By B. Joshua Pettingill & Jason D. Lazarus
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.
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 Medicare covered expenses for injury related 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. Originally, this reporting requirement was supposed to take effect in 2009. However, it has now been pushed back to the first calendar quarter of 2012. Reporting will be retroactive to 10/1/2011 when it does start in first quarter 2012.
Who needs an MSA and why would one be necessary?
There are no guidelines or federal regulations pertaining to liability settlements, so we have to 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 a 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 is always secondary to all forms of insurance and a settlement for a personal injury cases definitively 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 outline above, the injury victim may need to establish an MSA. If Medicare’s future interests aren’t protected, an injury victim could lose Medicare coverage for all future injury related care.
Who determines the amount of the Medicare Set Aside?
A professional company like MSA Settlement Solutions 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 suggested amount of the set aside. Medicare does not necessarily simply accept the allocation recommendation. If an MSA is submitted to CMS for review/approval, Medicare could require more or less to be set aside than the amount suggested in the MSA allocation.
If a Medicare Set Aside allocation is prepared, does it have to be submitted to CMS for their approval?
No. Again, we have to look at the worker’s compensation guidelines since none exist outside of comp. It is recommended 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 $25k
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
Even though, CMS recommends submission of the allocation if the settlement meets these criteria, it is still a voluntary process in both worker’s compensation and liability settlements. If a liability MSA allocation is submitted to CMS for approval, there is no guarantee CMS will review it. Currently, there are only a handful of regional offices who are reviewing liability set asides. More often than not, a letter is received back 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 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 work 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 paying 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. This is so because set asides are calculated over remaining normal life expectancy. If the life expectancy is shorter, less has to 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 and mentions their use in their memorandums.
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.
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 protecting Medicare’s future interests. 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 protect 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 this particular issue. Synergy can provide lawyers and law firms with a sample waiver form indicating that the client had the obligation regarding protecting Medicare’s future interests explained to them and they have declined the option to establish an MSA.
Synergy provides a full range of Medicare Secondary Payer compliance services including MSA allocations, MSA professional administration and Medicare conditional payment resolution. Find out more by visiting www.msasettlementsolutions.com