DO WE STILL NEED TO WORRY ABOUT MEDICARE SET-ASIDE ARRANGEMENTS?
by: Begley Law Group
by Thomas D. Begley, Jr., CELA
For many years a debate has raged as to whether Medicare’s interests must be considered with respect to future medical payments in the context of a third party liability settlement (“TPLS”). The issue is simple. If a plaintiff in a TPLS receives money to pay for future medical care, is he free to pocket that money and send the bill for the future medical care to Medicare? Under the Medicare Secondary Payer Act (“MSPA”), Medicare is prohibited from making a payment for future medicals to the extent that such payment has been made under liability insurance. Therefore, if a liability insurance company or self-insured defendant pays money to a plaintiff for future medical care, the argument goes that Medicare cannot pay for that care.
In 2013, the Centers for Medicare and Medicaid Services (“CMS”) issued a Notice of Proposed Rulemaking (“NPRM”), but then voluntarily withdrew it in 2014. As a result, parties have been left to their own devices in determining how to address this issue. Some commentators believe that absent enforceable regulations that identify the standards by which future medicals are to be measured in the liability context, the federal government has no right to claim an interest in future medicals as part of the settlement. On the opposite end of the spectrum, commentators observe that CMS interprets the MSPA so that it is applicable to TPLS as well as Worker’s Compensation claims. The correct position may lie somewhere in between. The real answer may be to develop an analysis of how much of the TPLS was for future medicals and how much for other elements of damages and to set the future medical money aside, so that Medicare is not billed until that portion of the settlement is exhausted.
Once a Medicare Set-Aside Arrangement (“MSA”) has been considered, the next question is how much is necessary to fund it. If future medicals have been plead or claimed and future medicals are specifically released in a Release signed in connection with the third party liability (“TPL”) settlement, then it is likely that Medicare’s interests must be considered. That raises the question as to how to calculate the amount of the settlement intended for future medical care. It is unlikely that CMS would accept a figure agreed upon by the parties absent court testimony and a court finding.
It is important to remember that in a TPL case, the award seldom pays 100 cents on the dollar for future medicals. Issues in these cases, such as disputed liability or causation, policy limits, statutory caps and derivative claims, often mean that TPL cases are resolved for less than the full measure of damages sustained. The Garretson Resolution Group recommends a starting point for a maximum amount may be identified through review of a plaintiff’s life care plan and other evidence of the dollar assigned to particular damages other than future medicals. These would include procurement costs, liens, past medicals, pain and suffering, loss of future earning capacity, etc. Garretson outlines a four-step process:
- Were future medicals plead or released as part of the settlement, judgment or award?
- Does the plaintiff require future injury-related care?
- Does the settlement award “compensate” plaintiff for future medicals based on objective decisional future medical allocation methodology?
- How much did the settlement award compensate based on objective decisional future medical allocation methodology?
By analyzing the settlement to figure out how much would be appropriate for future medicals and then determining the ratio of the plaintiff’s net proceeds to the total damages, a percentage for future medicals can be determined. This is the amount “compensated” for future medicals within the settlement or award. This would only be the amount necessary to set aside to satisfy CMS.
This approach is different from the traditional approach. The traditional approach to funding an MSA is to determine what the future medical costs to be paid by Medicare would be and set that money aside without regard to whether the plaintiff actually recovered that amount for future medicals. Under the Garretson approach, the only amount to be set aside would be the actual funds recovered by the plaintiff, which could be considerably less than the total future medicals.
Once the amount of the MSA has been determined, who shall administer those funds? One option is to use a professional custodian such as Medi-Vest. The advantage to the professional custodian is that they know the rules. They use the set-aside funds only to pay for medical care that Medicare would cover. The plaintiff may be receiving other medical care that would not be covered by Medicare and use of the MSA funds for payment of that care would be inappropriate. A professional custodian will also take advantage of the discounts offered to Medicare, rather than paying full retain prices. This makes the funds last longer. The other option is to turn over the MSA amount to the plaintiff to be self-administered. The advantage to this approach is that it avoids paying the professional custodian’s fees. There is usually a set-up fee and an annual maintenance fee. A disadvantage to a self-administered MSA is the plaintiff does not know the rules and often uses the funds for other purposes such as covering delinquent mortgage payments or payments on car loans. As a practical matter, if the Set-Aside is a $100,000 or more, it usually makes sense to engage the services of a professional custodian. If the settlement is less than $100,000, the cost of a professional custodian are not warranted and a self-administered MSA is more appropriate.
The next consideration for an MSA is whether or not a Structured Settlement should be considered. CMS requires that an MSA be funded with a lump sum sufficient to cover two year’s medicals plus the first surgery, but the rest can be funded with a Structured Settlement. Since most of the funds will not be needed right away, it often makes sense to use the Structured Settlement. Statistics show that where a Structured Settlement is used, the cost is only 52% of funding an MSA with a lump sum. This is because the Structure does not have to pay out for a period of time. The Structure can also take advantage of the plaintiff’s rated age.