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Is a Medicare Set Aside Arrangement Required in Third Party Liability Cases?

by: Thomas D. Begley, Jr.

Based on recent federal legislation, it appears that Medicare will soon begin to require set asides for third party liability cases.  Historically, these set asides have been required only in Worker’s Comp cases, but it appears that that is all about to change.

Under the Medicare Secondary Payer Act[1] and Regulations,[2] Medicare will not pay for any future medical expenses after the settlement of a claim.  The Medicare Secondary Payer statute (MSP) provides that “payment may not be made…with respect to any item or service to the extent that…(2) payment has been made (emphasis added) or can reasonably be expected to be made promptly (as determined in accordance with regulations) under a Workmen’s Compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no-fault insurance”[3] (emphasis added).  The Medicare Secondary Payer Act has been in effect since 1989; however, it has only been enforced for approximately 10 years and then only against Worker’s Comp claims.

Under the Medicare, Medicaid and Schip Extension Act of 2007,[4] effective June 1, 2009, any entity serving as an insurer or third party administrator for a group health plan, and in the case of a group health plan that is self-insured or self-administered, a plan administrator or fiduciary shall secure information from plan participants as required by the Secretary of Health and Human Services for the purpose of identifying situations where the group health plan is or has been a primary plan to the Medicare program.  There is a $1,000 per day fine for non-compliance.  The Secretary shall share information on entitlement to Medicare under Part A and enrollment under Part B with such entities.  The Secretary shall specify a time after a claim is resolved through a settlement, judgment, award or other payment for submission of this information.

CMS is taking the position that personal injury lawyers have an obligation to determine if the client is receiving Medicare, and if so to determine an amount necessary to be set aside for future Medicare claims.  There will be no process immediately for a review of the claim by CMS.  A Medicare Set Aside Arrangement may be self-administered.  CMS supplies a list of requirements to the administrator.  Another option is for the Medicare claimant to enter into a custodial agreement with a professional trustee for the payment of that portion of any medical claims that Medicare would have paid, investment of the fund and accounting as required by CMS.

In cases where the plaintiff is receiving means-tested public benefits, such as SSI and Medicaid, consideration should be given to a pooled trust if the settlement is small or to a standalone trust if the settlement is more substantial.  The pooled trust and the standalone trust should contain Medicare set aside arrangement provisions.  By utilizing a pooled trust or standalone special needs trust, the plaintiff will be able to maintain his public benefits and satisfy the requirements of the Medicare Secondary Payer Act.

Persons, including personal injury attorneys, who do not take Medicare’s interest into consideration are subject to double damages.  In addition, Medicare may refuse to pay medical bills for the plaintiff, which may result in a malpractice claim by the plaintiff against the personal injury attorney.

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Begley Law Group is pleased to consult with personal injury attorneys as to when a Medicare Set Aside Arrangement (MSA) is required.



[1] 42 U.S.C. §1395y.
[2] 42 C.F.R. §411.20, et seq.
[3] 42 U.S.C. §1395y(b)(2)(A)(ii).
[4] Pub. L. 110-173 (110th Congress).