In the 2005 case of Arkansas Department of Health and Human Services, et al. v. Heidi Ahlborn, the U.S Supreme Court ruled in favor of Ahlborn. The issue at hand was whether a state's Medicaid program could claim an amount greater than that allocated for medical expenses from a beneficiary’s tort settlement to recover its costs for care provided to that individual. Heidi Ahlborn had been severely injured in an accident and received Medicaid benefits from the State of Arkansas; she later obtained a settlement from third parties deemed responsible for her injuries. The court held that federal law does not authorize states to demand any portion of a Medicaid recipient's tort recovery except the share legally designated as payments for medical care.

In the dissenting opinion for Arkansas Department of Health and Human Services v. Ahlborn, Justice Stevens argued that the majority's interpretation of federal Medicaid law was incorrect. He contended that it did not adequately consider states' rights to recover costs from beneficiaries who receive settlements in personal injury lawsuits. According to him, this right is necessary for maintaining the financial sustainability of state Medicaid programs. The majority's decision would allow beneficiaries like Ahlborn to keep significant portions of their settlements even if they had received substantial amounts from Medicaid, which he believed contradicted Congress’s intent when drafting the legislation. Furthermore, he suggested that such a ruling could incentivize individuals to inflate non-medical damages in their claims against third parties so as to retain more settlement money while still receiving full medical benefits under Medicaid.