Medicare Reduces Reporting Threshold from $1,000 to $750

Medicare has reduced the threshold for when a physical trauma-based liability settlement is large enough that the beneficiary needs to report it and repay conditional payments. On November 15, 2016, the Centers for Medicare & Medicaid Services (“CMS”) issued an alert which decreased the current reporting threshold from $1,000 to $750. The threshold decrease is a result of the mandatory annual review required by Section 202 of the Strengthening Medicare and Repaying Tax Payers Act of 2012 (“SMART Act”) to determine at what level do the costs related to collecting data and determining the amount of Medicare’s recovery claim outweigh the benefits of recovering the conditional payments.

The new threshold is effective as of January 01, 2017 for cases where a recovery demand has not yet been issued. It is important to note this threshold does not apply to settlements for alleged ingestion, implantation, or exposure cases. This means that physical trauma-based liability settlements of $750 or less do not need to be reported, nor will the beneficiary need to repay Medicare’s conditional payments.

CMS determined the average cost of collection for Non-Group Health Plan (NGHP) cases is $368.75 per case. NGHP cases are: liability insurance (including self-insured liability), no-fault insurance, and workers’ compensation. To arrive at a threshold, CMS compared the average cost of collection per case to the average liability insurance demand amount per settlement range. Among liability insurance cases, the average cost of collection most closely aligns with settlements of $750 and below, which have an average final demand amount of $384.25.

Among workers’ compensation and no-fault insurance cases, the settlement ranges of $750 and less result in average demand amounts of $510.03 and $573.27 respectively. These ranges most closely align with the average cost of collection per case. Based on these findings, CMS revised their reporting thresholds.

The SMART Act was designed to save Medicare money. Part of the expected savings is to come from an annual review meant to ensure that the federal government does not spend more money pursuing a reimbursement amount than the cost of that recovery effort. The wise personal injury attorney can co-op this purpose and save his clients who receive de minimis recoveries from the hassle of dealing with the Medicare conditional payment issue.

The alert is available on the CMS website by click here.

Damages “shall” be in an amount double… Medicare Advantage Plans

On Monday, August 8^th, the 11^th Circuit affirmed the decision of the Southern District of Florida to award a Humana Medicare Advantage plan double damages when they were not repaid at the conclusion of a personal injury action. In Humana Medical Plan, Inc. v. Western Heritage Ins. Co., No. 15-11436 (11th Cir. Aug. 8, 2016) the 11^th Circuit found that Humana’s claim against Western Heritage, the liability carrier in a personal injury action, for double the amount of benefits it provided to the plaintiff was proper. In fact, the 11^th Circuit stated that Humana was entitled to summary judgment as to such a claim. Though, this decision by the 11^th Circuit involves the complex cross-referencing of different sections of the Medicare Secondary Payer Act (MSP), the facts are ones trial attorneys are confronted with on a daily basis.

In June, 2009 the plaintiff sued a condominium association in state court for damages arising out of a slip-and-fall accident. In resolving the underlying personal injury action plaintiff’s counsel confirmed there were no outstanding Medicare liens as evidenced by a letter from The Center for Medicare and Medicaid Services (“CMS”) dated December 3, 2009. Near the conclusion of the underlying personal injury action it was discovered that the plaintiff’s medical benefits were provided by a Humana Medicare Advantage plan, which paid $19,155.41 in medical benefits related to the slip-and-fall.

Eventually Western Heritage, the third party liability carrier, learned of Humana’s Medicare Advantage lien and attempted to include Humana as a payee on the settlement draft. The state court judge ordered full payment to the plaintiff without including any lien holder on the settlement check. The judge simultaneously ordered plaintiff’s counsel to hold sufficient funds in a trust account to be used to resolve all medical liens. The plaintiff attempted to resolve the Humana claim, but while Humana and the plaintiff remained in ongoing litigation Humana filed an action against Western Heritage seeking double damages pursuant to 42 U.S.C. § 1395y(b)(3)(A).

In affirming the Sothern District of Florida’s opinion, the 11^th Circuit found that the Medicare Secondary Payer Act’s (MSP) private cause of action extends to Medicare Advantage plans. The MSP provides:

“there is established a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A).” 42 U.S.C. § 1395y(b)(3)(A)(emphasis added)

The 11^th Circuit, in agreeing with the 3^rd Circuit, found that 42 C.F.R. §422.108(f) extends the private cause of action to Medicare Advantage Plans (Medicare Advantage Organizations “MAO”s).

“The district court concurred with the Third Circuit’s analysis of the MSP private cause of action and held that ‘[t]he statutory text of the MSP Act clearly indicates that MAOs are included within the purview of parties who may bring a private cause of action.’ We agree.”

Id.

What should be especially upsetting for the trial bar is that the 11^th Circuit performed this analysis specifically regarding 42 C.F.R. §411.24(g).

“CMS has a right of action to recover its payments from any entity, including a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment.”

42 C.F.R. §411.24(g) (emphasis added) See Also, United States v. Weinberg, 2002 U.S. Dist. LEXIS 12289 (E.E. Pa. July 1, 2002); United States v. Harris, 2009 U.S. Dist. LEXIS 23956 (N.D. W. Va. March 26, 2009) affirmed, 334 F. App’x 569 (4^th Cir. 2009); Denekas v. Shalala, 943 F. Supp. 1073 (S.D. Iowa 1996).

