Medicare Set-Asides
A Medicare Set-Aside (MSA) is a tool that allows injury victims to preserve Medicare benefits by setting aside a portion of the settlement money in a segregated account to pay for future Medicare covered services. The funds in the set aside can only be used for Medicare covered expenses for injury related care. Once the set aside account is exhausted, an injury victim gets full Medicare coverage without Medicare ever looking to the remaining settlement dollars to provide for any Medicare covered future health care. Medicare may approve the amount to be set aside in writing and agree to be responsible for all future expenses once the set aside funds are depleted if the parties choose to submit the allocation to CMS for review and it a reviewable MSA. Advising injury victims about Medicare compliance and set asides are an integral part of the responsibilities of a trial lawyer at settlement.
Below are our Synergy InSights on all things related to MSAs, written by our industry leading Medicare compliance experts.
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 11th 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
CMS Region 6 issued a memorandum on liability Medicare set asides (“LMSA”) which has some useful information but has limited application outside of Texas, Oklahoma, New Mexico, Louisiana and Arkansas.
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.
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.
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
When a Medicare Set Aside is implemented, there are different options as far as how they are administered. The injury victim can self administer the set aside. In the alternative, a professional administrator can be hired. This may be through a custodial arrangement or a trust.
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.
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.”
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.
Medicare Set Asides and Medicare Secondary Payer Compliance are both very tricky areas of the law. This post provides some basic insights into set aside arrangements.
BLOGS
READY TO SCHEDULE A CONSULTATION?
The Synergy team will work diligently to ensure your case gets the attention it deserves. Contact one of our legal experts and get a professional review of your case today.
