The Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA), which
became effective on July 1, 2009, made significant changes to the Medicare Secondary Payer Statute (42 U.S.C. § 1395y). Particularly, Section 111 of MMSEA imposes strict reporting requirements on liability insurance plans, no-fault insurance plans and workers' compensation plans. These plans are now required to submit information about settlements of personal injury claims to The Center for Medicare and Medicaid Services (CMS). Penalties for non-compliance can be a high as $1,000 per person for each day of noncompliance.
The CMS takes the position that any settlement of a personal injury claim that extinguishes liability for future medical expenses in a claim against a primary payer represents a situation in which "payment has been made" for an item or service otherwise covered by Medicare. Thus, Medicare should not be required to provide future coverage for those items or services until the payment has been exhausted on future medical expenses recovered for the injury. This is true whether the primary payer is a worker's compensation plan, an automobile or liability insurance plan, or no fault insurance (including self-insured plans). CMS requires that its interests as secondary payer be "reasonably considered" in the settlement of any claim for medical expenses against a primary payer.
Several years ago, the Center for Medicare and Medicaid Services (CMS) published a memo outlining the policies and procedures for dealing with Workers' Compensation Medicare Set-Aside Arrangements (WCMSA). The basic premise of a WCMSA is taken from the Medicare Secondary Payer statute. The Medicare Secondary Payer (MSP) statute sets forth Medicare's status as secondary payer to any claim covered by a workers' compensation carrier or a self-insured employer. If a workers' compensation claim is settled and the settlement includes compensation for future medical expenses, then CMS refers to the case as a "WC commutation case." Medicare takes the position that by releasing the workers' compensation carrier from liability for future medical expenses, in reality, the settling person is transferring the liability for coverage of such future medical expenses to the Medicare program. Therefore, the CMS requires that any money paid to settle the future medical must be spent on medical expenses related to the injury before Medicare will resume coverage.
With a Medicare Set-Aside (MSA) arrangement, a portion of the workers' compensation claim settlement is set-aside and applied to future medical expenses which would otherwise be covered by Medicare. Only after this amount has been depleted from the MSA will Medicare begin to pay for medical care related to the injury. However, it is important to know that MSAs are not specifically required by federal law. The CMS has simply indicated that an MSA is its preferred way of "protecting Medicare's interest."
It is generally known that if a case is settled for a Medicare beneficiary and Medicare has covered injury-related medical expenses, then Medicare will have a claim to be reimbursed for any past medical bills that are part of a recovery from the responsible party. In the past Medicare was not asserting a claim for payment of future medical expenses outside the context of a WC commutation case. This is no longer the case. Medicare points to the MSP to support its policy that Medicare retains its secondary payer status after the settlement of any personal injury claim where the settlement or judgment extinguishes liability for future medical expenses.
The determination of how much money to place in the MSA remains a complicated issue that requires consideration of factors such as, life care plans, the "rated age" of the Beneficiary, and evaluation of the documentation that projects expenses for Medicare covered services and services not covered by Medicare.
The CMS guidelines require that all injury related medical expenses, including prescription drug costs, be calculated for the claimant's lifetime. The set-aside amount is determined by evaluating the claimant's past course of medical treatment, current condition, the reasonable probability of future medical needs and other factors based upon the claimant's medical history, life care plan, and physician statement. The set-aside amount must be calculated for the claimant's actual life expectancy unless a life insurance company will provide a rated or reduced age due to the claimant's medical condition. The MSA cannot be reduced by the costs related to the establishment of the MSA.
In order for an MSA allocation to be binding on CMS, it must be reviewed and approved. If an allocation is reviewed and approved by CMS, then Medicare will be bound by the MSA allocation and cannot require additional funds from the beneficiary in the future. However, that if CMS rejects the proposed MSA allocation, there is no formal appeal process to contest the rejection. The only alternative is to submit a bill to Medicare and have the bill denied and then pursue the appeals process through the regular administrative appeals process that exists for the denial of any "regular" Medicare billing denial.
Once an agreement is reached on the amount of MSA funding, the administration of the MSA must be handled such that only medical expenses that would be covered by Medicare will be paid from the account. The expertise to supervise the disbursements of the funds for Medicare covered medical expenses requires the knowledge of a medical claims administrator who is experienced in Medicare billing and the codes that Medicare uses to delineate various medical procedures and claims. The Medicare billing codes are difficult and the MSA rules are complex. If a person makes a mistake, the MSA beneficiary risks losing Medicare coverage. CMS requires annual reports for MSA accounts and can also require an MSA audit. If an MSA is out of compliance, the beneficiary will be required to compensate for any MSA deficiencies before Medicare will resume coverage.
The goal in preparing an MSA is to create and fund a trust or agreement with an amount of money that will be used to pay for future Medicare-covered medical care that is related to the injury for which the beneficiary received in a settlement of a claim. Once the money awarded to the beneficiary for future medical expenses is spent on expenses that Medicare would normally cover then Medicare will cover other medical expenses related to the injury. If CMS approved the MSA allocation, and the approved amount is less than adequate to cover costs over the beneficiary's lifetime, then Medicare will begin coverage when the MSA is exhausted. If CMS did not approve the allocation and the MSA is exhausted during a beneficiary's lifetime, Medicare may begin covering settlement-related expenses, but is not required to do so.
Because of the precarious position that a Medicare beneficiary may be placed in if Medicare refuses payment for emergency medical care or other vital treatment, it is extremely important that counsel for any settling beneficiary make sure that these issues are carefully addressed.
Note: The Law Office of Stephen O'Rear, P.C. does not claim to have any special expertise in handling Medicare Set Asides. This article contains a synopsis of the information presented in a paper prepared by Pi-Yi Mayo, Attorney at Law and presented at the State Bar of Texas 4th Annual Damages in Civil Litigation Conference in Dallas, Texas on February 16-17, 2012 and is being posted for informational purposes only.