The reality of this exposure struck home in a recent case of national attention in which a Humana Medicare Advantage plan utilized these statutes and regulations to file suit against the ParisBlank law firm, one of the most respected firms in the Commonwealth. As both the ParisBlank law firm and Western Heritage discovered, Humana is aggressively using these statutes and regulations. Humana’s mantra, proven successful to date, has been “damages shall be in an amount double.” Despite the fact that Western Heritage placed the full amount of Humana’s claim in trust ($19,155.41) during litigation, Humana demanded the damages be doubled. The 11^th Circuit found that placing the funds in trust was not the required “appropriate reimbursement” and thus Humana’s intractability was rewarded. In supporting Humana, the court drew a harsh bright line stating:

“If a beneficiary or other party fails to reimburse Medicare within 60 days of receiving primary payment, the primary plan ‘must reimburse Medicare even though it has already reimbursed the beneficiary or other party.” 42 C.F.R. § 411.24(i)(1).

Id.

If the MAO is not repaid within sixty days, regardless of ongoing negotiations, they shall collect double damages.

“Finally, we agree with the district court that double damages are required by statute. Unlike the Government’s cause of action, the private cause of action uses the mandatory language “shall” to describe the damages amount. Compare 42 U.S.C. § 1395y(b)(2)(B)(iii) (“The United States may . . . collect double damages . . . .” (emphasis added)) with 42 U.S.C. § 1395y(b)(3)(A) (Damages “shall be in an amount double the amount otherwise provided.” (emphasis added)); see also Baxter Jnt’l, Inc. , 345 F.3d at 905.

Therefore, the district court correctly ordered Western to reimburse Humana $38,310.82, double the amount to which Humana was otherwise entitled.

As an expert witness in the ParisBlank suit, Synergy’s Director of Lien Resolution Services, Dave Place, testified that one factor that makes this clear trend of the Circuits unsettling is that Medicare Advantage plans are not required to follow any of the reporting or disclosure obligations that exist for traditional fee-for-service Medicare (A&B). There is no “portal” to check, or central repository of information from which a trial attorney could obtain some level of certainty that any potential repayment obligation is satisfied. In both the Western Heritage case and the ParisBlank matter, the parties involved had confirmation from CMS that Medicare had no interest. Understandable confusion followed when Humana asserted repayment rights at the conclusion of both personal injury cases. Yet, despite this confusion, which is clearly a result of the lack of corresponding, reporting, and disclosure requirements for MAOs, in both cases there was a demand for double damages as penalty.

Making it even more difficult and confusing for the trial attorney is that neither CMS nor BCRC provide any assistance. If a trial attorney reports a case to BCRC and the plaintiff is actually on a Medicare Advantage Plan neither CMS nor BCRC will inform the trial attorney. The burden is on the trial attorney to discover and satisfy these Medicare Advantage repayment obligations or potentially be forced to pay double themselves.

A few best practices:

Get all insurance cards from your client or their personal representative – Clients on Medicare Advantage plans often refer to their coverage as Medicare.
Confirm effective dates of coverage – Clients can switch back and forth from Medicare A&B to a MAO and back each year.
Potentially a repayment obligation to both CMS and a MAO may exist in the same case for the same accident, so you must check for both.
If you are expecting a large conditional payment amount to return from CMS and it is small or zero this should be a red flag that potentially an MAO is paying.
Review billing statements from hospitals and providers to determine if an MAO is making payment.
Consult an expert.

Another likely result of this case is that the trial attorney should now expect the same treatment of Medicare Advantage claims by defense counsel as is now the case with Medicare A&B. Defense counsel may demand written confirmation that any purported Medicare Advantage lien has been satisfied, and may be reluctant to disburse funds to the plaintiff with only the expectation that the plaintiff will satisfy this obligation.

Synergy will continue to actively protect injury victims and the attorneys who represent them. If you are having an issue like ParisBlank, give us a call and speak to an expert (877) 242-0022.

A Primer on Medicare Set Aside Self-Administration

By B. Josh Pettingill, MBA, MS, MSCC

Synergy receives numerous calls every week regarding what is required to properly self-administer an MSA. The purpose of this article is to provide some guidance to attorneys regarding self-administered Medicare set aside (MSA) accounts. In administering MSAs, funds may only be used to pay for future Medicare covered, injury related medical expenses of the plaintiff. The Center for Medicare and Medicaid Services’ (CMS) guidelines indicate that the set aside funds should be placed in an interest-bearing account and may be either professionally administered or self-administered (Reference: 10/15/04, Memo Q 2).

The MSA “administration process” begins as soon as the attorney releases the settlement proceeds to the plaintiff. The plaintiff has the option of funding the MSA with a single lump sum out of the settlement proceeds or with future periodic payments using a structured settlement annuity (Ref: 7/23/2001 CMS Memo). When a set aside is funded with a lump sum, Medicare begins to pay for injury related health care as soon as the account is totally exhausted.

With an annuity funded MSA, there are two components of the set aside. The first component is the “seed money” which is used to cover the first 1-2 years’ worth of qualified medical expenses. The second component is future periodic payments from the annuity. One year from the anniversary date of the settlement, the annuity payments will start to pay into the set aside account. When the funds are temporarily exhausted in any given year, Medicare begins paying for treatment related to the injuries. During this time of temporary exhaustion, the plaintiff will be responsible for any co-payments and deductibles. If the funds are not all spent in a given year the remainder is carried over to the next year. With annuity funding it functions much like a yearly insurance deductible. The MSA report should indicate the breakdown of the seed money, annuity payments and timeframe of the payments. The duration of the annuity payments are based on the life expectancy of the individual.

We recommend that attorneys issue separate checks from their trust account to fund a lump sum MSA, one for the MSA amount and one for the balance of the settlement proceeds. . The check should be written to the plaintiff with the subject referencing: John Doe Medicare set aside Account or John Doe MSA Account. To take it a step further, some attorneys actually request the defendant issue a separate check to seed or fully fund the MSA account. If the MSA is being funded with a structured settlement, the annuity will also be funded by the defendant with the seed being included in the cash paid at settlement.

