Clients on Medicaid & Medicare Need Special Planning

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

Some individuals are “dual eligible” meaning they qualify for both Medicaid and Medicare. In certain cases, a Medicare Set Aside/Special Needs Trust or Pooled Trust Sub-Account may be necessary to preserve the client’s dual eligibility. Medicare Set Asides (“MSA”) are a device used to preserver future Medicare eligibility. When settlement a case it may be prudent to consider setting an MSA when the injury victim is a Medicare beneficiary or reasonably expected to become Medicare eligible within 30 months. A Special Needs Trust or Pooled Special Needs Trust is appropriate for clients receiving Supplemental Security Income (“SSI”) and/or Medicaid benefits. Federal law allows creation of either an SNT or Pooled Special Needs Trust to preserve eligibility for needs based benefits, such as SSI and Medicaid, post settlement of a personal injury claim.

Dual eligibility is not extremely common, but there is a subset of the injury population who will be dual eligible. Understanding who qualifies for both Medicaid and Medicare is vitally important for the personal injury practitioner to insure the injury victim’s benefits are adequately protected. By CMS’s definition, dual eligible clients are those that qualify for Medicare Part A and/or Part B and also qualify for Medicaid programs as well. Medicare coverage can be obtained prior to age 65 if an injury victim qualifies for Social Security Disability. It takes a total of 30 months for someone that is disabled to qualify for Medicare (Medicare coverage begins 24 months after the first SSDI check is received which takes 5 months and includes the month of receipt, so plus 1 month).

Some Medicare beneficiaries have so little income or assets that they also qualify for state programs through Medicaid that pay for certain out of pocket expenses not covered by the Medicare program. There are several different programs that injury victims who qualify for Medicaid may be entitled to that help with expenses not covered by Medicare. In addition, there are services that Medicare does not pay for that can be covered by state Medicaid programs. For example, Medicare does not cover nursing home care beyond one hundred days yet Medicaid does, if one qualifies, cover that care.

The programs that cover out of pocket expenses provide limited Medicaid benefits to those that qualify. Through these programs, Medicaid will pay Medicare premiums, co-payments and deductibles within prescribed limits. There are two different programs. First, is Qualified Medicare Beneficiaries (“QMB”). The QMB program pays for the recipients Medicare premiums (Parts A and B), Medicare deductibles and Medicare coinsurance within the prescribed limits. QMB recipients also automatically qualify for extra help with the Medicare Part D prescription drug plan costs. The income and asset caps are higher[i] than the normal SSI/Medicaid qualification limits. Second is Special Low-Income Medicare Beneficiary (“SLMB”). The SLMB program pays for Medicare premiums for Part B Medicare benefits. SLMB recipients automatically qualify for extra help with Medicare Part D prescription drug plan costs. Again, the income and asset caps are higher[ii] than the normal SSI/Medicaid qualification limits.

Preservation of Public Benefits for those who are Dual Eligible
For injury victims that are Medicare eligible or reasonably likely to be within 30 months, a trial lawyer must carefully consider compliance with the Medicare Secondary Payer Act (“MSP”). For those injury victims receiving needs based benefits such as SSI and Medicaid, planning is necessary to preserve those benefits. Federal law found at 42 U.S.C. 1396p, allows for the creation of either a special needs trust or pooled special needs trust for those meeting the Social Security definition of disability. Assets placed into one of these trusts do not count for purposes of qualifying for needs based benefits. In the remainder of the article I will cover Medicare Set Asides and Special Needs Trust along with the intersection of these two public benefit preservation devices.

About Medicare and Medicare Set Asides
Medicare and Social Security Disability Income (hereinafter SSDI) benefits are not income or asset sensitive. If a client meets the Social Security’s definition of disability and has paid in enough quarters they can receive disability benefits without regard to their financial situation. SSDI 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 (“fully insured”). Medicare is a federal health insurance program. Medicare entitlement commences 2 years after receipt of the first disability payment from Social Security. Medicare coverage is available without regard to a client’s financial situation.

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 MSP. The MSP is a series of statutory provisions enacted during the 1980s as part of the Omnibus Reconciliation Act with the goal of reducing federal health care costs. The MSP provides that if a primary payer exists, Medicare only pays for medical treatment relating to an injury to the extent that the primary payer does not pay.

In certain cases a Medicare Set Aside may be advisable in order to preserve future eligibility for Medicare coverage. A Medicare set aside 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 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, primarily in workers’ compensation settlements, 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.

While there is no requirement to establish a liability Medicare Set Aside, there is ample reason for evaluating whether one should be established. There are currently no guidelines, polices or procedures for Medicare Set Asides in non-Workers’ Compensation cases. Nevertheless, there are ways to insure that Medicare’s interests were addressed when settling with a Medicare beneficiary. The only known sure fire way to do this is with a Medicare Set Aside.

Planning for Medicaid or SSI Recipients
Unlike SSDI and Medicare, Supplemental Security Income (SSI) and Medicaid are income and asset sensitive public benefits that require planning to preserve. In Florida (and most states), one dollar of SSI benefits automatically brings Medicaid coverage. This is very important, as it is imperative 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 (65 or older), blind or disabled and be a U.S. citizen. The recipient must also meet the financial eligibility requirements.

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 has both programs. For example, Medicaid can pay for prescription drugs as well as Medicare co-payments or deductibles.

A special needs trust (SNT) is required if the client is receiving Supplemental Security Income (SSI) or Medicaid. A SNT is a trust whose corpus or any assets held in the trust do not count as resources for purposes of qualifying for Medicaid or SSI. Thus a personal injury settlement can be placed into a SNT so that the victim can continue to qualify for SSI and Medicaid. Federal law authorizes and regulates the creation of a SNT. 42 U.S.C. §1396p(d)(4)(A)-(C) governs the creation and requirements for such trusts. First and foremost, a client must be disabled in order to create a SNT.

There are 3 primary types of trusts. First is the (d)(4)(A) trust which can only be established for those who are disabled and are under age 65. This trust is established with the personal injury victim’s settlement funds and is established for the victim’s own benefit. Second is a third party SNT which is established and funded by someone other than the personal injury victim (i.e., parent, grandparent, donations, etc. . .) for the benefit of the personal injury victim. The victim still must meet the definition of disability. Third is a (d)(4)(c) trust typically called a pooled trust that may be established by the injury victim with their own funds without regard to age restriction.

The Intersection of Medicare and Medicaid – SNT/MSA
If you have a client that is a Medicaid and Medicare recipient, extra planning may be in order. If it is determined that a Medicare Set Aside is appropriate, 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 those with dual eligibility.

The Settlement Solutions National Pooled Trust has a sub-account which can be set up as a MSA. This means the assets in the MSA are inside of the pooled special needs trust protecting both Medicaid and Medicare eligibility. There must be a separate non-Medicare pooled special needs trust sub-account which holds monies to pay for the administrative costs and non-Medicare settlement funds. The Medicare Set Aside sub- account can only pay for Medicare covered services related to the injury and can’t be used to pay for any administrative expenses. All administrative expenses must come from the non-Medicare pooled trust sub-account.

