Questions and Answers about Medicare Set-Aside Arrangements

Medicare Set-Aside Blog on February 26, 2008
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Questions and Answers about Medicare Set-Aside Arrangements

I am a liability insurer and am aware of the Medicare, Medicaid, and SCHIP Extension Act of 2007 which goes into effect July 1, 2009, and requires Medicare’s interests be protected with Medicare
Set-Aside allocations (MSAs) where there is a primary payer other than Medicare. Am I required to have an MSA done now even though the Act doesn’t go into effect for over a year?

Although you are right that the 2007 Extension Act doesn’t go into effect until 2009, your question really pertains to the original Medicare Secondary Payer Act (MSP). The MSP was passed as part of the Omnibus Budget Reconciliation Act of 1980.

42 USC 1395y(b)(2) states that Medicare shall not make a payment where there is a primary payer and expressly includes liability insurers. Although attorneys are often hesitant to have MSAs prepared for liability claims knowing they will not be reviewed by CMS, liability insurers need to be aware of their responsibilities in this area so they can comply with current law and ensure that funds were “set aside” so that the burden of future medical treatment related to the claim does not fall on Medicare. Compliance with the new law deals only with determining Medicare status and reporting the settlement to the Secretary of Health and Human Services for those who are eligible. In reality, settlements can be sent to the Medicare Secondary Payer Recovery Contractor (MSPRC) at any time to put Medicare on notice but it is entirely voluntary.

In order for liability insurers to adequately protect themselves and Medicare, they should include language in the settlements that demonstrates Medicare’s interests were considered and funds were received for future medical treatment. An indemnity agreement might not provide the same level of protection to a liability insurer because, essentially, it would not demonstrate as clearly that the statute was honored and may allow Medicare to seek reimbusement from the insurance ccarrier for any future payments, which it may continue to consider conditional, pursuant to 42 CFR 411.24h(i) and the carrier would then have the right to recover from the plaintiff. Incorporating an MSA into the settlement documents would be more convincing to Medicare that the carrier did what it could under the law at the time of settlement and redirect Medicare to the beneficiary for repayment from the funds received or exclude benefits until proof that the funds were exhausted is provided.

For workers’ compensation cases, it is expressly stated that if a settlement appears to shift the burden of future medical expenses to Medicare, Medicare may disregard the settlement, hence any future payments become conditioned upon repayment as Medicare still believes there to be a primary payer [42 CFR 411.46(b)(2)]. Because Medicare benefits paid prior to a liability settlement do not elevate to conditional payments until a settlement is reached, the liability CFR stated above will essentially act in the same manner for liability settlements. This is opposed to workers’ compensation which is essentially no fault and liability begins immediately. CMS’s position for workers’ compensation cases is that failure to comply with the statute permits it to disregard the settlement and continue to consider the insurer primary, or consider the entire settlement to be for related future medical needs, hence plaintiff would need to demonstrate that he exhausted his entire recovery on appropriate medical treatment before he would be entitled to Medicare coverage of the injury [CMS memo dated April 2003 at Q22]. Because this is CMS’s own interpretation of the law/regulations, it is not a stretch to predict it will apply the same to liability when the time comes. And, unfortunately, we can guarantee that it will be interpreted to its benefit as the Supreme Court grants substantial deference to agency interpretation of its own regulations [American Express Co. v. U.S., 262 F.3d 1376 (Fed. Cir. 2001) at 1382].

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