Prior to releasing any settlement monies, attorneys should also have the plaintiff sign a separate document indicating they understand what their obligations are for self-administering the MSA account. Synergy offers an MSA consultation which includes a separate waiver for the plaintiff to sign indicating they understand the MSA obligations and are willing or not willing to create a set aside account. Attorneys do not have to hire an expert to advise and prepare such a document but it is the prudent way to ensure all parties are protected.

After settlement and establishing an MSA, Medicare may refuse to pay for any medical expenses related to the injury until the amount set aside for future medical expenses is properly exhausted. Consequently, there are certain steps that should be followed in administering the MSA account:

1. Initial Set Aside Account Funding – The Medicare set aside Account will initially be funded by either a lump sum or via seed money with future annual payments from an annuity. We recommend a checking account be used to hold the funds for reasons I will explain below. It is not the responsibility of the attorney to oversee or assist in the process of establishing a self-administered MSA account. The plaintiff is responsible for opening the account. This account must be a segregated account and not comingled with any other non-MSA funds.

Note: If the MSA is being funded with an annuity, then a direct deposit form should be completed and sent back to the life insurance company issuing the annuity. This will ensure the annuity payments go directly to the MSA account and are not mailed directly to the plaintiff.

2. Set aside Account – The Medicare set aside funds must be placed in an interest-bearing account checking or savings account. All interest earned on the Medicare set aside account has to be used solely for medical expenses from the accicdent/incident that would otherwise be covered by Medicare.

3. Distribution of the set aside Account Funds – The funds in the Medicare set aside account must be used solely for legitimate medical expenses incurred for those medical needs related to or resulting from the injuries suffered, which would otherwise be reimbursable or paid for by Medicare. Funds in the Medicare set aside Account may not be used to pay for non-Medicare covered medical services. For a list of services not covered by Medicare, a copy of the booklet, “Medicare & You” can be obtained from the local Social Security office or by using the following link: http://www.medicare.gov/medicare-andyou/medicare-and-you.html.

The best gauge for determining what is covered by Medicare is the Medicare set aside analysis that was completed by the independent company or MSA specialist. If there are any questions concerning what Medicare covers, the plaintiff can also call l-800-MEDICARE.

The plaintiff may also use the MSA account to pay for the following costs that are directly related to the MSA account: document copying charges, mailing fees/postage fees, any banking fees related to the account and income tax on interest income from the set aside account (Ref: WCMA Reference Guide 2013).

4. Reimbursement to Medicare – In the event CMS determines that Medicare has paid benefits prior to the depletion of funds in the Medicare set aside account, CMS, or its designated fiscal intermediary or carrier, shall have the right to seek and receive reimbursement of any such conditional payments or overpayments from the Medicare set aside Account to the extent that there are funds remaining in the account at that time. This situation can potentially arise if the medical providers bill Medicare for treatment related to the accident after the case has resolved but prior to the settlement funds being dispersed.

5. Accounting Records – The administrator must maintain accurate records of the distributions and expenditures from the Medicare set aside account. The records should indicate the date of service, the diagnosis, the service received, who received payment and the date of the payment. The plaintiff may also want to keep a receipt or other evidence of each and every payment made from the Medicare set aside Account. Using a debit card from a segregated account is an easy way to keep accurate accounting. Anytime the injury victim goes to treat with a provider, they simply use the debit card to pay for the qualified medical expense. If the account balance ever gets down to zero, all they need to do is print out and mail the bank statement to Medicare with their receipts.

6. Annual & Final Accountings – The plaintiff shall submit a final accounting ledger within 60 days of the MSA funds being depleted. The annual and final accounting will include evidence of every payment made from the Medicare set aside account. For liability MSAs, the accounting only has to be done upon the account balance reaching zero. In worker’s compensation cases, there are annual reporting requirements. The purpose of these account filings is for Medicare to confirm the MSA funds have been spent appropriately.

Once an MSA account has been completely exhausted and assuming the funds have been spent properly, the plaintiff has met their obligation to protect Medicare’s interests. They can then start to submit bills to Medicare again. At that time, the plaintiff should send a final attestation to Medicare as proof the funds were spent appropriately. The current address for sending final accounting on MSA accounts is:

Medicare Secondary Payer Recovery Contractor

Attention: MSP-Medicare Set Aside Reconciliation (NGHP)

P.O. Box 138832

Oklahoma City, OK 73113

7. Delivery of Notices & Accountings – For worker’s compensation cases, the annual self-attestation should continue through depletion of the account. It is important that the administrator understands and complies with this requirement. The self-attestation letter must be signed and forwarded to CMS’ Medicare contractor no later than 30 days after the end of each year (beginning one year from establishment of the MSA account).

8. Distributions Following Death of Beneficiary – In the event that the beneficiary dies before the funds in the Medicare set aside account are depleted, the MSA account should remain open for 180 days from the date of death to enable any outstanding bills for medical expenses incurred as a result of the incident that would otherwise be covered by Medicare to be paid. After the 180 days has elapsed, any funds remaining in the Medicare set aside account are payable to the claimant’s estate or proper payment subject to the appropriate State probate laws.

9. Misappropriated Set Aside Account Funds – If the final accounting reveals that funds in the account were used to pay for items other than qualified medical expenses related to the accident, CMS may withhold Medicare coverage until the misappropriated amount is replenished and spent on injury related Medicare covered services. For example, if the plaintiff purchased a hot tub with funds from their MSA account, they would have to replenish their account with an amount equal to what was improperly used and then spend that money on injury related Medicare services before Medicare would cover future injury related treatment.

10. Billing Rates – The MSA allocation is either prepared based on the usual and customary fee schedule or on the state’s worker’s compensation fee schedule, depending on the type of case. In the real world, doctors have the freedom to charge whatever rates they desire. It is important that the plaintiff attempt to negotiate with their providers for the lowest possible cost. This is easier said than done. With an MSA, the plaintiff essentially becomes a private payer for all Medicare covered treatment related to the accident until exhaustion. The MSA will not enjoy paying Medicare rates.

