Medicare's Interest in a Third Party Liability Settlement

Federal Law provides Medicare, which is administered through the Center for Medicare Services (CMS), expansive rights with regard to claimants who are, or will become eligible for Medicare benefits. The Medicare Secondary Payer (MSP) statute make Medicare a secondary payer for any medical services for which payments have been made, or can reasonably be expected to be made promptly under a worker's compensation (WC) law or insurance plan.¹

CMS has an interest in the portion of the settlement intended to cover future medical benefits in a worker's compensation case since, prior to the settlement, the workers' compensation carrier was the responsible party for paying the injured party's medical expenses for his or her lifetime. Once the settlement is complete, CMS does not want the injured person looking to Medicare as the primary payer of the injured party's medical expenses related to his or her injury unless the injured party has exhausted proceeds from the settlement on his or her medical care.²

On July 23, 2001, the Central Office of CMS issued written guidelines on the application of the MSP regulations to worker compensation cases and future medical expenses. The July 23, 2001-memo has been supplemented nine times with the last memo issued in 2008.³

When it is determined that the claimant is reasonably expected to be eligible for Medicare benefits within 30 months and the settlement exceeds $250,000 or the claimant is already eligible for Medicare and the settlement is more than $25,000, then CMS must be contacted to approve the amount that must be set aside for future medical benefits associated with the settlement.⁴

The allocation of future medical expenses must be reasonable. Currently, CMS uses the following criteria to determine if the proposed set-aside amount is reasonable in a worker's compensation case:

• Date of Medicare entitlement;
• Basis of Medicare entitlement;
• The type and severity of injury or illness;
• The claimant's rated age and life expectancy;
• Permanent partial or permanent total disability;
• Prior medical expenses;
• Any life care plan projections of future medical expenses;
• Amount of settlement allocated to indemnity and future medical expenses;
• Whether commutation is for claimant's full life expectancy;
• The claimant's ability to live independently;

The plan is submitted to the CMS Regional office for review and approval. Once approved, Medicare will not make any payments for medical expenses associated with the claimant's injury until the set-aside amount is exhausted.

In 2007, Section 111 of the Medicare, Medicaid, and SCHIP Extension Act (MMSEA) amended the Medicare Secondary Payer (MSP) provisions of the Social Security Act to provide for mandatory reporting for group health plan arrangements, liability insurance (including self-insurance), no-fault insurance, and workers' compensation. The mandatory reporting provisions of MMSEA will be effective January 1, 2010. The MMSEA statute requires Responsible Reporting Entities (RREs) to report certain information regarding settlements with Medicare beneficiaries to the Secretary of Health and Human Services. The sole purpose of Section 111 of the MMSEA is to ensure that settling parties fully comply with the Medicare Secondary Payer requirement - that is, past Medicare payments must be verified and resolved in all liability, workers' compensation and no-fault settlements. Although there has been considerable discussion to the contrary, the MMSEA statute has nothing to do with identifying Medicare-covered future costs of care, which leads to Medicare set-aside (MSA) issues and analysis.

Nonetheless there is concern that for third-party liability cases, CMS will eventually use this information to determine if future injury related medical expenses are being paid by Medicare. If this occurs, Medicare may deny payment of injury related medical expenses until the injured party demonstrates payment of the entire settlement to his or her future medical expenses which would be normally reimbursed by Medicare.

Although no official policy has been issued by the CMS central office for liability cases, various regional offices have indicated that Medicare is still a secondary payer after the settlement of a personal injury claim. CMS bases this authority upon Section 1862(b)(2)(A)(ii) of the Social Security Act and 42 U.S.C. §1395y (b)(2)(A) which provide as follows:

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. 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.⁵

While it is Medicare's position that the attorney representing the injured party should know whether or not their recovery provides for future medicals, CMS will consider the following examples as a guide for determining whether or not settlement funds must be used to protect Medicare's interest on any otherwise Medicare covered, case related future medical services.⁶

For third-party liability cases, CMS fails to note that the only reference to future medical expenses is found in 41 C.F.R. 411.46. However, this regulation references future medical expenses only for a "work-related injury or disease." There are no existing regulations that reference future medical expenses for a personal injury case.⁷

Additionally, Section 50.5 - of the MSP Manuel, prohibits Medicare from "recovering" for medical benefits provided after the settlement.

It is important to note that CMS's authority to require an injured party to use a portion of the settlement to pay for future injury related medical expenses is a separate issue from whether the set aside amount must be calculated and administered in a Medicare set-aside account based upon the guidelines and memos issued by the Central Office of CMS on worker compensation cases. The term "Medicare Set Aside Arrangement" is not found in any statute or regulation. It was created by CMS as a "safe harbor" method to reasonably consider Medicare's interest in workers' compensation cases. The only reference to an "MSA" is found in the Medicare Secondary Payer Manual.

The uncertainty with regard to the necessity of setting aside a portion of a third-party liability settlement to pay for future medical expenses will likely continue until written guidance is issued by the CMS Central office. It will be important for the attorney to keep updated and regularly monitor the CMS website.¹⁰ The attorney should develop a check list for cases that have an MSA issue. Until the CMS central office issues written guidelines, a few general observations should be followed:

1. If the claimant is currently not a Medicare beneficiary or likely to be a Medicare beneficiary within the next 30 months, then no MSA issue to consider.
2. If the claimant will be a Medicare beneficiary in the next 30 months and the total settlement is less than $250,000, then CMS does not require the set aside be submitted for approval. Still must consider Medicare's interest, but do not need to submit to CMS for approval. CMS does not require a written plan to be submitted for a current Medicare beneficiary if the total settlement is less than $25,000.
3. The damages or settlement award must be paid due to a physical injury in order for an MSA issue to be present.
4. Know how you are going to address the MSA issue at the time of settlement and not after the settlement check is written.¹¹

It is critical to consult with an experienced attorney who is knowledgeable in this area to determine if you must consider Medicare's interest in the settlement.

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