities are not subject to the DRA’s transfer-of-asset rules.
Together, this six-article series is intended to encourage the structured settlement industry to view Medicaid integration as a strategic opportunity, one that supports claimants, enhances public confidence, and contributes to reaching the structured settlement industry’s aspirational goals.
III. Structured Settlements and Medicaid: A Vital, But Unfinished Relationship
Medicaid is the nation’s largest means-tested health and social services program, covering more than 85 million Americans, including children, low-income adults, pregnant women, individuals with disabilities, and older adults with limited income and chronic care needs who require long-term services and supports. For many structured settlement recipients, Medicaid provides a vital support system, delivering access to services that sustain daily living, independence, and quality of life.
Unlike Medicare, which is a uniform, federally administered program, Medicaid is jointly funded by the federal government and the states, and administered primarily at the state level. This federal-state structure gives states broad flexibility to define eligibility categories, establish income and asset limits, and determine the scope of covered services. In practice, Medicaid operates less like a single national program and more like a constellation of state systems, each with its own rules and procedures.
This state flexibility can create complexity and challenges for personal injury claimants. Medicaid is not just health insurance—it is often the only program that pays for home- and community-based services (HCBS), personal care aides, assistive technology, and long-term residential care. These services are rarely covered by Medicare or private insurance, yet they are essential for many individuals with serious injuries or disabilities to live outside institutional settings and maintain autonomy.
Because Medicaid is a means-tested program, eligibility is determined by income and asset limits, which are established within federal guidelines but vary by state and by eligibility category. Structured settlement payments, depending on how they are designed and delivered, can jeopardize eligibility, particularly when paid directly to the claimant. In many states, Medicaid eligibility is linked to the Supplemental Security Income (SSI) program, which applies a broad and inclusive definition of “countable income.”
A structured settlement payment may be excluded from federal income tax under IRC § 104(a)(1) or (2), but that does not mean it is excluded from income under SSI or Medicaid rules. This disconnect, between tax exclusions under the Internal Revenue Code and income calculations under the Social Security Act, is a recurring challenge for benefit-sensitive planning and will be discussed further is article 5 of this series.
In the absence of formal statutory or regulatory clarity, claimants, attorneys, and settlement planners have long relied on a combination of informal agency interpretations, state-level practices, and protective tools such as special needs trusts and pooled trusts.
Structured settlements present some distinct challenges in this landscape, particularly because existing federal guidance is limited, dated, and not codified. Communications from the Social Security Administration (SSA) in 2006 remain among the few references available, but they have not been updated to reflect subsequent legal, administrative, and judicial developments.
For structured settlements to continue serving claimants who rely on Medicaid, their treatment under public benefit rules deserves closer attention. As the next article will show, this issue was not fully addressed during the product’s development and its legal status appears less certain in today’s changing regulatory environment.
IV. Conclusion and Transition to Next Article
This article has introduced the complex and often overlooked relationship between structured settlements and Medicaid. By examining the absence of statutory exclusions, the divergence between tax and benefit definitions of income, and the growing importance of state-level discretion following OBBB and Loper Bright, it has outlined why greater legal integration is increasingly important for claimants who depend on means-tested benefits. These foundational issues, long overshadowed by the product’s tax-based origins, deserve renewed attention from structured settlement professionals, policymakers, and advocates alike.
The origins of this disconnect and the reason why structured settlements have never been fully integrated into federal benefit law can be traced to how they developed separately from, rather than in coordination with, the public benefit systems. In the next article, we will explore this evolution: from the product’s legislative inception as a tax-advantaged claims resolution tool, to its gradual and incomplete incorporation into disability planning, special needs trusts, and broader public benefit coordination. Understanding this history will help clarify both the limitations of current guidance and the opportunities for a more secure and claimant-focused future.
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.
