Will I Lose My Medicaid if I Get a Settlement? 

Getting a personal injury settlement does not automatically end your Medicaid (or Medi-Cal in California) benefits. California has rules designed to protect people in exactly your situation. But you need to understand those rules, follow specific procedures, and sometimes take protective steps to keep everything intact.

Let’s walk through what actually happens when settlement money meets government benefits. No legal jargon where we can avoid it. Just the practical information you need to make smart decisions.

Key Takeaways

• California eliminated Medi-Cal asset limits through 2025, meaning most beneficiaries won’t lose coverage simply from receiving a settlement. A $130,000 asset limit returns in 2026 for seniors and people with disabilities.
• You must report your personal injury claim to DHCS within 30 days of filing a lawsuit or claim. This isn’t optional. California law requires notification to the Department of Health Care Services so they can assert their recovery rights.
• Medi-Cal cannot take more than 50% of your net settlement after attorney fees under California’s protective cap. They also must automatically reduce their lien by at least 25% to account for legal fees.
• Special Needs Trusts can protect larger settlements while preserving your benefits. Pooled trusts accept amounts as low as $5,000, making protection accessible even for moderate settlements.
• Losing Medi-Cal triggers a special enrollment period for Covered California marketplace plans, and the state has an auto-enrollment system to help people transition seamlessly if needed.

How Does California Medi-Cal Actually Work with Settlements?

There’s a lot of confusion out there about this topic. Some people think any money will kick them off Medi-Cal. Others assume settlements are totally exempt. Neither is quite right.

Two separate things happen when you receive a settlement while on Medi-Cal. First, there’s the question of whether you stay eligible for coverage. Second, there’s Medi-Cal’s right to recover what they paid for your injury-related care. Different issues. Different rules.

Let’s tackle eligibility first.

The Asset Limit Situation Has Changed Dramatically

For decades, California Medi-Cal had low asset limits. We’re talking $2,000 for an individual, a number that hasn’t changed since 1989. Get an inheritance, receive a settlement, have any kind of windfall, and you could lose your healthcare coverage.

One woman in California, a quadriplegic who relied on Medi-Cal home care services, almost lost her coverage after receiving just $8,000 from a family inheritance. Eight thousand dollars. That’s how harsh the old rules were.

California changed this.

As of January 2024, the state eliminated the asset test entirely for Medi-Cal eligibility. California became the first state in the country to do this. So right now, through 2025, the amount of money in your bank account does not affect your Medi-Cal eligibility for most programs.

There’s a catch, though. The $130,000 asset limit comes back in 2026 for seniors and people with disabilities. And if you’re on SSI (Supplemental Security Income), the federal $2,000 asset limit still applies to your cash benefits even if California ignores it for Medi-Cal.

What About Income? Doesn’t a Settlement Count?

Personal injury settlements for physical injuries are generally not taxable income. Pain and suffering money? Not taxed. Compensation for medical expenses? Not taxed. This matters because most Medi-Cal eligibility rules are based on taxable income.

For adults under 65 on what’s called MAGI Medi-Cal (the expanded coverage under the Affordable Care Act), income limits are based on Modified Adjusted Gross Income. Roughly 138% of the Federal Poverty Level, which works out to about $20,120 per year for an individual. If your settlement isn’t taxable, it doesn’t count toward this limit.

Does Medi-Cal Have a Right to Part of My Settlement?

Yes. And this is where it gets complicated.

When you signed up for Medi-Cal, you agreed to let the state seek reimbursement from any third-party recoveries for injury-related care. It’s buried in the paperwork somewhere. Most people don’t remember signing anything like that, but it’s there.

If Medi-Cal paid for your emergency room visit after a car accident, your surgery, your rehabilitation, and your medications, they have a legal right to recover those costs from your settlement. This is called a Medi-Cal lien.

The 30-Day Reporting Requirement

California law requires you or your attorney to notify the Department of Health Care Services within 30 days of filing any personal injury claim or lawsuit. This written notice goes to DHCS in Sacramento, not your county eligibility office. Telling your county worker doesn’t count.

You need to include specific information: your Medi-Cal ID number, date of injury, the parties involved, insurance carriers, and your attorney’s contact information. DHCS has an online form that makes this relatively straightforward.

What happens if you don’t report? DHCS can take legal action to recover their costs from your settlement later. They’ll find out eventually because insurance companies also have a duty to notify them. Better to get ahead of it than deal with surprises after you thought everything was settled.

How California Calculates the Lien

Once you report your case, DHCS will open a Personal Injury file and eventually send you a lien letter itemizing what they paid for your injury-related care. This process takes time. They wait about 120 days after your settlement or final treatment before compiling the numbers because Medi-Cal providers have up to a year to submit their bills.

The lien will only include medical services related to your accident, provided up to the date of settlement. California law prohibits Medi-Cal from claiming reimbursement for future medical care you might need. Only past expenses count.

Here’s something important: you should review that itemized list carefully. Errors happen. Sometimes unrelated treatments get included by mistake. If you see charges that have nothing to do with your accident injury, challenge them.

How Much of My Settlement Can Medi-Cal Actually Take?

California has built-in protections that limit how much the state can recover. These limits often surprise people because they’re so much more favorable than expected.

The 50% Cap

This is huge. Under California law, Medi-Cal cannot recover more than 50% of your net settlement after attorney fees and costs. Your net settlement. Not the gross amount.