To learn more about the Settlement Solutions National Pooled Trust click HERE

To learn more about the MSA sub-account click HERE

[i] Resources must be at or below twice the standard allowed under the Supplemental Security Income (SSI) program and income at or below 100% of the Federal poverty level.

[ii] Resources must be at or below twice the standard allowed under the SSI program and income exceeding the QMB level, but less than 120% of the Federal Poverty Level.

Liability Medicare Set Asides: Region 6 Memo Provides a Little Clarity

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

Synergy has gotten inquiries regarding a memo issued in May of this year by Sally Stalcup, the MSP Regional Coordinator for CMS (Region 6 – Dallas RO). The memo addresses Medicare set-asides in liability cases. While it is informative and gives a glimpse of the thoughts of some at CMS regarding liability Medicare set asides, it isn’t law. The memo is simply one CMS Regional Coordinator’s viewpoint. Until CMS issues formal guidance or there is law regarding Medicare set asides, we are left with nothing definitive to hang our hat on in terms of how to deal with Medicare’s “future interest”. Nevertheless, I will highlight the important portions of the memo below and try to add some clarity.

The memo starts out with an important statement. Ms. Stalcup indicates that the “information provided is only intended to be a general summary” but it isn’t “intended to take the place of either the written law or regulations.” While Ms. Stalcup encourages readers to review statutes, regulations and other materials issued by CMS on this subject, that is impossible as there is nothing that specifically addresses liability Medicare set asides. She limits the applicability of the memo to the states covered by the Region 6 office which are Oklahoma, Texas, New Mexico, Louisiana and Arkansas.

The central premise of the memo is laid out immediately that when settling a case involving a Medicare beneficiary, “Medicare’s interests must be protected; however, CMS does not mandate a specific mechanism to protect those interests.” While she acknowledges that the law doesn’t require a “set-aside” in any particular situation, she indicates that the Medicare Trust Fund must be protected from payment for future services whether they arise from a Workers’ Compensation settlement or liability settlement because there is no distinction in the MSP. She goes on to say that a “Set-aside is our method of choice and the agency feels it provides the best protection for the program and the Medicare beneficiary.”

She goes on to identify what she believes is the legal underpinnings of the need to address Medicare’s future interests. She states that “Section 1862(b)(2)(A)(ii) of the Social Security, Act [42 USC 1395 y(b)(2)], precludes Medicare payment for services to the extent that payment has been made or can reasonably be expected to be made promptly under liability insurance. This also governs Workers’ Compensation. 42 CFR 411.50 defines the term “liability insurance”. Any time a settlement, judgment or award provides funds for future medical services, it can reasonably be expected that those monies are available to pay for future services related to what was claimed and/or released in the settlement, judgment, or award. Thus, Medicare should not be billed for future services until those funds are exhausted by payments to providers for services that would otherwise be covered and reimbursable by Medicare. If the settlement, judgment, award .y [sic] are not funded there is no reasonable expectation that third party funds are available to pay for those services.”

CMS does not have a formal process to review and approve Medicare set asides like they do in Workers’ Compensation cases according to Ms. Stalcup which we already know. CMS review of proposed liability Medicare set asides is determined on a case by case basis by the appropriate regional office. For example, the Atlanta Regional office routinely refuses to review liability Medicare set asides we have submitted. Their typical response is that “[d]ue to resource constraints, CMS Is not providing a review of this proposed liability Medicare set aside arrangement.” The form letter goes on to say “this does not constitute a release or a safe harbor from any obligations under any Federal law, including the MSP statute.” (Emphasis added). In bold print the letter warns, “All parties must ensure that Medicare is secondary to any other entity responsible for payment of medical items and services related to the liability settlement, judgment or award.” Nevertheless, Ms. Stalcup states in her memo that “CMS does expect the funds to be exhausted on otherwise Medicare covered and otherwise reimbursable services related to what was claimed and/or released before Medicare is ever billed” regardless of whether a set aside is reviewed/approved by CMS.

As is the case in Medicare conditional payments obligations, she emphasizes that allocations made in a settlement agreement to different categories of damages is ineffective in terms of getting around the obligation to set funds aside. The memo states that the “fact that a settlement/judgment/award does not specify payment for future medical services does not mean that they are not funded.” Further, the “fact that the agreement designates the entire amount for pain and suffering does not mean that future medicals are not funded.” While Medicare has been challenged and lost in the 11^th Circuit on the issue of its failure to recognize allocations by a court order other than on the merits of the case (see Bradley v. Sebelius), Ms. Stalcup holds the CMS line on this issue and states that the “only situation in which Medicare recognizes allocations of liability payments to nonmedical losses is when payment is based on a court of competent jurisdiction’s order after their review on the merits of the case.” “If the court of competent jurisdiction has reviewed the facts of the case and determined that there are no future medical services Medicare will accept the Court’s designation.” The lesson from these statements is that CMS will not stand for attempts to shift damages to non-Medical categories and will not recognize allocations unless via a court order on the merits of the case. While this may force issues of damages to be tried and clog the court system, CMS continues to take this ridiculous position.

To clarify what is considered future medical portions of a recovery and how to know whether a settlement includes them, the memo gives some examples. “Consider the following examples as a guide for determining whether or not settlement funds must be used to protect Medicare’s interest on any Medicare covered otherwise reimbursable, case related, future medical services. Does the case involve a catastrophic injury or illness? Is there a Life Care Plan or similar document? Does the case involve any aspect of Workers’ Compensation? This list is by no means all inclusive.” An important part of the memo addresses what is “case related” medical expenses. CMS’s view is that this includes “more than just services related to the actual injury/illness which is the basis of the case.” “Because the law precludes Medicare payment for services to the extent that payment has been made or can reasonably be expected to be made promptly under liability insurance, Medicare’s right of recovery, and the prohibition from billing Medicare for future services, extends to all those services related to what was claimed and/or released in the settlement, judgment, or award. Medicare’s payment for those same past services is recoverable and payment for those future services is precluded by Section 1862(b)(2)(A)(ii) of the Social Security Act.”

The memo does address CMS’s view of plaintiff counsel’s obligations in regard to future Medicare covered services incurred by the client. “We do however urge counsel to consider this issue when settling a case and recommend that their determination as to whether or not their case provided recovery funds for future medicals be documented in their records. Should they determine that future services are funded, those dollars must be used to pay for future otherwise Medicare covered case related services.” CMS will not issue opinion letters or sign off on determinations of whether or not there is a recovery of future medical services triggering the need to protect the Medicare Trust Fund. The memo puts the determination of these issues in the lap of the attorney handling the claim. According to Ms. Stalcup, each “attorney is going to have to decide, based on the specific facts of each of their cases, whether or not there is funding for future medicals and if so, a need to protect the Trust Funds.” “They must decide whether or not there is funding for future medicals. If the answer for plaintiffs counsel is yes, they should to [sic] see to it that those funds are used to pay for otherwise Medicare covered services related to what is claimed/released in the settlement judgment award.”

