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.

CMS Update- MMSEA Section 111

CMS has made the following updates to the MMSEA section of the CMS website: http://www.cms.gov/

September 30, 2010

Posted the September 22, 2010 NGHP Town Hall Teleconference Transcript to the NGHP Transcripts section page.
Moved the January 28, 2010 NGHP Town Hall Teleconference Transcript to the Mandatory Insurer Reporting section page under NGHP Transcripts.
Moved the May 26, 2009 Alert: Compliance Guidance Regarding Obtaining Individual HICNs and/or SSNs for Group Health Plan from the What’s New section page to the GHP Alerts section page.
Moved the August 24, 2009 – HICN, SSN Collection – NGHP Model Language from the What’s New section page to the NGHP section page.
Moved the August 24, 2009 Alert – Compliance Guidance Regarding Obtaining Individual HICNs and/or SSNs for NGHP Reporting from the What’s New section page to the MMSEA 111 Alerts section page.
Moved the May 27, 2010 – May 27, 2010 – Updating Language – ALERT For Liability Insurance (including Self-Insurance), No-Fault Insurance, and Workers’ Compensation RREs – Periodic Workers’ Compensation and No-Fault Payments from the What’s New section page to the MMSEA 111 Alerts section page.

Synergy can assist your firm with Medicare Compliance and understanding MMSEA Section 111 Reporting Requirements. Contact us today for more information on how we can benefit your firm! (877)907-5436 / info@synergysettlements.com.

Ask a Lien Professional: Can the VA Recover from UM Coverage?

Question:

Do the VA subrogation rights apply to UM coverage, or do they only apply to the responsible third-party?

Answer:

The right of the VA to recovery from UM is not a definite yes or no answer.

When the VA cannot recover:

In researching UM recovery in VA cases, we have to look to the language within the UM plan. According to Government Employees Insurance Co. v. Andujar, 773 F.Supp. 282, it was determined that the ability of the US (more…)

Malpractice – Medicare will not pay for “Hospital Acquired Conditions a.k.a “Never Events”

In CMS’ efforts to improve the quality of care, as of October 1, 2008 Medicare will not pay for certain injuries/conditions acquired during inpatient care, these injuries/conditions have been named by CMS as “never events” or “hospital acquired conditions” (HACs). CMS has advised state Medicaid Agencies to amend their statutory language to ensure that payment is not made through Medicaid for those beneficiaries that may have dual eligibility.

On February 8, 2006 President George Bush signed the Deficit Reduction Act (DRA) of 2005. Pursuant to Section 5001(c) of DRA the Secretary must identify the following conditions:“(a) high cost or high volume or both,

(b) result in the assignment of a case to a DRG that has a higher payment when present as a secondary diagnosis, and

If any of the following conditions was not present at the time of admission additional payment will not be made by Medicare. In an attempt to enforce this rule CMS has created POA, which is a coding mechanism used to indicate when a HAC was present to prevent Medicare from being the responsible payer.

For FY 2009 the 10 categories of HACs include:

Foreign Object Retained After Surgery
Air Embolism
Blood Incompatibility
Stage III and IV Pressure Ulcers
Falls and Trauma
- Fractures
- Dislocations
- Intracranial Injuries
- Crushing Injuries
- Burns
- Electric Shock
Manifestations of Poor Glycemic Control
- Diabetic Ketoacidosis
- Nonketotic Hyperosmolar Coma
- Hypoglycemic Coma
- Secondary Diabetes with Ketoacidosis
- Secondary Diabetes with Hyperosmolarity
Catheter-Associated Urinary Tract Infection (UTI)
Vascular Catheter-Associated Infection
Surgical Site Infection Following:
- Coronary Artery Bypass Graft (CABG) – Mediastinitis
- Bariatric Surgery
  - Laparoscopic Gastric Bypass
  - Gastroenterostomy
  - Laparoscopic Gastric Restrictive Surgery
- Orthopedic Procedures
  - Spine
  - Neck
  - Shoulder
  - Elbow
Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)

Total Knee Replacement
Hip Replacement

CMS has opted to leave the list of HACs for FY 2010 unchanged. CMS will take this time to evaluate the program in order to assist with future decision making of the program.