It should be noted that all of the above referenced guidelines come directly from the CMS memorandums relevant to worker’s compensation cases. Another helpful tool for administering MSA accounts is the, Worker’s Compensation Guidebook. To view the guide, use the following link:

http://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Workers-Compensation-Medicare-Set-Aside-Arrangements/Downloads/March-29-2013-WCMSA-Reference-Guide-Version-13-copy.pdf

For liability cases, CMS has yet to issue a memorandum with guidelines for the administration of Liability MSA’s. Although it is perfectly “legal” for the plaintiff to self‐administer a liability MSA account, it can be a daunting task and create huge liability. If the plaintiff elects to self‐administer their account, they must have both the financial and medical administrative competency to do so. There are no “Medicare set aside police” monitoring set asides but if the MSA is improperly administered; it can lead to a loss of coverage for injury related Medicare covered services.

Attorneys should explain to their injury victim clients the intricacies of self-administration and let them make an informed decision before opting to self-administer. Professional administration is the recommended method to ensure full compliance with Medicare Secondary Payer requirements and to eliminate any possibility of the plaintiff ever losing their Medicare coverage. There is an additional cost for professional administration but with that cost, comes the peace of mind that Medicare coverage will not be jeopardized.

Synergy offers a Medicare set aside administration program through the use of a formal trust agreement with a corporate trustee and a separate professional Medicare set aside administrator. With a Medicare set aside Trust, the plaintiff has a professional trustee that has a fiduciary duty paired with a set aside Administrator, who handles managing the set aside funds and reporting to CMS. Administrative fees/expenses for administration of the MSA and/or attorney costs specifically associated with establishing the MSA cannot be charged to the set aside arrangement (Ref: 5/7/04 Memo). Therefore, the professional administration costs must be paid for by the injury victim.

For all of your Medicare secondary payer compliance needs, please visit us at www.synergymsa.com or call us at (877) 242-0022.

Eliminating or Getting the Lowest Medicare Set Aside on a Personal Injury Case

By B. Josh Pettingill, MBA, MS, MSCC

Plaintiff attorneys should go on the offensive in regards to any Medicare set aside (MSA) issue that may arise in a personal injury case involving a current Medicare beneficiary. According to the May 25, 2011 CMS policy memorandum issued from the Dallas regional office, an MSA is never required by any law or statute; however, it is the preferred method for protecting Medicare’s future interests when settling cases involving a Medicare beneficiary. (more…)

Is an Attorney Personally Liable to Repay Humana for Part C (Advantage plan) lien?

This case has gained national attention amongst the trial bar for its far reaching implications. Synergy is on the forefront of protecting plaintiffs and the plaintiff’s bar which is why we feel so strongly about how the court in this case simply got it all wrong. (more…)

5 Ways Lawyers Can Maximize Their Wealth By Deferring Fees

Leif Lundberg, LL.M and Ben Eisler, JurisPrudent Deferral Solutions

Takeaways

Defer compensation like Fortune 500 executives do, so your money grows faster.
Tie your fee to the returns of investments that you select – stocks, bonds, real estate, etc.
Gain access to low-interest loans, as needed, to fund cases (currently 3-4%).
Use “golden handcuffs” to retain key associates, so if they leave too soon their deferred bonus comes back to the firm.
Do this with the same benefits and protections offered to Fortune 500 CEOs.

A few months ago, we met a trial attorney in Florida. He was like a lot of people reading this post; well-respected, successful, hardworking. He had just settled a big case for his client, and they were a couple of weeks away from finalizing the release. He was excited about the result, but also frustrated that he had to pay a ton in taxes, when some people, like big wigs at Fortune 500 companies for example, can defer their compensation and taxes, effectively earning interest on the government’s money.

He looked at structuring his fees with an annuity – one way to defer taxes. But he didn’t like that annuities are conservative investments and with a lower interest rate than market based investments. And just as he was about to pay taxes on his fee, Synergy told him about a product provided by JurisPrudent Deferral Solutions. We explained how our program allows you to defer taxes and tie your fee to the returns of a customized portfolio of investments that you (or your financial advisor) select – stocks, bonds, real estate, etc. In that sense it’s a lot like a 401(k) plan for trial lawyers. Though like deferred compensation for corporate executives, there is no limit on how much you can defer.

We also explained how in addition to reducing your tax burden and increasing your wealth accumulation, deferring fees can increase your access to cash to fund cases, because as we get to know your firm, our company will make loans at very low rates – currently 3-4% interest. And we shared how he could use deferred fees as “golden handcuffs” to retain key associates, so if they leave too soon their deferred bonus comes back to the firm.

So ultimately this attorney did his due diligence and decided to defer a large portion of his fee and take some in cash to cover expenses. As a result, he avoided a big tax hit without sacrificing his investment returns. He is now earning interest on the government’s money and has access to low-interest loans.

You may be thinking how do the guys at JurisPrudent know so much about deferred compensation? Combined, our leadership team has more than 100 years of experience in this industry. Our parent company administers almost two billion dollars in deferred compensation plans for some of the largest companies in the country – current clients include Microsoft, Cisco, and Bank of New York Mellon. Our program is administered by Newport Group, the country’s largest administrator of deferred compensation plans for corporate executives, and Bank of New York Mellon is the trustee and custodian of the assets backing the program. No other fee deferral program provides this level of safety and service.

So please consider deferring your fees with us. Synergy is a strategic partner with JurisPrudent and works daily with their highly skilled team to create cutting edge solutions for lawyers looking to pay less in taxes. Visit www.structuredfees.com for more info.