So what does this all mean? It means what I have been saying for quite some time. CMS believes that the obligation to protect Medicare’s future interests is the same in Workers’ Compensation cases as it is in liability settlements. This is despite the fact that no formal guidance exists for liability Medicare set asides and CMS routinely refuses to review/ approve them either. Nevertheless, counsel is supposed to make sure that funds recovered for future Medicare covered services related to the injury be spent on that care before Medicare ever pays a dime. The question for attorneys representing a Medicare beneficiary is what do I do to comply with what CMS expects? The answer is, in my opinion; educate the client on the risks of failing to set aside the money for future Medicare covered services. Mandatory insurer reporting of settlements with Medicare beneficiaries commences on 1/1/12 with reporting going back to settlements occurring on 10/1/11. Medicare will know every facet of a settlement with a Medicare beneficiary once the reporting goes into effect as the ICD9 codes for all of the care will be reported to Medicare along with a massive amount of information about the claim that is being settled. This will give Medicare the ability to flag a Medicare beneficiary’s number and refuse to pay for Medicare covered services related to the injury. Accordingly, the Medicare eligible injury victim must understand that this risk is present when they settle their case. Your closing statement should be amended to address this issue, you should consider using a waiver if the client refuses and you should develop a comprehensive CYA letter to address these issues with a client when a settlement is reached.

While what I have laid out above is great in theory, the problem is that defendants are routinely including “kitchen sink” language in their releases to address Medicare. This language frequently shifts the burden of creating a Medicare set aside to the injury victim and counsel or identifies an arbitrary amount to be set aside. The latter practice is dangerous because those releases typically have the injury victim acknowledge a responsibility to set funds aside while picking an arbitrary (usually small) amount to be set aside. This is simply bad practice and exposes the injury victim as well as plaintiff counsel since if CMS ever refused to pay for Medicare covered services related to the injury there would be no way to justify the amount of the set aside. A better practice is to actually do an MSA analysis, which may or may not include getting a formal MSA allocation done. There are certain instances where an MSA may be unnecessary based upon factors present in the case such as a private primary health insurance policy, Workers’ Compensation coverage for future medical or where there is no future Medicare covered expenses related to the injury. These should be identified and the release language specifically tailored to that exception but with an indication that Medicare’s future interests where considered with nothing needing be set aside. If the case requires the full-blown MSA analysis, it should be done and the cost of doing so passed along as a client cost. Most MSA allocations reports cost approximately $2,000 – $3,000, which is a small price to pay for proper analysis of the client’s exposure.

While I applaud Sally Stalcup’s efforts to clarify things with respect to liability Medicare set asides, application of what she suggests is a little more difficult in the real world. What happens with the $25,000 policy limits settlement where future Medicare covered services are $200,000? How do you deal with that situation? There are ways in my opinion to deal with this situation using a reasonable reduction formula, but CMS does not recognize any type of reduction formula. How do you deal with a defendant that does not understand the responsibilities under the MSP and confuses issues of Medicare conditional payment reimbursement and Medicare set-asides? CMS does not offer formal guidance or approvals on these issues so how do you deal with defense counsel or the insurer’s insistence upon unnecessary language or set asides? As I have written before, we need definitive law, an appellate procedure and protections of all parties’ rights in the MSP process. While change appears to be coming in the reform of the MSP in relation to Medicare conditional payments, that isn’t the case for Medicare set asides. Hopefully at some point in the near future, someone will take up the matter with Congress so legislation can be introduced. Until then, we have to deal with this the best way we can.

To review the memo click HERE

Medicare’s “New” Demand Letters: How Have They Changed?

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

On May 25^th, the MSPRC temporarily suspended issuing demand letters. The suspension was apparently due to the Haro v. Sebelius decision from Arizona wherein Medicare was enjoined from certain collection practices. What ensued was a review and changes to its Rights and Responsibilities letters as well as its demand letters. On June 27^th, Medicare resumed issuing demand letters and posted samples of the new letters on its website. The new letter contains a few notable changes.

The first notable change is the addition of language relating to Medicare recovery actions while an appeal or waiver request is pending. The letter indicates that Medicare will not begin a recovery action when an appeal or waiver is pending. This is in conformity with the Haro decision.
Second, there is language that has been added regarding avoidance of the assessment of interest. According to the letter, if a waiver or appeal is requested/filed then the responsible party may choose to repay Medicare the full amount or the amount it believes Medicare is owed within 60 days to avoid any interest. The letter does warn that “interest accrues on any unpaid balance, which may include any amount you are determined to owe once a decision is reached on your request for waiver of recovery or appeal.” Therefore if it is desired to avoid any interest at all, the full amount should be paid while the appeal/waiver request is pending. The letter does state that “if you receive a waiver of recovery or if you are successful in appealing our decision, Medicare will refund any excess amounts you have paid.” Again, this conforms with Haro.
Third and last, is the addition of a notice provision procedure prior to a recovery action being instituted by Treasury. The letter states that if “Medicare intends to take collection action (including referral to Treasury), you will be provided with appropriate notice.” “This notice will include information concerning appropriate steps to avoid such actions.”

The changes are subtle but are nevertheless important. The process of resolving Medicare conditional payments is timely and isn’t cost effective for most personal injury firms. Synergy can help resolve Medicare conditional payments freeing up valuable times and resources to litigate/settle cases. Contact us today to see how we can help with lien resolution.

To view the new sample demand letter click HERE

To see other information on Medicare condtional payment recovery issues, visit the MSPRC’s website by clicking HERE

Hancock v. Share: Can you create a Structured Settlement for a Minor which pays out Past Age of Majority? Of course you can!

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

Traci Hancock, as mother and natural guardian of Marisa Hancock appealed an order entered by Judge Smith approving, in part, a proposed settlement agreement. The grounds of the appeal was that the trial court erred in refusing to approve a structured settlement that paid out past age of majority. The 5^th DCA in Florida reversed the Judge’s decision.

In Hancock, Traci Hancock was appointed guardian over the property of an injured minor, Marisa Hancock. The property of the guardianship was proceeds from a personal injury lawsuit. Traci Hancock as guardian filed a petition seeking approval of a settlement agreement on behalf of the minor. The proposed settlement agreement provided for payment to Traci Hancock for services as guardian, to Marisa’s counsel for their services in the personal injury lawsuit and the guardian ship proceedings and to Marisa for her tort damages. The petition stated that it was in Marisa’s best interest that the lawsuit be settled and that Marisa’s proceeds would be used to purchase “annuity for the benefit of the minor child.” The proposed structured settlement annuity paid out over a 27 year period.

