Medicare Set Asides in Personal Injury Liability Cases

There is much discussion taking place today concerning whether or not Medicare Set Asides are required in personal injury cases. The answer seems to be No, but the consequences of being wrong have many in the personal injury business, lawyers and insurance companies alike, greatly concerned.

The Medicare Secondary Payer Act of 1980 (“MSP”) was enacted to keep taxpayers from footing past and future medical expenses through Medicare that were provided through primary sources such as workers’ compensation insurance. Congress learned that Medicare was covering these expenses even though those receiving the benefits were also receiving compensation for the same benefits from primary sources.

Until 2010, the MSP’s main focus was on workers’ compensation cases. Injured workers were expected to reimburse Medicare and pay for future medical care related to their accidents from money received through workers’ compensation settlements. Although liability claimants were expected to reimburse Medicare for benefits paid, no issue was made with regard to future benefits.

In 2010, representatives from The Centers for Medicare and Medicaid Services (“CMS”), the federal agency responsible for administering Medicare and Medicaid (as well as a host of other federal programs ) within the Department of Health and Human Services, began suggesting that the MSP applied to future medical services in liability cases. It was pointed out that statutory language with regard to workers’ compensation and liability cases was the same. Speaking about liability cases, Barbara Wright of CMS stated: “So where future medicals are a consideration in arriving at the settlement, appropriate arrangements should be made for appropriate exhaustion of the settlement before Medicare is billed for related services.”

Although the statement was made at a town hall meeting, instead of by formal agency rule making like the Code of Federal Regulations, many concerned parties began to believe that MSA’s were now required in liability cases. Whether this statement and others that have followed have the same force of law as formally issued regulations is creating tremendous confusion and may well be a subject of future litigation.

A Medicare Set Aside is a formalized legal arrangment, like a trust account, where money is set-aside to pay for future medical care as it is incurred. How much should be placed into the MSA and whether or not it can be self-administered by the claimant are problematic issues yet to be resolved in any definitive way. Where certain threshold elements are reached, CMS will consider and approve proposed MSAs. Obtaining MSA approval is the only way of assuring that Medicare’s rights are protected and preventing future problems with the federal agency. CMS approval has come to be known as a “safe harbor.” As of the posting of this blog, CMS will only consider workers’ compensation settlements; it is not equipped and has yet to begin considering liability settlements.

CMS’s threshholds:

• Claimants who had a “reasonable expectation” of Medicare enrollment in 30 months or less after the settlement and the total settlement value was greater than $250,000; or
• The person is already on Medicare and the total settlement value was greater than $25,000.

Situations where an individual has a “reasonable expectation” of Medicare enrollment for any reason include but are not limited to:

1. The individual has applied for Social Security Disability Benefits;
2. The individual has been denied Social Security Disability Benefits but anticipates appealing that decision;
3. The individual is in the process of appealing and/or re-filing for Social Security Disability Benefits;
4. The individual is 62 years and 6 months old (i.e., may be eligible for Medicare based upon his/her age within 30 months); or
5. The individual has an End Stage Renal Disease (ESRD) condition but does not yet qualify for Medicare based upon ESRD.

What are the potential consequences of being wrong with regard to the applicability of Medicare Set Asides to liability cases? We know that CMS imposes harsh sanctions on workers’ compensation claimants who do not obtain CMS approval of an MSA when required under CMS’s thresholds, or who underfund the MSA. If Medicare pays medical bills it believes should have been properly paid by the claimant’s MSA, it may, among other actions:

1. Deny the claimant future medical care.
2. Designate its own allocation (which may be the entire settlement amount) if an allocation is unreasonable or non-existent at the time of settlement. See 42 CFR 411.46(b)(2)(which permits the government to “not recognize” a settlement which “appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for the treatment of a work-related condition”)
3. Sue for repayment from everyone involved, including the claimant’s attorneys, as stated by CMS in its memorandum of April 22, 2003. Double damages may also be sought against the “primary payer” under the authority of 42 CFR 411.24(c)(2), and if the government is unable to recover against the “primary payer,” against the “beneficiary.” 42 CFR 411.24(l)(1).

While MSA’s may not be required in liability cases, where the workers’ compensation thresholds are applicable, the careful plaintiff’s lawyer should consider their options.

The options include:

• Place language in the settlement documents that Medicare’s interests have been considered, even including a dollar amount that will be earmarked to the Set Aside.
• Take the above option further by getting a doctor to estimate future medical needs and the cost of same, and allocate the amount in the settlement documents. This amount can also be funded with a formalized structured settlement. This is option is usually cheaper than obtaining a formal MSA from a private company and can be structured to coordinate the payment of benefits with the claimant’s anticipated future medical needs.
• Obtain a professional allocation from an MSA vendor. The vendors should know exactly what items will be considered by Medicare, and if they are wrong, they could be held accountable. The allocation can be funded through a tax-free Structured Settlement.

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Jeffrey P. Gale, P.A. is a South Florida based law firm committed to the judicial system and to representing and obtaining justice for individuals – the poor, the injured, the forgotten, the voiceless, the defenseless and the damned, and to protecting the rights of such people from corporate and government oppression. We do not represent government, corporations or large business interests.