What to Consider When Representing a Catastrophically Injured Client With Special Needs

By Jason D. Lazarus, J.D., LL.M., MSCC, CSSC

In the confusing landscape of public benefits and planning issues that arise today for trial lawyers, finding your way can be a daunting task. Should the client seek Social Security Disability (“SSDI”) benefits and become Medicare eligible? Doesn’t that trigger the need for a Medicare Set Aside? What if the client is receiving needs based benefits such as Medicaid and/or Supplemental Security Income (“SSI”)? Is coverage under the Affordable Care Act (“ACA”)[1] a better or even an available option? How should the recovery be managed from a financial perspective? Is a trust appropriate? Should a structured settlement be considered? There are no easy answers to these questions. In the paragraphs that follow, you will find useful information related to these issues that will give trial lawyers the ability to issue spot when settling a case for a catastrophically injured client.

Let’s use a real world example to identify the issues. Take Jan Smith who was the victim of medical malpractice at a hospital. Jan was in her early forties when she decided to have elective surgery on her back for degenerative disc disease. During the surgery, a problem developed while being intubated and the procedure was cancelled. Mrs. Smith was moved to the ICU and no neurologic monitoring was performed that evening after being moved from the surgical suite. The next morning Mrs. Smith was found to be quadriparetic. Unfortunately for Mrs. Smith, her condition was irreversible. Suit was brought against multiple defendants with a significant seven figure recovery secured. Mrs. Smith and her family had Medicaid coverage and SSI. She had also applied for SSDI. At the time of settlement, there was no Medicare eligibility since she had not been approved for SSDI and she wasn’t sixty five. How do you protect the client’s eligibility for public benefits? Is that the right thing to do? Should ACA coverage be considered? What about protection of the monies recovered on Mrs. Smith’s behalf? Should a trust be created? What about structured settlements? Let’s explore these questions further.

Public Benefits versus ACA Coverage

As a starting point, the first question is whether it makes sense for Mrs. Smith to give up her needs based benefits completely by taking the settlement in a lump sum and becoming privately insured through coverage under the Affordable Care Act. This isn’t a question that can be answered with a simple yes or no. There are multiple considerations before deciding to eschew coverage afforded by Medicaid and Medicare along with the needs based Social Security benefit, SSI. First is whether the ACA coverage will be around for the long term. Will it be repealed at some point? Will portions of it be repealed making it a non-viable option? Second, does the case involve needs that aren’t provided for by the affordable care act coverage such as in-home skilled attendant care or long term facility care? These services can be very costly and may be covered by Medicaid in many states but are not covered by ACA plans. In Mrs. Smith’s case, she will have a significant amount of attendant care needs that can be covered by certain Medicaid programs available in her home state but not by the ACA. So does that mean she shouldn’t apply for ACA coverage? Should she create a special needs trust to protect Medicaid and SSI? The answer lies in an analysis of the costs of the plans available under the ACA and the amount of spendable income that results if a special needs trust is utilized.

According to a 2013 article authored by Kevin Urbatsch and Scott MacDonald entitled “The Affordable Care and Settlement Planning”[2] the numbers favor combining ACA coverage with a special needs trust. The following chart illustrates the financial benefits of combining an SNT with ACA coverage in California.

PLANNING PROJECTIONS

(40 YEAR OLD FEMALE)

SETTLEMENT NET ASSET LEVEL =>	$100K	$396K	$500K	$1 M	$2.868 M
	Net Spendable Income — Annual Amount [u][3]
SNT Only [v][4]	$12,610	$23,751	$22,208	$33,484	$67,500
No SNT, Buy ACA Insurance [w][5]	EM[6]	EM	$11,196	$15,794	$67,504
SNT with ACA Supplemental [w]	EM	EM	$17,700	$20,684	$53,766
No SNT, Expanded Medi-Cal	$3,614	$14,291	NQ[7]	NQ	NQ

Income Percent of Federal Poverty Limit [x][8]	34.80%	138% [y][9]	174.06%	348.13%	600.70%
Average Annual ACA Premium (Net Subsidy) [z][10]	$0	$0	$4,508	$12,800	$15,552
Average Monthly ACA Premium (Net Subsidy)	$0	$0	$376	$1,067	$1,296

Source: Merrill Lynch Wealth Management Analysis through the Wealth Outlook Program, May 2013.

As the chart demonstrates, there can be some distinct advantages from a financial perspective to utilizing ACA coverage but also keeping Medicaid/SSI eligibility. While that is true, it also is true that a special needs trust, which would preserve Medicaid and SSI, places many restrictions on how settlement monies may be used. Accordingly, it isn’t a decision that should be made just for financial reasons. A careful analysis of all of the issues is necessary. In the case of Mrs. Smith, other considerations outweighed the use of a special needs trust. She and her family didn’t want the restrictions that come with the special needs trust. Since monies were allocated to her spouse and their children, all of the family’s assets disqualified her for needs based benefits.

Even though she was currently ineligible for needs based benefits, that didn’t mean she could never become eligible again in the future. Because she might need means tested benefits such as Medicaid/SSI in the future and could become a Medicare beneficiary at some point as well, a trust with provisions that would protect these benefits was created. The trust was created had provisions that would allow the trustee to move money into a “special needs sub-trust” and a “Medicare set aside sub-trust”. The set aside sub-trust was contained within the “special needs sub-trust” so that in the event that the client was “dual eligible”, the set aside wouldn’t cause an eligibility problem for needs based benefits. This planning technique will make more sense after the explanation below about the different types of public benefits and planning that can protect such benefits. Also, let’s now make the assumption that the ACA coverage isn’t an option or perhaps might not be around well into the future. What are the types of benefits an injury victim should be concerned about preserving and what are the techniques used to preserve them?