At the hearing to approve, Judge Smith asked counsel for Marisa whether she would be able to “get her cash out of the annuity when she turns 18” and counsel replied no. Judge Smith entered an order approving the settlement of the lawsuit but refusing to authorize the purchase of a structured settlement annuity. The court’s grounds for denying the structured settlement were that the “Guardian of the property has no authority to bind the assets of the ward beyond the age of majority pursuant to Florida Statute 744.441(19).” Traci Hancock alleged that Judge Smith “erred, as a matter of law, in denying her request to approve the structured port of the settlement agreement.” The 5^th DCA agreed.

In its decision, the 5^th DCA found that Judge Smith erred in his conclusion that 744.361(6)(c) required the court to ensure that upon reaching age 18 the ward’s proceeds of her lawsuit would be available to her. The 5^th DCA also found error with Judge Smith’s reliance upon Guardianship of Bernstein v. Miller. Bernstein involved the creation of irrevocable trusts that didn’t pay out until age 30 for two minor children to manage inheritance from their deceased father. The 4^th DCA struck down the trial court’s creation of the irrevocable trusts because it violated section 744.441(19) of the Florida Statutes which authorizes the creation of irrevocable trusts which extend beyond the disability of the ward only if the trust is created in connection with tax planning. The 5^th DCA in Hancock indicated that since this matter didn’t involve any trust documents, the limitation set forth in 744.441(19) wasn’t an issue.

The 5^th DCA found that a trial court is authorized to approve a proposed annuity contract under 744.441(21) provided there is a finding that it is “appropriate for, and in the best interest of, the ward.” In the instant case, all of the parties and even Judge Smith agreed that the proposed annuity contract was in Marisa’s best interest. Accordingly, the 5^th DCA held it was error by the court to refuse to approve the structured settlement. While this has always been the common practice, court’s approving structured settlements for minors where the money was paid out post age of majority, some court’s questioned whether there was a legal basis to do so. Judge Smith in Volusia count was one of those judges and now the 5^th DCA has answered the question and put it to bed.

To view the opinion click HERE

What to Look For When Hiring a Medicare Compliance (MSA) Vendor

By B. Joshua Pettingill & Jason D. Lazarus

The hiring of a Medicare Set Aside (“MSA”) allocation vendor is an important decision when settling a worker’s compensation or liability matter. The future medical costs included in the allocation report can make or break a case. If the MSA allocation is too high, it may hurt the chances of settling the case. If the allocation is too low due to improper calculation of the future medical care covered by Medicare, CMS is not going to approve the MSA. Failure to obtain CMS approval of an allocation can cause a contingent settlement to disintegrate.

Hiring the right MSA vendor is critical to successful conclusion of a case involving a Medicare beneficiary where an MSA will be implemented. Here are ten questions to help guide your decision making process when searching for a MSP compliance partner:

Does the MSA allocation vendor do work for plaintiffs or insurance companies?
Are the vendor’s owners & employees certified Medicare set aside consultants (MSCC)?
What other qualifications and designations do their allocators have?
Does the vendor have proper E & O coverage?
Has vendor ever been sued as a result of the work performed?
Does the vendor more than one person who reviews the MSA before the final report is completed?
Does the vendor handle liability claims differently than worker’s compensation claims?
What is their average turnaround time to hear back from CMS?
What calculations are included in the analysis?
Can they provide a funding analysis of the MSA using a structured settlement?

You should be very leery of vendors who make outrageous claims such as, “guaranteed acceptance by CMS”. There are MSA vendors who continue to market using these false claims. The problem with this practice is the MSA allocation amount may be overly inflated so CMS will approve it automatically. This can cost the insurance carrier more in terms of settlement dollars. More importantly, an overinflated MSA allocation amount will result in less upfront cash for the plaintiff.

You should also avoid MSA vendors who advertise “lowest defensible allocations”. When a MSA is prepared, there is a very strict methodology that must be employed to comply with CMS guidelines. If the MSA is being submitted to CMS for approval, the Medicare contractor evaluating the allocation is going to review all of the accompanying documentation for both medical treatment and prescriptions. If the allocation amount is too low, they are going to flag the report and revise the amount upward. Once that happens, you are at the mercy of CMS. There is no formal appeal process if CMS comes back with a significantly higher number in place of the artificially low number submitted by an MSA vendor.

A properly calculated MSA allocation should have a rational basis in the medical records and bills attributable to the injury related care prior to settlement. It is imperative to hire a firm who has the experience, knowledge and ability to guide you through all of the pre-settlement, settlement and post-settlement issues that may arise with Medicare Secondary Payer compliance. More importantly, the right experts can insure you and your client are fully protected so you do not have to worry about unforeseen litigation after the claim has been resolved.

To learn more about how Synergy can help with Medicare Secondary Payer compliance and Medicare Set Asides, click HERE.

Medicare Set Asides – How Are They Administered?

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

When a case is settled for a Medicare beneficiary, be it workers’ compensation or liability, a Medicare Set Aside (“MSA”) may be implemented. Once the decision is made to utilize an MSA, the question becomes how will it be administered? The criteria for MSA administration is that the funds may only be used to pay for future medical expenses of the type normally covered by Medicare for treatment of the injury victim’s injury related medical conditions. CMS’s guidelines (for workers’ compensation cases) indicate that set aside funds should be placed in an interest bearing account and may be either professionally administered or self administered. If the injury victim self administers the set aside, the claimant is supposed to submit an annual self attestation form when the monies in the set aside have been exhausted. If the set aside is professionally administered, the MSA administrator must prepare an annual accounting summary concerning the expenditures from the set aside and send it to the CMS Medicare contractor responsible for monitoring the individual’s case.

The MSA administrator, whether it is the injury victim or a professional administrator, must make sure that the set aside pays at the proper rate; that funds are spent only on Medicare covered expenses and that Medicare does not pay for injury related care until the set aside funds are exhausted. As for the first responsibility, the set aside is supposed to pay based upon how the set aside was calculated. For example, in workers’ compensation cases the set aside is usually calculated based upon the state workers’ compensation fee schedule. For liability settlements, it is generally usual and customary rates. So the set aside administrator should pay at the appropriate rate as determined by the calculation of the set aside allocation. If the provider does not agree to accept payment at the appropriate rate, the balance of the cost must be paid with funds outside of the MSA. The MSA administrator isn’t required to determine what would be the Medicare approved charges and there isn’t a need to consider Medicare deductibles or co-payment amounts. This may seem a bit foreign, but it is the proper way to make payments out of the set aside.

