For Attorneys

What is Medicare and the MSP?
Medicare is a federal health insurance program. Medicare entitlement comes 2 years after the date of disability under Social Security’s definition. Medicare coverage is available again without regard to the client’s finances.

If a client is covered by Medicare, you have to worry about the Medicare Secondary Payer (MSP) statute. The MSP is a series of statutory provisions enacted during the 1980s as part of the Omnibus Reconciliation Act with the goal of reducing federal health care costs. The MSP provides that if a primary payer exists, Medicare only pays for medical treatment relating to an injury to the extent that the primary payer does not pay. CFR Title 42, Part 411, Subpart B, Section 411.20 (2) provides “[s]ection 1862(b)(2)(A)(ii) of the Act precludes Medicare payments for services to the extent that payment has been made or can reasonably be expected to be made promptly under any of the following” (i) Workers’ compensation; (ii) Liability insurance; (iii) No-fault insurance. There are two issues that the MSP deals with: (1) Medicare payments made prior to the date of settlement and (2) future Medicare payments for covered services. Enforcement of the MSP as it pertains to future Medicare covered services began back in 2001 when the Centers for Medicare and Medicaid announced in a memorandum the requirement to set aside a portion of Workers’ Compensation settlements allocated to future Medicare covered expenses. This memo was the genesis of a whole new industry – Medicare Set Aside professionals who do allocation and administration of Medicare Set Asides. Recently, there have been some developments that indicate that the MSP may be enforced to a greater extent in liability settlements as well for future Medicare covered expenses.

What is a Medicare Set Aside?
A Medicare set aside (hereinafter 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 health care.  Medicare approves the amount to be set aside in writing and agrees to be responsible for all future expenses once the set aside funds are depleted. 

When is a Medicare Set Aside Necessary?
At present, if a client has a workers' compensation claim that is settled either on its own or in conjunction with a third party claim, there may be a need for a Medicare Set Aside to preserve their future eligibility for Medicare benefits. While I referred to a Medicare Set Aside as a trust, there is no requirement that it be a trust. A MSA must be considered if the claimant is Medicare eligible or there is a reasonable expectation to be Medicare eligible within 30 months of the settlement. A Medicare set aside allows a claimant to preserve Medicare benefits by negotiating an allocation of the settlement to Medicare covered expenses and requires those funds to be placed in a segregated account. Once the set aside account is exhausted, the claimant gets full Medicare coverage without Medicare ever looking to the claimant’s remaining settlement dollars to provide for his or her care. As a starting point, any workers’ compensation settlement must be examined by the Centers for Medicare & Medicaid Services (CMS) if the claimant currently receives Medicare and the settlement amount is greater than $25,000. CMS must also review any workers compensation settlement if there is a “reasonable expectation” of Medicare enrollment within 30 months of settlement and the anticipated total settlement amount over the life or duration of agreement is greater than $250,000.

Are Medicare Set Asides Necessary in Liability Cases?
There are no guidelines or formal review process for liability settlements at this time. However, according to CMS:

"[u]nder the Medicare Secondary Payer provisions, Medicare is always secondary to workers’ compensation and other insurance such as no-fault and liability insurance. Accordingly, all beneficiaries and claimants must consider and protect Medicare’s interest when settling any workers’ compensation case; even if review thresholds are not met, Medicare’s interest must always be considered."

CMS has also said:

“Third party liability insurance proceeds are also primary to Medicare. To the extent that a liability settlement is made that relieves a Workers' Compensation (WC) carrier from any future medical expenses, a CMS approved Workers' Compensation Medicare Set-aside Arrangement (WCMSA) is appropriate”.

If you have a settlement that is non-workers' compensation but involves a Medicare beneficiary you should consider protecting Medicare's interest under the MSP and the only known way to do that is with an MSA.

What is the Legal Basis for Medicare Set Asides?
42 CFR 411.46 - Lump-sum payments.