Public Assistance Primer

Because Mrs. Smith is eligible for Medicaid and SSI as well as having applied for SSDI, further explanation of these benefits makes sense to adequately understand the issues involved in planning for her recovery. There are two primary public benefit programs that are available to those that are injured and disabled. The first is the Medicaid program and the intertwined Supplemental Security Income benefit (“SSI”). The second is the Medicare program and the related Social Security Disability Income/Retirement benefit (“SSDI”). Both programs can be adversely impacted by an injury victim’s receipt of a personal injury recovery. Understanding the basics of these programs and their differences is imperative to protecting the client’s eligibility for these benefits.

Medicaid and Supplemental Security Income (hereinafter SSI) are income and asset sensitive public benefits that require special planning to preserve. In many states, one dollar of SSI benefits automatically provides Medicaid coverage. This is very important, as it is imperative in most situations to preserve some level of SSI benefits if Medicaid coverage is needed in the future. SSI is a cash assistance program administered by the Social Security Administration. It provides financial assistance to needy aged, blind, or disabled individuals. To receive SSI, the individual must be aged (sixty-five or older), blind or disabled and be a U.S. citizen. The recipient must also meet the financial eligibility requirements.[11] Medicaid provides basic health care coverage for those who cannot afford it. It is a state and federally funded program run differently in each state. Eligibility requirements and services available vary by state. Medicaid can be used to supplement Medicare coverage if the client is eligible for both programs (“dual eligible”). For example, Medicaid can pay for prescription drugs as well as Medicare co-payments or deductibles. Because Medicaid and SSI are income and asset sensitive, creation of a special needs trust may be necessary which is discussed in greater detail below.

Medicare and Social Security Disability Income (hereinafter SSDI) benefits are an entitlement and are not income or asset sensitive. Clients who meet Social Security’s definition of disability and have paid in enough quarters into the system can receive disability benefits without regard to their financial situation. The SSDI benefit program is funded by the workforce’s contribution into FICA (social security) or self-employment taxes. Workers earn credits based on their work history and a worker must have enough credits to get SSDI benefits should they become disabled. Medicare is a federal health insurance program. Medicare entitlement commences at age sixty-five or two years after becoming disabled under Social Security’s definition of disability. Medicare coverage is available again without regard to the injury victim’s financial situation. Accordingly a special needs trust is not necessary to protect eligibility for these benefits. However, the MSP may necessitate the use of a Medicare Set Aside discussed in greater detail below.

How Do We Protect Mrs. Smith Current and Potential Future Benefits?

Planning Techniques for Keeping Mrs. Smith Eligible for Medicaid/SSI

Since Mrs. Smith receives Medicaid/SSI, a special needs trust can be created to hold the recovery and preserve public benefit eligibility since assets held within a special needs trust are not a countable resource for purposes of Medicaid or SSI eligibility. The creation of a special needs trust is authorized by Federal law.[12] Trusts commonly referred to as (d)(4)(a) special needs trusts, named after the Federal code section that authorizes their creation, are for those under the age of sixty five.[13] However, another type of trust is authorized under the Federal law with no age restriction and it is called a pooled trust, commonly referred to as a (d)(4)(c) trust.[14]

The 1396p[15] provisions in the United States Code govern the creation and requirements for such trusts. First and foremost, a client must be disabled in order to create a SNT.[16] There are two primary types of trusts that may be created to hold a personal injury recovery each with its own requirements and restrictions. First is the (d)(4)(A)[17] special needs trust which can be established only for those who are disabled and are under age 65. This trust is established with the personal injury victim’s recovery and is established for the victim’s own benefit. It can only be established by a parent, grandparent, guardian or court order. The injury victim can’t create it on his or her own. Second is a (d)(4)(C)[18] trust typically called a Pooled Trust that may be established with the disabled victim’s funds without regard to age. A pooled trust can be established by the injury victim unlike a (d)(4)(A).

Planning Techniques for Making Sure Mrs. Smith Will Not Lose Medicare Coverage in the Future

Mrs. Smith has applied for SSDI which means technically, according to CMS guidance, she has a “reasonable expectation of becoming a Medicare beneficiary within 30 months”. A client who is a current Medicare beneficiary or reasonably expected to become one within 30 months should concern every trial lawyer because of the implications of the Medicare Secondary Payer Act (“MSP”). Under the MSP, Medicare isn’t supposed to pay for future medical expenses covered by a liability or Workers’ Compensation settlement, judgment or award. CMS recommends that injury victims set aside a sufficient amount to cover future medical expenses that are Medicare covered. CMS’ recommended way to protect an injury victim’s future Medicare benefit eligibility is establishment of a Medicare Set Aside (“MSA”) to pay for injury related care until exhaustion.

In certain cases, a Medicare Set Aside may be advisable in order to preserve future eligibility for Medicare coverage. A Medicare set aside 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 healthcare. The funds in the set aside can only be used for Medicare covered expenses for the client’s injury related care. Once the set aside account is exhausted, the client gets full Medicare coverage without Medicare ever looking to their remaining settlement dollars to provide for any Medicare covered health care. In certain circumstances, Medicare approves the amount to be set aside in writing and agrees to be responsible for all future expenses once the set aside funds are depleted.

Dual Eligibility: The Intersection of Medicare and Medicaid – SNT/MSA

Since Mrs. Smith is potentially a Medicaid and Medicare recipient, extra planning is in order. If it is determined that a Medicare Set Aside is appropriate or needed in the future, it raises some issues with continued Medicaid eligibility. A Medicare Set Aside account is considered an available resource for purposes of needs based benefits such as SSI/Medicaid. If the Medicare Set Aside account is not set up inside a Special Need Trust, the client will lose Medicaid/SSI eligibility. Therefore, in order for someone with dual eligibility to maintain their Medicaid/SSI benefits the MSA must be put inside a Special Needs Trust. In this instance you would have a hybrid trust which addresses both Medicaid and Medicare. It is a complicated planning tool but one that is essential when you have a client with dual eligibility.

