INJURY VICTIM MEDICARE SET-ASIDE FAQ
Below you will find select topics in the form of frequently asked questions. The information is provided as an overview of the issues. If you have specific questions, please contact us.
What is a Medicare Set-Aside?
An MSA is a tool that allows an injury victim to preserve Medicare benefits by setting aside a portion of the settlement money in a segregated account to pay for future Medicare covered medical services. The funds in the set aside can only be used for Medicare covered expenses related to your personal injury settlement, award or judgment. Once the set aside account is exhausted, you get full Medicare coverage for your injury related conditions without Medicare ever looking to your remaining settlement dollars to provide for any Medicare covered health care. Medicare may approve the amount to be set aside in writing and agree to be responsible for all future expenses once the set aside funds are depleted. At this time, Medicare review is only available in workers’ compensation settlements that meet CMS voluntary internal workload review threshold. There is no requirement however for Medicare to review and approve the set aside amount.
Who needs an MSA and why do you need one?
If you are currently a Medicare beneficiary and you settle your case, you may need an MSA. In addition, if you are not a current Medicare beneficiary but have a “reasonable expectation” of Medicare enrollment within 30 months of the settlement date, then you may need an MSA. Assuming you fall into one of these two categories, if you do not set up an MSA you could lose Medicare eligibility for your personal injury related medical conditions.
Who determines the amount to set-aside?
A professional who specializes in “allocations” examines your injury related medical records and makes recommendations based on the amount of future care that will be covered by Medicare. The company hired to perform the allocation determines how much of your future medical care is covered by Medicare and then projects that over your remaining life expectancy to determine the suggested amount of the set aside. If CMS review is sought, Medicare may not necessarily simply accept the allocation recommendation. Medicare could require more to be set aside than the amount suggested in the MSA allocation.
How is the set-aside funded?
The set aside can be funded with a single lump sum out of the settlement proceeds or with future periodic payments using a “structured settlement”. A single lump sum funding makes the set aside easier to administer but means more must be set aside than using a periodic payment arrangement. Funding with future periodic payments via a structured settlement makes the administration of the set aside harder but it is a much cheaper way of funding the set aside. When a set aside is funded with a lump sum, as soon as the account is properly exhausted Medicare begins to pay for injury related health care. However, when a set aside is funded with periodic payments via a structured settlement annuity, it functions much like a yearly insurance deductible. Each year, the structure payment would flow into the set aside and when the funds are exhausted in that year, Medicare would begin paying for services related to the physical injury. If the funds are not all spent in the year the periodic payment is made, they carry over to the next year. Thus, Medicare only pays once all funds for any given year have been exhausted.
Why is a rated age with a structured settlement so important to my MSA?
Age ratings can save on the cost of the structured settlement annuity and reduce the amount of the set aside. A rated age is a life expectancy adjusted age used to calculate the cost of a structured settlement. If you receive a rated age, it means that the life insurance company has decided that your life expectancy is less than normal due to your medical conditions and accordingly allows the annuity to be priced as if you were older. Shortened life expectancy translates into a lower structured settlement cost when compared to a structured settlement priced with normal life expectancy. Additionally, CMS considers a reduction in life expectancy when determining how much must be set aside. As evidence of reduction of life expectancy, CMS will look at the median age rating issued by the life insurance companies issuing age ratings. Therefore, not only does it cost less to fund a set aside with a structure, but it also reduces how much must be set aside in the first place.
Why should I consider funding my MSA with a structured settlement annuity?
There is a cost savings by purchasing a stream of benefits today that will provide benefits tomorrow especially if there is a rated age. What this means is that less money must be set aside when a structure is used to fund the set aside. In addition, interest earned on the funds in the structured settlement is not taxable. The structure becomes a tax-free, cost-free investment to fund the set aside. CMS routinely approves set asides being funded with structured settlement annuities.
Will the MSA also protect my Medicaid eligibility?
No. An MSA only protects future Medicare eligibility. If you receive Medicaid in addition to Medicare, a special needs trust (hereinafter SNT) might be necessary to preserve Medicaid eligibility. If it is necessary, a hybrid MSA/SNT can be created to deal with this issue.
If I am no longer entitled to Medicare, can I withdraw funds from the MSA?
No. You are not entitled to release of the MSA funds if you lose your Medicare entitlement. However, the funds in the MSA may be expended for medical expenses specified in the MSA arrangement until Medicare entitlement is re‐established or the MSA is exhausted.
What happens to the funds in the MSA should I pass away?
The MSA funds, either in lump sum or structured settlement (if guaranteed), would go to your beneficiaries under the MSA arrangement. Medicare only requires the funds to be used for your future Medicare covered injury related expenses. Therefore, once you pass away those funds can flow to your family or named beneficiary. If a structured settlement is set up and you want money to go to your family or named beneficiary, you should request that the annuity be “guaranteed” instead of life only. The MSA is typically held open for a period of 12-15 months post death to pay for any outstanding bills providers may have for dates of service prior to death.
Can a Claimant waive his/her Right to Medicare to avoid a WCMSA?
“There is no means by which a claimant can permanently waive his or her right to certain specific services related to a WC case and, thereby, reduce the amount of a WCMSA. CMS cannot approve settlements that promise not to bill Medicare for certain services in lieu of including those services in a Medicare set-aside arrangement. This is true even if the claimant/beneficiary offers to execute an affidavit or other legal document promising that Medicare will not be billed for certain services if those services are not included in the Medicare set-aside arrangement.”
What if the Claimant has Group Health, a Managed Care Plan or VA Coverage?
“A WCMSA is still recommended where the claimant is covered under other private health insurance, the Veterans Administration, or Medicare Advantage (Part C) . Other coverage could be cancelled, or the claimant may elect not to use such a plan. A WCMSA is primary to Medicare Advantage and must be exhausted before using Part C benefits on the WC illness or injury.
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