As for the second responsibility, the set aside can only be used for Medicare covered expenses related to the injuries. The set aside monies must be spent appropriately and this must be documented or Medicare could reject future care until the set aside is properly replenished with funds. Lastly, the set aside funds must be properly exhausted before Medicare is billed by providers. There are two type of exhaustion, temporary or total. The type of exhaustion depends on how the set aside has been funded. If the set aside is funded with an annuity then each year there is a potential for temporary exhaustion. The way this works is that at inception the set aside is funded with a “seed” amount (lump sum) and then annual annuity payments. If in any one year the set aside is exhausted, then Medicare picks up for the remainder of the year. When the next annuity payment comes in then that must be exhausted before Medicare will pay. It works like an annual deductible. If the set aside is funded with a lump sum then all of the funds must be exhausted before Medicare pays for injury related care.

As you can see this can be quite a complex undertaking for the average injury victim. Proper self administration of a set aside is difficult for the average injury victim. There are companies, such as ours, that provide self administration support services that can assist injury victims in managing their set aside accounts. However, the degree to which these are effective is dependent on how compliant the injury victim is in following through with the services. For many larger cases, professional administration is a much better option even though it is more expensive. The set aside monies can only be used for Medicare covered medical services. If a professional administrator is used, it has to be paid from the non-Medicare Set Aside settlement proceeds. Typically, the set aside administrator is paid by an annual annuity that is set up just to pay for the services. The set aside administrator can also be paid by a lump sum, but again it has to come from monies outside of the amount allocated to the Medicare Set Aside. Attorney fees related to the set aside administration or legal issues that may arise in administering the set aside similarly can’t come from the monies in the set aside.

Most professional administrators of set asides provide the service through a custodial arrangement. These custodial arrangements are contractual agreements and don’t create the same level of fiduciary obligation on the part of the administrator as is possible with a trust. One problem with a custodial set up is the protection afforded to the monies in the event of a bankruptcy of the set aside custodian. Would the funds be lost? Would the funds be exposed to bankruptcy creditor claims? Before entering into a custodial arrangement, you as counsel for the injury victim, should investigate the financial security of the custodian; status of bond or insurance on performance as custodian; whether the injury victim’s MSA funds will be fully insured; past performance of investments and whether there is any history of legal or financial problems related to set aside administration.

A better alternative is the creation of a Medicare Set Aside trust (“MSAT”) agreement. Synergy’s MSAT is a formal trust agreement administered by a corporate trustee paired with a professional Medicare Set Aside administrator. With an MSAT, you get a trustee that has a fiduciary duty paired with a set aside administrator who can handle the intricacies of managing set aside funds and reporting to CMS. If the trustee or administrator can no longer perform their duties, a new trustee or administrator may be appointed but the fidicuciary obligations and creditor protections of the trust remain. Trusts are covered by state trust and fiduciary laws. Typically custodians don’t need any type of licensure whereas trust companies or banks do, which is another layer of protection for the injury victim’s funds.

There are some things that are important to recognize about set asides in general. First, the monies belong to the injury victim not Medicare. This means at death the unused funds go to the injury victim’s beneficiaries (assuming the custodial agreement or trust provide for this). When the injury victim dies, the set aside should be left “open” for 15-27 months since Medicare providers have a long period to bill for services rendered and there may be bills the set aside must pay. Second, the interest earned on the monies in the set aside are taxable but the set aside funds can be used to pay taxes. The interest is retained in the set aside and can’t be withdrawn. Third, if a settlement involves someone incompetent to handle their own affairs then obviously a professional administrator must be used. Fourth, if an injury victim is eligible for both Medicaid and Medicare then the set aside should be inside of a special needs trust to preserve all available benefits and professional administrator is necessary. Lastly, to date there are no “Medicare Set Aside police” monitoring set asides but if it is improperly administered then that can lead to a loss of coverage for injury related Medicare covered services. In the event of improper expenditures, the injury victim would have to replenish the set aside and exhaust those funds properly before getting Medicare coverage again for injury related care. Accordingly, it is vitally important to make sure the set aside is properly administered. Given the government’s increased efforts to enforce the Medicare Secondary Payer Act a la mandatory insurer reporting, CMS has more information than ever to make sure of proper enforcement.

Synergy provides professional MSA administration via a proprietary Medicare Set Aside Trust which is cost effective and provides the necessary safeguard for the money. In addition, Synergy can offer a pooled special needs trust/Medicare Set Aside option for dual eligible individuals. To learn more about what Synergy can do, contact us today at info@synergysettlements.com or 877.242.0022

Qualified Settlement Fund (QSF) Primer

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

Introduction

Assume you just settled a personal injury case for John Doe who is married to Jane. John has a significant brain injury and there are questions of competency. John was injured on the job but had a products liability claim which is the part of the case you resolved. He receives both Medicaid and Medicare benefits. Medicare and Medicaid both have substantial liens along with the Workers’ Compensation carrier. Jane has a consortium claim and there are issues of allocation of the settlement to deal with. A Medicare Set Aside may be necessary and a Special Needs Trust is a must to preserve his Medicaid eligibility. A structured settlement is being considered for part of the settlement proceeds.

What do you do when you settle a case likes this where your client is on public assistance, there are allocation issues, settlement planning issues must be addressed and there are liens to negotiate? Where can you “park” the money while you set up any necessary public benefit preservation trusts, determine allocation of the proceeds, figure out a financial plan and negotiate the liens? How can you get the money from the defendant immediately without ruining the client’s available settlement planning options? The answer to all of these questions is to use a Qualified Settlement Fund (“QSF” or “468B QSF”).

What is a QSF and Why Use One?
A QSF is a trust established to receive settlement proceeds from a defendant or group of defendants. Its primary purpose is to allocate the monies deposited into it amongst various claimants and disburse the funds based upon agreement of the parties or court order, if required. Upon disbursing all of the monies the QSF ceases to exist.

There are many reasons to use a QSF in a complicated settlement. Most importantly they are quite easy to establish. There are only three requirements for establishing a QSF. It must be created by a court order with continuing jurisdiction over the QSF.[i] The trust is set up to resolve tort or other legal claims prescribed by the Treasury regulations.[ii] Finally, it must be a trust under applicable state law.[iii] Any court, with or without jurisdiction over the matter, may sign the order creating the QSF and exert continuing jurisdiction over the trust.

The QSF is a temporary holding tank for the litigation settlement proceeds. It does not exist in perpetuity and is not meant to be a support trust for claimants. Instead, it exists for as long as there are allocation issues between the parties or planning that needs to be done prior to disbursement. It can exist for weeks, months or years sometimes. There is no limit on the duration of a QSF.

A QSF may hold benefits for all parties as it relates to taxes, timing of income and settlement planning needs. A tax-free structured settlement and a tax-deferred attorney fee structure can be properly created through the use of a QSF. The parties can influence timing of income through the use of a QSF. QSF claimants are typically not taxed on funds in the QSF until those funds are distributed (assuming the damages are taxable). A QSF also gives some extra time and flexibility for claimants to make decisions related to settlement planning issues.