Lien Settlement Solutions can assist your firm in understanding the changes in Medicare policies and guidelines. Call us today for more information on Medicare and Compliance at (877)907-5436 or email us at info@lienss.com. We are the Lawyer’s Complete Solution to Lien Resolution!

Ask A Lien Professional – Wrongful Death and Medicare

Question: “I am the executor of estate on behalf of my mother who was a Medicare beneficiary. This is a wrongful death case, so does Medicare have a lien in this situation?” – Florida Resident

Answer: According to the Medicare Secondary Payer Manual (Chapter 50.5.4.1.1), Medicare’s right to recover against a wrongful death claim depends on two things, 1. The beneficiary’s state of residence, and if the state law allows for the recovery of medical expenses in a wrongful death claim, and 2. If the state’s law allows for recovery of medical claims, the amount Medicare is entitled to recover against may vary (full recovery in some states, limited recovery in others). So basically, depending on where the beneficiary lived, there may or may not be an obligation to Medicare. Some states do not allow for the recovery of medical payments, so in those states Medicare cannot assert a claim against the deceased beneficiary or survivors.

I assume that you are in Florida, so I reviewed the Florida Wrongful Death Act (FL §768.14 – 768.26) in this state. In §768.21(6)(b) it states that medical expenses that have been charged to the estate are recoverable, and § 768.21(7) states, “All awards for the decedents estate are subject to claims of creditors who have complied with the requirements of probate law concerning claims”. Therefore, in Florida, Medicare does have a right to recover their claim against the estate of the beneficiary in a wrongful death case. My suggestion is that you discuss this matter with a probate attorney for further clarification on how to proceed in this case. Be advised that this is only a general response to your question, and should not be viewed as specific legal advice, as I am not an attorney. I hope this is helpful to you in your research. Please contact us at Lien Settlement Solutions have any more questions.

Lien Settlement Solutions has professionals that can assist with questions of compliance and lien validity in cases of Wrongful Death, Malpractice, Workers Compensation, and Liability. Feel free to call us with your questions at (877) 907-5436 or email at info@lienss.com!

Insurers Request for Plaintiff Social Security Number

CMS finds insurers requests for SSN’s appropriate for Section 111 MMSEA purposes: http://www.cms.gov/MandatoryInsRep/Downloads/RevisedCollectionSSNEINs.pdf

In order for CMS to accurately coordinate payments made by Medicare to ensure appropriate payment, Medicare requires the HICN (Health Insurance Claim Number) or the SSN and the EIN (Employer Identification Number). Medicare has collected this information from beneficiaries since the inception of the Medicare program. This information is used for the administration of the Medicare program, the beneficiaries personal information is protected by the Privacy Act of 1974 and the Health Insurance Portability and Accountability Act Privacy Rule.

CMS’ clarification of the appropriateness of request/release of this information arises from overwhelming concerns of the plaintiff and plaintiff attorneys. What will the defense do with this information once it has been provided? Section 111 requires the SSN if the HICN is unavailable if the insurers are unable to report to the COBC (Coordination of Benefits Contractor). Could the “plaintiff” be found non compliant under Section 111 for not providing the requested information for accurate reporting of claims? This is yet to be determined.

As stated by CMS the, “collection of HICN’s, SSN’s, and EIN’s for purposes of compliance with the reporting requirements under Section 111 of Public Law 100-173 is appropriate.”

Lien Settlement Solutions can assist your firm in navigating MMSEA Guidelines and Medicare Compliance. For more information about Medicare Compliance and Lien Resolution, contact us at 1(877)907-5436 or info@lienss.com.