(a) Lump-sum commutation of future benefits. If a lump-sum compensation award stipulates that the amount paid is intended to compensate the individual for all future medical expenses required because of the work-related injury or disease, Medicare payments for such services are excluded until medical expenses related to the injury or disease equal the amount of the lump-sum payment.

(d) (2) If the settlement agreement allocates certain amounts for specific future medical services, Medicare does not pay for those services until medical expenses related to the injury or disease equal the amount of the lump-sum settlement allocated to future medical expenses.

What are the Ethical and Legal Considerations regarding Medicare Set-aside Arrangements? According to CMS, when an attorney's client effectively ignores Medicare's interests in a WC case, the attorney should consult their national, state, and local bar associations for information regarding their ethical and legal obligations. Additionally, attorneys should review applicable statutes and regulations, including, but not limited to, 42 CFR 411.24(e) and 411.26.

When do I need to consider obtaining a Medicare Set-Aside Arrangement?
(Test 1) If the claimant is currently a Medicare beneficiary AND the settlement exceeds $25,000;

— OR —

(Test 2) The claimant has a reasonable expectation of becoming entitled to Medicare within 30 months AND the total settlement exceeds $250,000.

How can a Medicare Set Aside be Funded?
A set aside may be funded with a lump sum or structured settlement.  The advantage to funding it with a structured settlement is that it typically reduces the amount that has to be set aside substantially.  In addition, a structured settlement “rated age” can be used as evidence of reduced life expectancy which also results in a lower figure for the set aside.  When a structured settlement is used to fund a set aside it operates similar to a deductible.  Each year a payment is made from the structured settlement annuity into the set aside, that payment (plus any accumulation from past years) must be spent down before Medicare will pay for services.  Because structured settlements are tax-free and reduce the amount of the set aside dramatically, they should be considered in nearly every set aside arrangement. 

How does CMS evaluate the sufficiency of a Medicare Set-Aside Arrangement? 
Medicare considers the sufficiency of an arrangement on a case-by-case basis. Some factors they consider include: basis for entitlement to Medicare benefits, nature and extent of the injury, age and workers' compensation classification of the beneficiary, prior medical expenses paid by the insurance carrier, and the total amount of the settlement. MSA Settlement Solutions’ staff of nurses thoroughly reviews the medical records, consults with the settling parties and treating physicians, and ultimately makes a recommendation that we believe will adequately protect Medicare's interests. 

How long does it take to obtain CMS approval?
As of March 2008, CMS takes anywhere from 2-6 months to review and approve a case. It is important to plan ahead and get the process moving forward if it is determined that a Medicare Set-Aside arrangement is needed.

What happens if I do not get CMS approval on a claim that meets the criteria for a Set-Aside Arrangement?  
CMS has a direct priority right of recovery against any entity including a beneficiary, provider, supplier, physician, attorney, state agency, or private insurer that has received any portion of a third party payment directly or indirectly. CMS also has a subrogation right with respect to any such third party payment. In layman's terms, if you make or receive any payments and fail to protect Medicare's interest, you can be held liable by Medicare.

Additionally, if you fail to get CMS approval and Medicare deems the settlement an intentional attempt to shift the burden of treatment to Medicare, Medicare may apportion the entire settlement to future Medicare expenses and refuse to pay any Medicare covered medical expense until the entirety of the settlement is exhausted on the treatment of the injury.

 When Are MSAs Needed?
 Prior to settlement agreement.** 
 ** Centers for Medicare and Medicaid Services (CMS) should be consulted regarding adequacy of proposed MSA funding in order to provide protection from future (post settlement) expenses. Pre-settlement conditional payments made by Medicare are subject to reimbursement.

How long will it take for completion of a Medicare Set-Aside Allocation report?
Once the information needed for completion is received, you will receive the Medicare Set-Aside report from MSA Settlement Solutions in 14 days or less. Rush reports are also available upon request for an additional fee.

What items are needed if CMS approval is requested?
In addition to the above requirements, we will need the following items to obtain CMS for approval of the MSA:

1. CMS/Medicare release signed by claimant
2. Method of administering the MSA (self or professional)
3. Method of funding MSA (annuity or lump sum)