Many personal injury victims are Medicare beneficiaries, which means that they must comply with the Medicare Secondary Payer Act (MSP) when they win or settle cases. The MSP requires that it be reimbursed from the settlement for its coverage of injury-related medical expenses and 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. To date, CMS has only promulgated policies for its post-settlement status as secondary payer in workers’ compensation settlements. These cases require the use of a Medicare set aside arrangement (“MSA”), which is CMS’s approved method to consider Medicare’s interests in general under the MSP. While an MSA is not required in liability settlements or judgments, CMS has taken the position that Medicare’s “future interests” must also be considered in liability settlements.
It is unclear what attorneys must do to “reasonably protect” Medicare’s future interest in personal injury cases because CMS has not established any set procedures. However, because of the potential loss of Medicare benefits for their clients, many attorneys take the position that it is prudent to use procedures that were established for “reasonably protecting” Medicare’s future interest in worker’s compensation settlements – in other words, establishing an MSA.
An MSA is an arrangement through which a portion of a settlement is allocated (or “set-aside”) to cover future anticipated medical expenses related to a claimant’s compensable injuries that would otherwise be covered under Medicare. Once established, no Medicare payments will be made until the portion of the settlement allocated to compensate for future medical expenses that would otherwise be covered by Medicare is spent.
In general, a MSA is not necessary if:
• The client is not a Medicare beneficiary and isn’t reasonably likely to become one within 30 months of settlement;
• The settlement is only for past medical expenses;
• There is no evidence that the individual is attempting to maximize the other aspects of the settlement to Medicare’s detriment; and
• The treating physician determines in writing within a reasonable degree of medical certainty the individual will not need future Medicare covered services related to the injury.
A Medicare set aside is likely necessary in a liability case when:
• There is going to be a permanent shift to Medicare of the burden for paying for the Medicare beneficiary’s future injury related medical expenses resulting from the underlying tort; and
• The settlement contemplates future injury-related expenditures. This contemplation should be in the form of a definitive allocation to future medical expenses as opposed to a general release for all future medical expenses going forward.
A personal injury attorney should consider retaining the services of a Medicare set-aside professional who can evaluate the estimated future injury related medical expenses, determine what portion of those expenses would otherwise be covered by Medicare and provide the appropriate number for the set-aside amount. Once the set-aside amount is calculated, a mechanism to hold the funds must be set up so they can be applied to future injury-related medical expenses. Options include
a) MSA Trusts are MSAs in the form of a formal trust agreement, administered by a trustee. Such trusts are subject to state and federal fiduciary laws applicable to trusts and trustees, and consequently, provide significant protections both for the claimant, who is the beneficiary of the trust, and for Medicare.
b) MSA Custodial Agreements contain guidelines and protections similar to those found in trust agreements to ensure proper administration of the set-aside funds, but because custodial agreements are not trusts, a medical claims administrator can administer the funds without the need of hiring a professional trustee. The medical claims administrator charges significantly smaller fees than a professional trustee.
c) Self-Administered Medicare Set-Aside Arrangments may be a solution when formal Medicare set-aside custodial agreements become disproportionately expensive to administer smaller settlements. Even though self-administration is permitted, it is not always advisable. Many claimants will not make appropriate administrators due to lack of sophistication or poor money-management skills.
d) MSA/Special Needs Trusts are best for injury victims that are “dual eligible,” meaning they qualify for both MassHealth and Medicare. An MSA without a special needs trust can pose problems for some claimants who may also need to preserve eligibility for needs-based benefits, such as Medicaid or SSI. There are two types of special needs trusts that can be used in these cases, which are special needs trusts and pooled special needs trusts.
Although there is a lot of confusion regarding just what attorneys and their clients who receive Medicare are supposed to do in order to “reasonably protect” Medicare’s future interest in the context of a personal injury settlement, attorneys should undertake a MSA analysis to demonstrate that Medicare’s interests were considered. The failure to address Medicare’s future interest could result in Medicare refusing to pay for injury-related care until the entire settlement is exhausted and there could also be a malpractice risk related to the ethical and legal considerations for parties to the settlement.