WRAPPING A MEDICARE SET-ASIDE ARRANGEMENT INSIDE A SPECIAL NEEDS TRUST
by: Begley Law Group
by Thomas D. Begley, Jr., Esquire, CELA
In any recovery involving a personal injury case, the interest of Medicare must be considered. The idea is that because Medicare is a secondary payer, a beneficiary should not be permitted to receive a recovery for future medical care, pocket the money, and then bill Medicare for that future medical care.
Are MSAs Appropriate in TPL Cases?
A Medicare Set-Aside Arrangement (MSA) is never required. In the context of Workers’ Compensation (WC) settlements it is a safe harbor. It should be a safe harbor in the context of Third Party Liability (TPL) settlements as well.
In June 2012, The Centers for Medicare and Medicaid Services (CMS) issued a Notice of Proposed Rulemaking. The rulemaking would outline procedures for MSAs in TPL cases. The American Association for Justice (AAJ) has responded to CMS with respect to this Notice of Proposed Rulemaking. The Notice was submitted to the Office of Management and Budget (OMB) on August 1, 2013. The OMB did not approve the proposed rule and CMS withdrew it on October 8, 2014.
Reasons Supporting the Argument that the Medicare Secondary Payer Act Applies to TPL Cases with Respect to MSAs
There are a number of reasons to believe that MSAs are appropriate in personal injury cases. They are as follows:
- An informal survey of the 10 CMS Regional Offices by members of the Special Needs Alliance confirm that Region has taken the position that even in third party liability (TPL) cases, Medicare’s interests must be considered, and in the absence of further guidance, the Worker’s Compensation (WC) guidelines should be followed.
- The Medicare Secondary Payer Manual now includes language referring to “Liability Set-Aside Arrangement.”
- CMS has issued a memorandum that in TPL cases an MSA is not required “where the beneficiary’s treating physician certifies in writing that treatment for the alleged injury relating to the liability insurance (including self-insurance) ‘settlement’ has been completed as of the date of ‘settlement’ and where future medical items and/or services for that injury will not be required, Medicare considers its interests, with respect to future medicals, for that particular ‘settlement’ satisfied.” The converse would appear to be that if the treating physician will not sign such an opinion letter, the MSA would be required.
- The U.S. Attorney for the Western District of New York has issued a protocol indicating that, under certain circumstances, his office will review MSAs in TPL cases.
- A U.S. District Court has found that a set-aside for future medical expenses in a liability case is appropriate.
Cases Where an MSA is Not Required
There are several situations in which an MSA is unnecessary:
- The facts demonstrate that the claimant is only being compensated for past medicals and not for future medicals. There is no evidence of an attempt to maximize other aspects of the settlement.
- The treating physician concludes in writing that, to a reasonable degree of medical certainty, the individual no longer requires any Medicare-covered treatments related to the claim.
- The client is not receiving Medicare and has no reasonable expectation of receiving Medicare within 30 months. The Medicare Secondary Payer Act does not apply to individuals not covered by Medicare.
Five Alternatives for Personal Injury Attorneys with Respect to MSAs
That leaves practitioners in the same place they were in prior to October 8, 2014. The personal injury attorney, therefore, has five alternatives to consider with respect to an MSA:
- Do nothing to protect Medicare and assume the risk that the rules will be enforced in his case, his client will be denied Medicare coverage for future medicals and possibly bring a malpractice action against the attorney;
- Do nothing but draft releases documenting that the plaintiff has been advised of Medicare’s possible interest and that he knowingly agrees to assume any risk;
- Be prepared to show that Medicare’s interest has been protected by shifting the primary payer – such as a continuing health insurance policy – and assume the risk that the health insurance policy will remain in place and that the person primarily being covered by the policy will not lose his job, die, retire, or become disabled;
- Prepare an allocation report, but do not submit to CMS for approval, and fund the MSA;
- Prepare and submit the MSA to CMS for approval.
The author recommends the fourth alternative to avoid any risk to the client and to the personal injury attorney. If the client does not “consider Medicare’s interest,” Medicare may deny future coverage. If the client files a claim and is denied, he may well bring a malpractice action against the personal injury attorney.
Special Needs Trusts and MSAs
Generally, MSA funds are deposited in a custodial account with a professional trustee or given to the client to self-administer. For cases less than $100,000, giving the funds to the client to self-administer makes sense. CMS has issued a letter of instructions to be delivered to the client who would be administering his or her own custodial account. Even if a client misuses the money, the personal injury attorney should be off the hook with respect to a subsequent malpractice claim.
If the MSA funds are self-administered by the client or administered by a professional custodian and held in a custodian account, they will be considered countable assets that will disqualify the client from asset-tested public benefits such as SSI and Medicaid. The solution to that problem is to deposit the funds in a Special Needs Trust. MSAs are generally administered by custodians such as Medivest. However, money in a custodial account is considered a countable asset for someone receiving asset-tested public benefits. In those situations, a Special Needs Trust (“SNT”) is required and the trust is designed so that the MSA funds are placed in a separate sub-trust within the SNT. Generally, a professional trustee will hire a professional custodian to administer the MSA sub-account. By wrapping the MSA sub-account in the SNT, the assets in that sub-account are no longer countable to the trust beneficiary.
 42 U.S.C. §1395y(b)(2).
 42 C.F.R. Parts 405 and 411; 77 Fed. Reg. 35917-35921 (Jun. 15, 2012).
 American Association for Justice (AAJ) in a letter to Suzanne Kalwa of the Centers for Medicare and Medicaid Services (Aug. 14, 2012).
 RIN: 0938-AR43 EO 12866 Meetings.
 CMS Memorandum, Subject: Medicare Secondary Payer – Liability Insurance (including self-insurance) Settlements, Judgments, Awards, or Other Payments for Future Medical Information, from Acting Director Financial Services Group to Consortium Administrator of Financial Management and Fee for Services Operations (Sept. 29, 2011).
 Western District of New York, Medicare Secondary Payer Protocol, Assistant U.S. Attorney Robert G. Trusiak (May 6, 2011).
 Big R Towing, Inc. v. Benoit, 211 W.L. 43219 (W.D. La. Jan. 5, 2011).