The defendant receives an immediate tax deduction upon contributing the agreed upon amount to the QSF and is typically permanently released.[iv] This is a large benefit to the defendant as normally they can’t claim a deduction until the funds are received by the claimant which can be delayed in a complicated settlement. An important point is that the tax deduction for the defendant is not impacted by when distributions actually flow out of the QSF.

The tax treatment of QSFs is uncomplicated. A QSF is assigned its own Employer Identification Number from the IRS. A QSF is taxed on its modified gross income[v] (which does not include the initial deposit of money), at a maximum rate of 35%. Thus, it is taxed on accumulations to the principal from interest or dividends less deductions[vi] available which include administrative expenses.

Brief Legislative History
Qualified Settlement Funds grew out of Internal Revenue Code (“IRC”) Section 468B. IRC Section 468B was added to the Code by Congress as part of the Tax Reform Act of 1986[vii] and created Designated Settlement Funds (“DSF”). A DSF can be funded by or more defendants to make settlement payments to tort claimants. The DSF was fairly limited in the way it could be utilized and in 1993 passed regulations creating a new type of fund, Qualified Settlement Funds. There are fewer requirements to create a QSF than DSF and a QSF can address a broader range of legal claims with increased flexibility.

The DSF and QSF were originally created for use in mass tort litigation enabling a defendant to settle a claim by depositing money into a central fund that could then settle the claims with each individual plaintiff. The defendant could walk away from the settlement fund after its creation and funding, taking a deduction for the entire settlement amount in the year it was deposited.

However, the QSF is not limited to situations involving mass torts. A Qualified Settlement Fund can be used to settle cases of any value involving multiple plaintiffs including cases involving the personal injury victim with a derivatively injured spouse, child or parent. It can arguably be used in single plaintiff cases based upon the plain language of the Treasury Regulations implementing QSFs.

How it Works
Using a 468B Qualified Settlement Fund settlement proceeds can be placed into a QSF trust preserving the right to do a structured settlement and protecting public benefit eligibility temporarily. While the money is in the QSF, a financial settlement plan can be designed and liens can be negotiated. Additionally, if the settlement recipient is on public benefits the QSF avoids issues with receipt of the settlement, which could trigger a loss of public benefits. While the funds are in the QSF, there is time to create public benefit preservation trusts for the settlement recipient. A structured settlement or other financial products can then be set up to work in concert with a special needs trust or Medicare Set Aside so that the injured victim does not lose their public benefits.

IRS Code § 468B and Income Tax Regulations found at § 1.468B control the use of a QSF. These provisions provide that a defendant can make a qualifying payment to the QSF and economic performance would be accomplished, crucial for tax reasons to the defendant. Thus the QSF trustee can receive settlement proceeds allowing the defendant a current year deduction releasing them from the case. The QSF trustee can, after receiving the settlement proceeds, agree to pay a plaintiff future periodic payments, assign that obligation to a third party, and allow the plaintiff to receive tax-free payments under IRC § 104(a) (the provision excluding from gross income periodic payments from a structure).[viii] The transaction works exactly the same as it normally would when you have the defendant involved in the structured settlement transaction.

There are only three requirements under 468B to establish a QSF trust. First, the fund must be established pursuant to an order of a court and is subject to the continuing jurisdiction of the court. Second, it must be established to resolve one or more contested claims arising out of a tort. Third, the fund, account, or trust must be a trust under applicable state law.

As for the first requirement, any court may create a QSF by court order and exercise continuing jurisdiction. It can be the court that the underlying litigation is being heard by, but it does not have to be that court. The court does not have to have jurisdiction over the tort action to establish the QSF. A QSF is “established” once a court signs the order creating it and not before. Thus a QSF can’t be funded until it is properly established.

The Treasury Regulations implementing 468B require a QSF to be established to satisfy one or more claims arising out of a tort[ix]. However, Workers’ Compensation claims are specifically excluded from being the basis for establishing a QSF. As long as the QSF is established to resolve a claim involving a physical injury, other than a Workers’ Compensation claim, this requirement is easily established. The last requirement of the fund being a trust under applicable state law is simply satisfied by proper drafting of a trust and approval by the court.

In terms of the mechanics, it is easy to establish a QSF. First, a court must be petitioned to establish the QSF. The court is provided with the QSF trust document and an order to establish the trust. Once the order is signed, the defendant is instructed to make a check payable to the QSF and the defendant is given a cash release in return for the payment. The consideration for the release with the defendant is payment into the QSF thus the consideration recital should reflect payment to the QSF and not the injury victim.

In terms of timing of distributions from a QSF, that is dependent on the agreement amongst claimants or as ordered by a court. For example, if the case involves minor or incompetents the necessary court approvals would need to be obtained prior to disbursement of fund from the QSF just like they would if no QSF was involved. The QSF can provide a lump sum payment to the claimant(s); fund a SNT or MSA, pay liens and fund a structured settlement. If a structured settlement or an attorney fee structure is funded, the QSF replaces the defendant and the transaction is consummated just as any other structured settlement would be if a defendant were involved. Upon distribution of funds from the QSF, the trustee will obtain a release from the claimants for the distributions from the QSF evidencing the fact that the distribution resolved or satisfied the claimant’s claims against the QSF.

Once all funds have been distributed, the QSF ceases to exist. A court order is obtained closing the QSF and terminating the court’s jurisdiction over the QSF.

The Single Claimant QSF Question
QSF for single claimant cases has become commonplace today. However, there is some question of doubt whether a QSF can be used in a single claimant case.[x] The basis for the controversy is the assertion by some that money placed into a QSF for a single claimant triggers constructive receipt or economic benefit.[xi] If either of these is triggered, the monies would be attributed to the claimant from a tax perspective defeating one of the main purposes of establishing the QSF (timing of income and funding future periodic payments). The IRS, despite requests, has refused to comment or clarify this issue.

We are therefore left with the plain meaning of “one or more contested or uncontested claims” in the Treasure regulations relating to IRC 468B. The regulations say one or more. The only logical interpretation based upon the meaning of these words would be that it is permissible to establish a QSF for a single claimant.

Nevertheless, defendants may raise this issue in an attempt to prevent the creation of a QSF. This typically happens when future periodic payments will be funded from a QSF and relates frequently to issues over control of structured settlement funding. The bottom line is that if the defendant refuses to cooperate with funding a single claimant QSF for these reasons, it will be impossible to create the QSF unless a court orders a defendant to fund the QSF.

Advantages of a QSF from the Plaintiff’s Perspective
There are several advantages to utilizing a QSF from the plaintiff’s perspective. First, funding the QSF removes the defendant and defense counsel from the settlement process. It is very much like an all cash settlement in the eyes of the defendant. Once the Trustee receives the settlement money, economic performance has occurred and the defendant is out of the case. Second, the attorney’s fees and other expenses can be paid immediately from the 468B fund. Third, the 468B trust removes the defendant from process of allocating the settlement amounts between the various plaintiffs. Finally and probably most importantly, the time crunch is alleviated with regards to the lien negotiations, allocations, and probate proceedings. The plaintiffs can take their time, carefully considering the various financial decisions they must make and addressing public benefit preservation issues.

