Medicare’s focus on liability settlements is increasing. The Medicare Secondary Payer Act requires settling parties to consider Medicare’s interest as the secondary payer when liability (including self-insurance) or no-fault or worker’s compensation insurance coverage is the primary payer for medical items and expenses otherwise covered by Medicare. All parties to the settlement, including the attorney, face adverse legal and financial exposure if potential Medicare issues are not resolved.
The Centers for Medicare & Medicaid Services (CMS) recommended method for protecting Medicare’s interest is to obtain a financial report known as a Medicare Set-Aside allocation (MSA) that details the anticipated future Medicare items and expenses relating to the claimant’s injury. While an MSA can be funded with a cash lump sum, a tax-free annuity from a structured settlement provides a more efficient option to pay the future annual deposits outlined in the MSA report. A structured MSA offers immediate financial benefits to settling parties and recurring guaranteed payments that help claimants avoid premature dissipation and mismanagement of funds.
THE MEDICARE SECONDARY PAYER ACT (MSP)
Historically, parties to worker’s compensation and liability claims would settle and pass the related medical bills on to Medicare. Today, pursuant to 42 U.S.C. 1395y (b)(2)(A)(ii), Medicare is expressly prohibited from making conditional payments for medical services after they are paid, or reasonably expected to be paid, by a liability carrier through settlement, judgment or award. This includes past conditional payments and anticipated future medical expenses.
Conditional payments must be re-imbursed. If the settlement fails to provide reimbursement and/or primary payment, CMS may apply interest or exercise Medicare’s right of recovery and assess double damages. This right of recovery extends to any or all settling parties, including the claimant and their attorney, and does not require a finding of liability. The Claimant may also experience a disruption or loss of Medicare Benefits.
PROTECTING MEDICARE’S INTERESTS
So how do attorneys protect future Medicare interests when preparing for settlement? CMS recommends a Medicare Set-Aside allocation. This report details the Medicare covered items and expenses resulting from the settlement-related injury and projects those costs over the claimant’s life expectancy. The MSA amount is comprised of an initial deposit and a series of replenishing annual deposits into a dedicated MSA account set-aside from the remaining settlement proceeds.
Funding the MSA with a structured settlement annuity reduces the present-day cost of future annual payments without reducing the total MSA amount. The cost and payout difference may be kept by defendant party and/or the claimant as negotiated. Per CMS, funds must be kept in a separate interest-bearing account with records maintained for auditing purposes. Optional to the parties for a nominal fee, professional administration companies will handle the MSA account billing, provide CMS reporting and offer discounted pricing on prescriptions and certain medical equipment and services.
Plaintiffs and Defendants may secure their own MSA report for negotiations. If settlement is reached, the agreed upon MSA may be submitted to CMS for review. CMS will approve the MSA or recommend a higher or lower total amount.
Alternatively, future medical expenses may be set aside as a line item in the Release to show Medicare’s interests were considered. A structured settlement consultant can determine a settlement plan that allocates the lump sum for future medical expenses as periodic payments over time. This reduces the amount needed to be set aside at settlement and frees up additional funds for the claimant to use for other needs.
FOCUS ON LIABILITY SETTLEMENTS
Historically, CMS has been very active in worker’s compensation settlements and has published guidelines for when a WCMSA should be submitted for review, particularly for claimants who are current Medicare beneficiaries or have a reasonable expectation of becoming a Medicare beneficiary.
CMS has not published review thresholds for liability (LMSA) and no-fault (NFMSA) MSAs to date. However, CMS has issued a proposal to expand reviews of liability and no-fault claims and instructed its contractors to begin modifying their data systems to incorporate reporting for these MSAs. CMS also published a Request for Proposal for the Workers’ Compensation Review Contractor, stating that it would possibly require the new contractor to manage a voluntary review process for LMSAs and NFMSAs.
Even without formal guidance, the MSP statute requires all parties to take Medicare’s interest into account when settling liability claims. Nathan Evans