Our hypothetical discusses a 60 year old New Jersey resident who was forced into early retirement due to a workplace injury and her employer settles out of court by giving her a $100k as a settlement for her pain and suffering. She is now having to face some tough decisions – especially about health coverage. Our facts did not say this but let’s say this individual has to move into a nursing home because they are now unable to live by themselves without 24/7 supervision. Normally, Medicaid may be an option but receiving that $100,000 settlement adds a layer of complexity.
Let’s break down how Medicaid works in New Jersey, and how that settlement may affect your eligibility.
Understanding Medicaid in New Jersey
Medicaid is a joint federal and state program that provides health coverage to low-income individuals, including seniors, people with disabilities, and others with limited income and resources.
In New Jersey, Medicaid is administered through the NJ FamilyCare program. There are several pathways to qualify, but for a 60-year-old individual who’s not yet eligible for Medicare and may end up need nursing home level of care, will likely need to take advantage of Aged, Blind, and Disabled (ABD) Medicaid under which falls the MLTSS program or Managed Long Term Services and Supports (MLTSS) program.
An individual under the age of 65 may qualify for the ABD Medicaid if he or she is unable to engage in Substantial Gainful Activity (SGA) which means they are unable to earn more than $1620 per month (disability criteria).
Additionally, in order to qualify, there is an asset limit as well which is a mere $2k which means that at any month if there is account that goes over the $2k limit, their Medicaid benefits could be compromised. Therefore, the $100,000 lump sum would likely disqualify our individual unless the money is legally protected or “spent down” appropriately.
Spend-down options: include spending the money on qualifying expenses (medical bills, home improvements, etc.) to reduce countable assets under the $2k limit.
Here are some other options you might consider:
- Establish a First Party Special Needs Trust (if you meet the disability criteria)[1]
- Spend down on non-countable assets (home modifications, car repairs, etc.)
- Purchase an irrevocable funeral trust
- Use a structured settlement to spread payments over time (this must be set up before you receive the money)
Important Considerations
- Timing matters: Medicaid eligibility is based on your assets at the time of application. If you can legally reduce your countable assets before applying, you may still qualify.
- Reporting is required: Failing to report a settlement could lead to penalties or Medicaid recovery later.
- You may qualify for Medicare at 65, but you still need health coverage in the meantime—so exploring Medicaid is key especially if you have significant medical bills each month.
Next Steps
- Consult with a Medicaid planner or elder law attorney familiar with NJ Medicaid.
- Avoid spending the settlement impulsively—some uses may make you ineligible.
- Consider a spend-down strategy or trust if that is your best long-term option.
Bottom Line
A $100,000 settlement doesn’t automatically disqualify you from Medicaid in New Jersey—but how you handle it can make all the difference. If you’re under 65, retired early due to injury, and need healthcare, you may still qualify through the ACA-expanded Medicaid program. Careful planning, proper documentation, and trusted advice are key to keeping your health and financial future on track.
[1] First Party trusts hold the assets of the disabled individual but there are 3rd party trusts out there that have funds from other individuals. Care must be taken never to mix assets between the two as that could impact what the government can take back after death.