Financial Settlement Planning Considerations

While we have discussed Mrs. Smith’s public benefit preservation issues above, what about the management of her significant recovery? Should a part of it be in the form of a structured settlement? What about ongoing management of her financial affairs? Will she need help from a fiduciary such as a corporate trustee? There are noright or wrong answers to these questions. Instead, there are options for Mrs. Smith to consider and they should be presented so that she can make an informed decision.

The first option is to take all of the personal injury recovery in a single lump sum. If this option is selected, the lump sum is not taxable, but once invested, the gains become taxable and the receipt of the money will impact his or her ability to receive public assistance.[19] A lump sum recovery does not provide any spendthrift protection and leaves the recovery at risk for creditor claims, judgments and wasting. The personal injury victim has the burden of managing the money to provide for their future needs be it lost wages or future medical. Needs based public benefits would be lost if a lump sum is taken and any reduction in the premium costs for the ACA insurance programs would also be lost.

The second option is receiving “periodic payments” known as a structured settlement[20] instead of a single lump sum payment. A structured settlement’s investment gains are never taxed[21], it offers spendthrift protection and the money has en

1024(b)(4) – Send It To The Right Place!

In Allena Burge Smiley v. Hartford Life and Accident Insurance Company, et. al, No. 15-10056 (11th Cir. 2015), the Eleventh Circuit reiterated what Synergy regularly advises clients to do regarding the statutory document request pursuant to 29 U.S.C. 1024(b)(4) – send it to the right place! The first step in properly defending against an asserted subrogation or reimbursement claim from an ERISA plan is making a request for documents pursuant to 29 U.S.C. 1024(b)(4). On July 17, 2015, the Eleventh Circuit in Allena Burge Smiley v. Hartford Life and Accident Insurance Company, et. al, No. 15-10056 (11th Cir. 2015), reaffirms the rule that unless this statutory request is sent to the “plan administrator” no penalties will be assessed.

A proper 29 U.S.C. 1024(b)(4) request is of the utmost importance for two (2) reasons: to obtain the necessary documents to evaluate the strength of the ERISA plan’s recovery rights, and to exert pressure by means of 29 U.S.C. § 1132 (c) (1) (B) penalties.

29 U.S.C. § 1024(b)(4) – The administrator shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary, plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated.

29 U.S.C. § 1132(c) – Any administrator who fails or refuses to comply with a request for any information which such administrator is required by this subchapter to furnish … within 30 days after such request may … be personally liable … in the amount of up to $100 a day.

29 C.F.R. § 2575.502c-1 – The civil monetary penalty established by … ERISA is hereby increased from $100 a day to $110 a day.

As the Eleventh Circuit found in Smiley, despite arguments that the third-party administrator was a de facto plan administrator, the plan language of the ERISA statute places these responsibilities on the plan administrator alone, not its agents. One bright spot for the plaintiff’s bar is the Court’s affirmation that in order to obtain penalties (where the request was sent to the correct party) there is no need for the plaintiff to demonstrate “prejudice, bad faith, [or] harm” in order to obtain penalties, Byars v. Coca-Cola Co., 517 F. 3d 1256 (11th Cir. 2008); Daughtrey v. Honeywell, Inc. 3 F.3d 1488, 1494 (11th Cir. 1993).

Aranki v. Burwell – Nothing New When it comes to Liability Medicare Set-asides

By Jason D. Lazarus, J.D., LL.M, MSCC

Recently, an Arizona Federal judge ruled that he would not make a determination on whether a Medicare Set-Aside (MSA) is necessary on a medical malpractice case. According to Judge Stephen McNamee:

[t]he Court finds that there is no justiciable case or controversy ripe for review. As such, the Court does not have subject matter jurisdiction to hear this case. This case is not ripe for review because no federal law mandates CMS to decide whether Plaintiff is required to create a MSA. That CMS has not responded to Plaintiff’s petitions on the issue, is not reason enough for this Court to step in and determine the propriety of its actions. There may be a day when CMS requires the creation of MSA’s in personal injury cases, but that day has not arrived.

We have received a flood of inquiries as to whether or not this case eliminates the need to do an MSA in liability settlements. The answer is “no”. This decision does not give the plaintiff or counsel a pass on considering Medicare’s future interests in a liability settlement. The opinion actually says that an MSA isn’t required, which simply reaffirms Medicare’s position on set-asides. An MSA is never required, whether it be for a workers compensation or liability settlement. This decision does not change the current Medicare secondary payer landscape. Attorneys still need to consider Medicare’s future interests when resolving claims.

The Aranki case is similar to other cases that have addressed the question of the necessity of a Liability Medicare Set-aside (LMSA) to “protect Medicare’s interests” under the Medicare Secondary Payer Act (MSP). All of the cases that have been reported revolve around the confusion of the necessity of MSAs in liability settlements or the inability to get CMS approval of a liability set aside. The area is so rife with confusion that most lawyers just don’t know what to do when resolving a case with a Medicare beneficiary. Courts, like the one in Aranki, acknowledge the confusion but do little to clarify. My previous articles and blog posts regarding this subject have tried to debunk the myths surrounding the MSP and liability settlements. In a recent Florida Supreme Court opinion regarding collateral sources, Joerg v. State Farm, one such article was cited by the Court. Despite all of the foregoing, many lawyers fail to recognize the potential risks of failing to advise clients about these issues. Analyzing the Aranki case and the issues presented is a good opportunity to discuss this very important issue.