Conclusion

The end of a personal injury case is typically a rush to settlement which I call the “settlement time crunch”. There is enormous pressure to wrap up the case quickly to get the client compensated for their injuries. However, in the rush to finalize the settlement, things may be overlooked or important settlement planning issues may be missed. A Qualified Settlement Fund can be created to receive the settlement proceeds thereby giving everyone the time necessary to carefully plan for the future. Plaintiff counsel can get his or her fees and costs quickly. The funds are obtained from the defendant, they are released and the client’s settlement dollars can be procured quickly. The liens can be negotiated, allocation decisions can be made, public benefit preservation trusts can be implemented and settlement planning issues, including structured settlements, can be considered. The attorney’s option to structure his or her attorney fees is also preserved. The QSF is an important tool for trial lawyers to consider using in the appropriate case.

[i] Treas. Reg. §1.468B-1(c)(1).

[ii] Treas. Reg. §1.468B-1(c)(2).

[iii] Treas. Reg. §1.468B-1(c)(3).

[iv] See Treas. Reg. §1.468B-3(c).

[v] Treas. Reg. §1.468B-2(b)(1).

[vi] Treas. Reg. §1.468B-2(b)(2).

[vii] Tax Reform Act of 1986, Pub. L. No. 99-514; I.R.C. §1087(a)(7)(A), 100 Stat. 2085 (1986); I.R.C. §468B.

[viii] I.R.C. §104(a). Section 104(a) excludes from gross income personal physical injury recoveries paid in a lump sum or via future periodic payments. It excludes personal injury recoveries under 104(a)(2); Workers’ Compensation recoveries at 104(a)(1) and disability recoveries under 104(a)(3).

[ix] Treas. Reg. §1.468B-1(c)(2). There are other claims besides torts that a QSF may be used to resolve. According to the Treasury regulations, it can be used for CERCLA claims, breach of contract, violation of law or any other claims the Commissioner of the Internal Revenue service designates in a Revenue ruling or Revenue procedure. Id.

[x] See Dick Risk, A Case for the Urgent Need to Clarify Tax Treatment of a Qualified Settlement Fund Created for a Single Claimant, 23 Va. Tax Rev. 639 (2004); Robert Wood, Single-Claimant Qualified (468B) Settlement Funds? Tax Notes (January 5^th, 2009).

[xi] Constructive receipt is a tax doctrine which says a taxpayer has income for tax purposes when he has the unfettered vested right to receive funds immediately. Childs v. Commissioner, 103 T.C. 634, 654 (1994), Doc 94-10228, 94 TNT 223015, aff’d, 89 F.3d 856 (11^th Cir. 1996), Doc 96-19540, 96 TNT 133-7. According to the IRS, under the “economic benefit doctrine, a taxpayer using the cash receipts and disbursements method of accounting must include in gross income currently any financial or economic benefit derived from the absolute right to receive property in the future that has been irrevocably set aside for the taxpayer in a trust or fund.” IRS.gov, http://www.irs.gov/govt/tribes/article/0,,id=180235,00.html

A Primer on Medicare Set-Asides

By: Jason D. Lazarus & Rasa Fumagalli

It is important to start from the beginning when addressing the Medicare Secondary Payer Act (“MSP”) and Medicare Set Aside issues that may impact attorneys as well as injury victim clients. Some lawyers have a good deal of knowledge when it comes to Medicare Set-Asides and Medicare Secondary Payer compliance. Other lawyers have never heard of a Medicare set aside. In this post, we will give a basic overview of Medicare Set-Asides in the form of frequently asked questions.

You can also download a copy of our MSA decision tree below.

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What is a Medicare Set-Aside?

A Medicare Set Aside (hereinafter MSA) is a tool that an injury victim can utilize to preserve Medicare benefits by setting aside a portion of the settlement money in a segregated account to pay for future Medicare-covered items. The funds in the set aside can only be used for injury-related Medicare-covered expenses. Once the set-aside account is exhausted, the injury victim gets full Medicare coverage without Medicare ever looking to the remaining settlement dollars to provide for any Medicare-covered injury-related health care. In certain cases, Medicare may review and 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.

What is a Medicare Set-Aside according to the Centers for Medicare and Medicaid Services (hereinafter CMS)?

“The recommended method to protect Medicare’s interests is a . . . Medicare Set-aside Arrangement (MSA), which allocates a portion of the . . . settlement for future medical expenses. The amount of the set aside is determined on a case-by-case basis and should be reviewed by CMS, when appropriate. Once the CMS determined set aside amount is exhausted and accurately accounted for to CMS, Medicare will agree to pay primary for future Medicare covered expenses related to the . . . injury.”

Source: https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Workers-Compensation-Medicare-Set-Aside-Arrangements/WCMSA-Overview.html

What is the legal basis for why a Medicare Set-Aside should be considered?

“Section 1862(b)(2)(A)(ii) of the Social Security Act precludes Medicare payment for services to the extent that payment has been made or can reasonably be expected to be made promptly under liability insurance. This also governs Workers’ Compensation. 42 CFR 411.50 defines liability insurance. Anytime a settlement, judgment or award provides funds for future medical services, it can reasonably be expected that those funds are available to pay for Medicare-covered future services related to what was claimed and/or released in the settlement, judgment, or award. Thus, Medicare should not be billed for future services until those funds are exhausted by payments to providers for services that would otherwise be covered by Medicare.”

Sally Stalcup, MSP Regional Coordinator for the Centers for Medicare & Medicaid Services, Dallas, Texas

Does the passage of Section 111 of the Medicare, Medicaid, SCHIP Extension Act of 2007 (“MMSEA”) mandate the use of a Medicare Set-Aside in liability cases?

Absolutely not, the MMSEA has nothing to do with set asides. Since the passage of MMSEA, insurance carriers have only become more confused about Medicare compliance issues. CMS has made it abundantly clear the MMSEA is totally unrelated to Medicare Set Asides. Simply stated, the MMSEA imposes a mandatory insurer reporting requirement for responsible reporting entities (RRE), aka, the insurance carriers. The actual reporting requirement entails the insurance carriers letting CMS know about settlements involving Medicare beneficiaries. A failure to report may result in civil monetary penalties.

Who needs an MSA and why would one be necessary?

