25 Nov Can a Financial Settlement Affect Your Medicaid Eligibility?

November 25, 2025 ~ If you’ve received—or may receive—a legal financial settlement, such as from a car accident, it’s important to understand how it could affect your eligibility for Medicaid. This is especially true for people diagnosed with chronic or serious medical conditions like cancer, who rely on Medicaid to help cover essential health care costs.

While a settlement can be a financial lifeline, it may also count as income or an asset that affects your Medicaid eligibility. This depends on your state's Medicaid program and how the financial settlement is structured. Here's what you need to know.

What Is Medicaid?

Medicaid is a federal program that provides free or low-cost health insurance coverage to millions of people in the U.S., including:

• People with low incomes
• People with disabilities
• Seniors
• Children and pregnant individuals

Each state runs its own Medicaid program, but must follow certain federal rules. States can also set their own income and asset limits for eligibility, which means the rules can vary depending on where you live.

Medicaid helps to pay for doctor visits, hospital care, prescriptions, cancer treatments, home health services, and more.

You can learn more about Medicaid at Triage Cancer’s Medicaid Resources page.

Medicaid Eligibility

Medicaid eligibility is based on your income and, in some states, your assets. The rules depend on whether your state has expanded Medicaid under the Affordable Care Act (ACA).

In states that expanded Medicaid, eligibility for most adults is based only on income. In 2025, this includes individuals earning up to 138% of the federal poverty level (FPL), or $21,597. See the latest Federal Poverty Guidelines for current figures.

In states that have not expanded Medicaid, eligibility is based on both income and assets. For example, many states have a $2,000 asset limit for a single person. If you receive a large settlement, it may count as an asset and make you ineligible for Medicaid.

Check with your state Medicaid agency for rules. You can find their contact information on our State Resources page.

What Counts as a Settlement?

A settlement is money awarded to you as compensation for a legal claim. Common examples include:

• A car accident settlement
• A workplace injury claim
• A medical malpractice award
• A lawsuit settlement for emotional distress or pain and suffering

Settlements can be paid as a lump sum or in structured payments over time.

How a Settlement Can Affect Medicaid

Depending on how the settlement is structured, it may be considered:

• Income, if received in a lump sum within a single month
• An asset, if you still have the money after the month it’s received

Even if your settlement isn’t taxed, it can still affect your Medicaid eligibility.

Example

You receive a $10,000 personal injury settlement in June. If you’re in a state that didn’t expand Medicaid, with a $2,000 asset limit, and you still have that money in your bank account in July, you may no longer qualify for Medicaid.

Are Settlements Taxable?

Some settlements are taxable, and others are not. According to the IRS, the tax treatment depends on what the settlement is for:

• Not taxable: Compensation for physical injuries or physical sickness (if you didn’t deduct related medical expenses)
• Taxable: Lost wages, interest, punitive damages, and emotional distress not caused by physical injury

However, even tax-free settlements can still impact Medicaid, because Medicaid eligibility is based on income and assets, not tax status.

How to Protect Your Medicaid Eligibility

1. Report the Settlement

You are required to report a settlement to your state Medicaid agency. Not doing so can result in loss of coverage or having to pay Medicaid back for services.

2. Spend Down Strategy

If you live in a state with an asset limit, you may be able to “spend down” your settlement by using it for allowable expenses—such as paying off debt, medical bills, or making your home more accessible—before the end of the month you receive it.

3. Consider a Special Needs Trust (SNT)

In some situations, you may be able to protect your Medicaid eligibility by placing the settlement funds in a Special Needs Trust (SNT). This type of trust allows a person with a disability to hold assets without losing access to needs-based government benefits like Medicaid or Supplemental Security Income (SSI).

To qualify:

• You must meet certain disability criteria
• The trust must be set up properly, often with help from an attorney
• Any money left in the trust after your death may have to be paid back to Medicaid

Learn more about Special Needs Trusts in the Quick Guide to Crowdfunding.

Understanding how a financial settlement affects Medicaid—and taking steps to protect your coverage—is crucial to maintaining access to health care.