The plaintiff, Rachel Aranki, was the victim of medical malpractice in 2009, which left her partially paralyzed and in chronic pain. She filed a medical malpractice action in Arizona state court against the treating physician. The case was settled prior to going to trial. At the time of settlement, Ms. Aranki was a Medicare beneficiary. The question of whether CMS would mandate a set-aside stymied the finalization of the settlement. The plaintiff, in an effort to comply with the MSP, sought a response from CMS on the necessity of an LMSA, but they got no response. The state court judge enforced the agreement to settle and ordered Ms. Aranki to file a declaratory judgement action in federal court on the LMSA issue. The United States District Court for the District of Arizona issued its order dismissing the matter for lack of subject-matter jurisdiction. In the opinion, the Court stated that “no federal law or CMS regulation requires the creation of a MSA in personal injury settlements to cover potential future medical expenses.” This is a true and accurate statement of the current state of the law as it pertains to set-asides. However, that is not the end of the story.

While there is currently no regulation or law that mandates set-asides in liability settlements, it does not mean there will be no consequences when a plaintiff attempts to shift the burden to Medicare for future injury-related care. It is very clear from Medicare’s public statements that the agency believes that set-asides are the best method to protect the program from paying for injury-related care when future medicals are funded by a settlement. That does not mean it is the only way to demonstrate that Medicare’s interests were taken into account when a case involving a Medicare beneficiary is settled, it just means it is one way. It is Medicare’s preferred method of protecting their future interests.

The real issue when a case involving a Medicare beneficiary is settled boils down to the risk taken by the plaintiff in terms of coverage of their future injury-related care by Medicare. It isn’t a defense issue. It is a plaintiff issue. The plaintiff, if he/she does nothing without legal justification, could face a situation where Medicare denies future injury-related care since nothing was set aside. The plaintiff needs to understand this risk before settling their case. Since the settlement will be reported to Medicare under the Mandatory Insurer Reporting laws, Medicare will be on notice of the settlement and the injury related ICD codes. That could trigger a denial of care and a lengthy internal appeals process before Medicare payments for accident related care might be reinstated by a Federal District Court.

While on the subject of Mandatory Insurer Reporting, it is important to address a few things. As a practice point, plaintiff counsel should be proactively dealing with the defense in terms of what they report, as inaccurate reporting can cause problems with conditional payments as well as eligibility for future benefits. For example, if a case involves neck and back injuries, but the defense takes the position that the neck is pre-existing and settles for payments exclusively for the back, then reports the ICD codes for the neck along with the back – that is a problem. Another problematic issue is reporting the wrong date of accident which could trigger Medicare to issue a new final demand for conditional payments. Another important practice point is to be leery of Medicare language being included in the release, as many times it has inappropriate language along with inaccurate references to the Medicare Secondary Payer Act.

Given all of the foregoing, what do you do? “Nothing” isn’t the answer. The answer is to consult competent experts on the subject to help navigate the complexities, advise the client about the risks and document your file as to what you did along with why. I like to use the acronym of CAD, Consult Advise Document, to remember the steps. The bottom line for personal injury practitioners is that the LMSA issue poses a legal malpractice threat, not some type of legal action by CMS against you. There is no mechanism for the government to bring any type of legal action related to Medicare Set-asides. If you don’t pay back a conditional payment, the government can bring an action against the trial lawyer as the regulations do provide for this but there is no corollary for set-asides.

Similarly, the defendants don’t have any exposure or liability if nothing is set aside. They simply don’t have a dog in the fight. Their insistence on requiring a set-aside may expose them to some liability which is a good counter argument to a recalcitrant defendant. According to Medicare, the defendant’s only obligations are to report a settlement to Medicare under the Mandatory Insurer Reporting laws and put the plaintiff on notice if future medicals are funded. There is amemorandum from CMS MSP Regional Coordinator Sally Stalcup that lays out this obligation for defendants. Providing that policy memo to defense counsel can also be helpful in allaying fears the defense has about their responsibilities/exposure.

To summarize, the best practice is to evaluate the case and document what is being done along with why. This is especially critical if nothing is being done and the client is eligible to receive Medicare benefits (or has a “reasonable expectation”). There are certainly justifications for doing nothing in proper situations. For example, nothing may be done because after educating the client, the client refuses to set anything aside. Or, it could be that future medicals aren’t funded. It could be that, due to liability issues, the case was settled for less than full value and when you run an equitable distribution calculation the amount of future medicals covered by Medicare is minimal. On the other hand, in certain cases there might be a desire or need to set something aside. In those cases, an estimate of future medical expenses that are Medicare covered should be obtained or a full allocation done. That is appropriate documentation.

Also, don’t forget about CMS’ exception memorandum which was disseminated back in September of 2011. In that memo, the Baltimore HQ office indicated there are cases where a Liability Medicare Set-aside wasn’t necessary, period. The memo stated that if the treating physician certified in writing that there would be no future medical expenses covered by Medicare for the injuries suffered in the accident, then nothing needed to be set aside. To document this exception, the treating physician’s letter should be obtained and retained by both the trial lawyer, as well as the client.

Finally, it is important to understand that certain injury victims will be dual eligible. This means that they receive not only Medicare, but Medicaid as well. When someone is dual eligible additional planning concerns arise. If it is determined that a Medicare Set-aside is appropriate or needed in the future, it raises some issues with continued Medicaid eligibility. A Medicare Set-aside account is considered an available resource for purposes of needs-based benefits such as SSI/Medicaid. If the Medicare Set-aside account is not set up inside a Special Needs Trust, the client will lose Medicaid/SSI eligibility. Therefore, in order for someone with dual eligibility to maintain their Medicaid/SSI benefits the MSA must be put inside a Special Needs Trust. In this instance, you would have a hybrid trust which addresses both Medicaid and Medicare. It is a complicated planning tool but one that is essential when you have a client with dual eligibility.