So if your total settlement is $50,000 and your attorney takes $16,500 (33%) plus $3,500 in costs, your net is $30,000. Medi-Cal’s maximum claim is $15,000, no matter how much they actually paid for your care. If they paid $40,000 in medical bills, they still can’t take more than $15,000.

The 25% Attorney Fee Reduction

On top of the 50% cap, California requires Medi-Cal to automatically reduce its lien by at least 25% to account for the fact that your attorney helped recover the money. They also must pay their proportional share of litigation costs.

These reductions are automatic. You don’t have to fight for them. But you do need to submit your settlement information, attorney fee agreement, and itemized costs to DHCS so they can apply the correct reduction.

Real Math Example

Say Medi-Cal paid $25,000 for your accident-related care. You settle for $40,000. Your attorney takes $13,200 (33%) and has $2,800 in costs. Your net is $24,000.

Here’s how the math works:

• Original lien: $25,000
• After 25% attorney fee reduction: $18,750
• 50% of your net settlement: $12,000
• Medi-Cal takes the lower number: $12,000

You keep $12,000 of your net settlement. Medi-Cal gets $12,000. That’s a lot better than losing the whole thing to repayment.

Can I Negotiate the Medi-Cal Lien Down Further?

Often, yes.

Beyond the automatic reductions, California law allows the DHCS Director to waive or compromise the lien if collection would cause undue hardship. This isn’t automatic. You have to ask for it and make your case.

Arguments that sometimes work:

• Your settlement was far below the actual value of your injuries because of policy limits
• You have ongoing medical needs that require the settlement funds
• The settlement barely covers your essential expenses
• You’re using the money to fund a Special Needs Trust for your future care

If you can’t reach an agreement with DHCS, either party can ask a court to determine the appropriate lien amount. The court will look at what portion of your settlement actually represents medical expenses versus pain and suffering or other damages. This is based on the Ahlborn allocation concept from federal law. If only 20% of your total damages were medical, Medi-Cal arguably should only recover 20% of its lien.

Most cases get resolved through negotiation without going to court. DHCS generally prefers a reasonable compromise over the cost and uncertainty of litigation.

What Happens If I Do Lose Medi-Cal?

Losing eligibility feels terrifying, but it doesn’t mean being uninsured. California has backup options.

Covered California Steps In

Losing Medi-Cal qualifies you for a special enrollment period on Covered California, the state’s health insurance marketplace. You can sign up for a private plan even outside the normal open enrollment window.

The cost depends on your income. If you’re still relatively low-income (just above Medi-Cal thresholds), you’ll likely qualify for substantial premium subsidies. Some people pay under $50 per month. If your income is higher, you’ll pay more, but at least you have access to coverage.

California even has an auto-enrollment system (SB 260) that proactively offers marketplace coverage to people losing Medi-Cal. The state might automatically select a plan for you, then give you time to accept it, choose a different one, or opt out.

Your Medi-Cal Can Often Be Reinstated

Here’s something encouraging: if you lose Medi-Cal due to a settlement but later use those funds appropriately, you can reapply. California doesn’t penalize you for having had money in the past. If you spend down through allowable expenses or put the remainder in a trust, you can regain eligibility.

The process might take a month or two, which is where Covered California bridging helps. But the door isn’t permanently closed just because you received compensation for your injuries.

What’s the Smartest Approach to Timing?

When you accept a settlement, it can matter almost as much as how much you receive.

Medi-Cal checks eligibility as of the first day of each month. If you’re under the limit on the first, you’re generally eligible for that month. This creates a planning opportunity: if you know a settlement is coming, try to receive it just after the start of a month. That gives you maximum time to set up a trust or spend down before the next monthly check.

Also, think about your Medi-Cal renewal timing. Annual renewals happen on a predictable schedule. If your renewal just passed and you won’t be evaluated again for months, you have more breathing room to get your affairs in order.

The best approach: plan before you settle. Work with your personal injury attorney and possibly a benefits planning attorney to have your protection strategy ready before the settlement check arrives. For cases requiring court approval, the trust can be established as part of the settlement itself, with funds going directly into the trust rather than to you personally.

When Should You Get Legal Help?

Some situations genuinely require professional guidance. Red flags include:

• Settlements above $50,000
• You’re over 65 and considering protection options
• You receive both SSI and Medi-Cal
• You might need nursing home care in the future
• You have minor children who are also on Medi-Cal
• Your settlement includes structured payments over time
• You’re confused about the interaction between federal and state rules

Personal injury attorneys handle the accident claim, but not all of them specialize in benefits protection. You might need a separate consultation with an elder law or special needs planning attorney, especially for trust setup.

Questions to ask any attorney you’re considering:

• Have you handled Medi-Cal lien negotiations before?
• Do you work with Special Needs Trust attorneys?
• What’s your approach to timing settlement acceptance around benefits eligibility?
• Can you explain the spend-down options for my settlement size?

The Bottom Line on Protecting Both Your Settlement and Your Healthcare

Getting injured because of someone else’s negligence shouldn’t force you to choose between fair compensation and healthcare coverage. California’s laws, while complex, provide real protections.

If you’re facing a personal injury settlement while on Medi-Cal, talk to an attorney who understands both sides of this equation. The consultation could save you thousands in benefits you’d otherwise lose. Schedule a free case review today.