There are no guidelines or federal regulations pertaining to liability settlements, so we must look at the requirements used for worker’s compensation set-asides. Under current guidelines for a worker’s compensation settlement, an MSA is appropriate if the injury victim falls into one of the following two categories:

1. The injury victim is currently a Medicare beneficiary; or,

2. If the injury victim has a “reasonable expectation” of Medicare enrollment within 30 months of the settlement date. Examples of those who have a “reasonable expectation” are those who have qualified for SSDI benefits or have been turned down but are appealing that decision. It also includes those individuals who are 62 years and 6 months old (i.e., may be eligible for Medicare based upon his/her age within 30 months).

For personal injury claims, when the case settles, the burden of future medical care related to the accident is shifted from the insurance carrier to Medicare. Medicare, however, is always secondary to all forms of insurance and a settlement for a personal injury case establishes a primary payer. Accordingly, the burden of future injury-related medical care can’t be shifted to Medicare pursuant to the Medicare Secondary Payer Act. Assuming an injury victim falls into one of the two categories outlined above, the injury victim may need to establish an MSA. If Medicare’s future interests aren’t considered, an injury victim could lose Medicare coverage for all future injury-related care until the settlement is exhausted.

Who determines the amount of the Medicare Set-Aside?

A professional company like Synergy or an MSA expert, who specializes in allocations examines the medical records and makes recommendations based on the amount of care that is covered by Medicare. The professional hired to perform the allocation determines how much of the injury victim’s future medical care is covered by Medicare and then multiplies that by the remaining life expectancy to determine the amount of future injury-related care. In liability settlements, oftentimes a secondary reduction analysis will take place that looks to the ratio between the total potential case value and net settlement. This ratio is then applied to the initial future injury-related care projection to determine the apportioned Medicare set-aside that may be funded from the net settlement.

If a Medicare Set-Aside allocation is prepared, does it have to be submitted to CMS for their approval?

No. Again, we must look at the worker’s compensation guidelines since there is limited guidance for liability settlements. The Workers’ Compensation Reference guide recommends that CMS review the allocation amount if the settlement meets any of the following criteria:

1. If the injury victim is a current Medicare recipient and the settlement value exceeds $25,000.00.

2. If the injury victim has a “reasonable expectation” of Medicare enrollment within 30 months of the settlement date and the total settlement amount exceeds $250,000.00.

Even though CMS recommends submission of the allocation if the settlement meets these criteria, it is still a voluntary process. If a liability Medicare Set-Aside is submitted to CMS for review, you are likely to receive a letter from the CMS regional office stating, “We are currently not reviewing liability Medicare Set-Asides at this time”. The fact that a letter is received indicating CMS did not review the allocation amount does not create a safe harbor for any of the parties.

How is the Medicare 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 of the settlement proceeds must be set aside than using a periodic payment arrangement. Funding with future periodic payments via a structured settlement is a much more cost-effective way of funding the set-aside. When a set aside is funded with a lump sum, as soon as the account is exhausted Medicare begins to pay for the injury-related Medicare-covered 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 structured settlement 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 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. If the MSA is funded with a structured settlement annuity, the MSA is also funded with a lump sum amount called the “seed money”. This is an upfront cash distribution to be used for the first 1-2 years’ worth of expenses. The annuity payments typically will begin one year from the anniversary date of the settlement.

Why is a rated age with a structured settlement so important to the funding/cost of the 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 a rated age is received it means that the life insurance company has decided that a person’s life expectancy is less than normal due to their medical conditions and accordingly allows the annuity to be priced as if that person 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 in a worker’s compensation Medicare Set-Aside. This is so because set-asides are calculated over remaining normal life expectancy. If the life expectancy is shorter, less 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 the MSA be funded 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 against loss of Medicaid eligibility?

No. An MSA only protects future Medicare eligibility. If a client receives 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 the claimant is no longer entitled to Medicare, can they withdraw funds from the MSA?

No. The claimant is not entitled to release the MSA funds if they lose Medicare entitlement. However, the funds in the MSA may be expended for medical expenses specified in the MSA agreement until Medicare entitlement is re-established or the MSA is exhausted.

Conclusion:

Medicare Set-Asides are becoming more prevalent in settling worker’s compensation and liability claims. It is important to educate all parties on why they should consider Medicare’s future interests in order to protect their ongoing eligibility for post-settlement injury-related care. All parties should be very leery of MSA vendors who indicate a formal MSA is always required. That being said, parties should take steps to set aside a reasonable amount of the settlement proceeds to consider Medicare’s future interests in the appropriate case. If a lawyer recommends a set-aside and the client refuses to implement one, the lawyer should make sure to document the file regarding what was done to educate the client and the reasons for the refusal.

Synergy provides a full range of Medicare Secondary Payer compliance services including Medicare Expert Case Evaluations (MECE), MSA review, MSA allocations, CMS submission of WCMSAs, and Medicare conditional payment resolution. At Synergy, we’re not just a service provider—we’re your strategic partner in Medicare compliance, seamlessly integrating with your firm to boost efficiency from day one. We take on Medicare compliance issues while your firm focuses on securing justice for more clients. Working with Synergy’s Medicare compliance experts leads to better resolution outcomes and improved client experiences. Equally as important, our team frees your staff from Medicare compliance tasks leading to greater utilization rates for the firm’s attorneys as well as paralegals. That translates into more revenue for your law practice. Find out more by clicking here.

A Timeline for Medicare Lien Resolution with MSPRC

MSPRC Resolution Timeline*

CMS has revamped the Medicare recovery process, creating a more efficient and less questionable path for the verification of Medicare conditional payments. Based on a compilation of facts from www.MSPRC.info, Medicare Correspondence, and daily interaction with MSPRC, we have created a timeline to a serve as a general guide to the Medicare Resolution Process, and what can be expected by all parties entering a settlement with a possible Medicare obligation.

The following is an approximate timeline for the Medicare recovery process*:

Day 1: Report to Coordination of Benefits Contractor (COBC) by calling 1(800)999-1118.
Day 2 – 12: The case is transferred to the Medicare Secondary Payer Contractor (MSPRC) from the COBC within 2 weeks.
Day 14-21: Within (7) days of the record being created in the MSPRC’s database, a Rights and Responsibility (RAR) letter will be sent to the beneficiary and their attorney.
The MSPRC will begin their claim retrieval process, which takes approximately 8 weeks.
Day 30 – 65: Effective October 1, 2009 the MSPRC will issue a conditional payment letter to the beneficiary and all authorized parties reflecting Medicare’s recovery amount within (65) days of the date of the RAR.
An updated conditional payment amount can only be requested every 90 days.
Day 66 – 95: Once all settlement information has been provided to the MSPRC, the demand should be issued within 10 – 30 days.

Synergy can assist in the resolution of Medicare liens. Contact us at info@synergysettlements.com or by calling us at (877)907-5436 for more information on how we can help.

*The estimated turnaround times for Medicare Conditional Payment summaries and Final Demands can vary and may be prolonged due to volume as a result of the newly implemented reporting requirements under MMSEA Section 111. Further instruction on the Medicare Secondary Payer process is found on www.msprc.info.