The Problem
When an injured worker settles his or her workers’ compensation claim the interests of Medicare must be protected with regard to conditional payments of medical bills made by Medicare to medical providers for treatment of the allowed conditions prior to the settlement. Medicare’s interests must also be protected with regard to future payments to medical providers for treatment of the allowed conditions. Stated differently, if Medicare has paid or pays in the future medical bills for treatment of the allowed conditions, Medicare wants its money back. The problem is how to best accomplish this in the context of complex and ever changing rules from the Centers for Medicare & Medicaid Services (CMS), which is the federal agency responsible for enforcing the Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b)(2).
In the context of Ohio workers’ compensation claims, the Medicare Secondary Payer Act prohibits Medicare from paying for an injured worker’s medical services for treatment of the allowed conditions in claims where payment has been made or can reasonably be expected to be made by the Ohio Bureau of Workers’ Compensation (BWC) or by an Ohio self-insured employer. In such cases Medicare is considered the “secondary payer” and the BWC (or self-insured employer) the “primary” payer. There is an exception to this prohibition. The Medicare Secondary Payer Act permits “conditional” payments for medical treatment of conditions covered by or likely to be covered by a workers’ compensation claim in situations where the payment for medical services under the workers’ compensation claim cannot be expected to be made promptly. When conditional payments have been made by Medicare, the BWC or self-insured employer must reimburse Medicare when the workers’ compensation claim is allowed. At that point the BWC or self-insured employer becomes the primary payer with respect to past and future medical bills for treatment of the allowed conditions.
The Medicare Secondary Payer Act permits legal action by the United States against any and all entities (which include the Ohio BWC, self-insured employer, attorneys, and third party administrators) that are or were required or responsible to reimburse Medicare for payments made for treatment of the allowed conditions in a workers’ compensation claim. C.F.R. § 411.24 provides that CMS has a direct right of action to recover from any entity responsible for making primary payment. This includes “an employer, an insurance carrier, plan, or program, and third party administrator.” This enforcement provision has created a nightmare of fear, red tape and months of delay involved with CMS in determining whether Medicare has made conditional payments for the allowed conditions in a workers’ compensation claim and notifying the parties involved in the settlement of the workers’ compensation claim. If conditional payments were made by Medicare, the BWC or self-insured employer must reimburse Medicare before the settlement of the workers’ compensation claim is approved.
What Are Medicare Set-Aside Arrangements (MSAs)?
The device currently being used to protect the interests of Medicare with regard to payments to medical providers for treatment of the allowed conditions after the workers’ compensation claim is settled is called a Medicare Set-Aside Arrangement or Medicare Set-Aside Trust, both referred to as an MSA. In an MSA the parties (BWC or self-insured employer and injured worker) agree to “set aside” a portion of the settlement funds to be used solely for payment of medical bills for treatment of the allowed conditions in the workers’ compensation claim. The amount of money to be placed in the MSA and designated as such in the settlement agreement is negotiated by the parties based upon a reasonable projection of the amount necessary to cover medical expenses that would have been paid by the BWC or self-insured employer for treatment of the allowed conditions had the workers’ compensation claim not settled. With regard to such future payments, Medicare is still considered a secondary payer until such time as the funds placed in the MSA are exhausted by payment of medical bills for treatment of the allowed conditions. When the MSA is exhausted Medicare becomes the primary payer and will pay for all medical services.
Prior to May 11, 2011, certain workers’ compensation MSAs required approval by CMS. Approval was required when (1) the claimant is currently a Medicare beneficiary and the total settlement amount is greater than $25,000; or (2) the claimant has a “reasonable expectation” of Medicare enrollment within 30 months of the settlement date and the anticipated total settlement amount for future medical expenses and disability/lost wages of the life or duration of the settlement is expected to be greater than $250,000.
Under CMS Memorandum Q2 dated 04/21/2003, an individual has a “reasonable expectation” of Medicare enrollment if any of the following situations apply:
(1) The individual has applied for Social Security Disability Benefits;
(2) The individual has been denied Social Security Disability Benefits but anticipates appealing that decision;
(3) The individual is in the process of appealing and/or re-filing for Social Security Disability Benefits;
(4) The individual is 62 years and 6 months old (i.e. may be eligible for Medicare based upon his/her age within 30 months); or
(5) The individual has End Stage Renal Disease (ESRD) condition but does not yet qualify for Medicare based upon ESRD.
On May 11, 2011, CMS issued a memorandum modifying its position and stating that submission of a workers’ compensation MSA proposal to CMS for review and approval is a “recommended” process and that “there are no statutory or regulatory provisions requiring that a WCMSA [workers’ compensation MSA] proposal be submitted to CMS for review.” The foregoing thresholds requiring CMS approval were changed to “criteria for review” that CMS will employ when deciding whether to review an MSA proposal submitted by the parties to a workers’ compensation claim settlement. The May 11th memorandum stated specifically that “[t]he CMS no longer reviews new WCMSA proposals if the above thresholds are not met.” The memorandum cautioned, however, that the thresholds reflect a CMS “operational workload standard” and should not be considered a substantive dollar or “safe harbor” threshold. Since the issuance of the May 11, 2011 memorandum, there have also been two federal district court decisions in which both courts held that CMS approval of an MSA was not a condition or requirement of a settlement of a workers’ compensation claim. See, Schexnayder v. Scottsdale Insurance Company, 2011 U.S. Dist. LEXIS 83687 (July, 29, 2011) and Smith V. Marine Terminals of Arkansas, 2011 U.S. Dist. LEXIS 90428 (August 9, 2011).
Is an MSA Required in Your Workers’ Comp. Settlement?
Medicare’s interests must be protected in every workers’ compensation settlement. This presupposes that Medicare has an interest. If you are not a Medicare beneficiary and have no expectation of enrolling in Medicare within 30 months of the date of the settlement, then there is no need for an MSA. However, if you are already a Medicare beneficiary or have a “reasonable expectation” of enrollment in Medicare within 30 months of the date of your settlement, then you must have an MSA. If an MSA is required and the settlement is greater than $250,000, or if you are a current Medicare beneficiary and the settlement is greater than $25,000, then submission of the MSA proposal to CMS for review is recommended although not required. Submission of the MSA proposal for review will delay the settlement process for several months.
How is the MSA Administered?
At the time of settlement MSA funds should be set-aside in an interest bearing account and not comingled with other funds or bank accounts. The injured worked can self-administer the MSA account or have the MSA account professionally administered. An annual report or accounting must be made to CMS documenting that MSA funds were used to pay only for Medicare covered medical services and prescription drugs related to the allowed conditions in the settled workers’ compensation claim.
The MSA may be funded in lump sum or annuitized. A structured MSA using an annuity normally reduces the cost of the MSA (the lump sum paid to the annuity company is generally lower than the lump sum placed in an interest bearing account). As noted above, CMS becomes primary payer after the entire MSA account is properly exhausted. If the MSA is funded with an annuity, CMS becomes primary payer in any year that the fund is exhausted and CMS remains primary payer until the next annuity payment is received.
If the injured worker is competent and able to direct and handle finances and medical bills, a self-administered MSA is a valid option in an Ohio workers’ compensation settlement. The injured worker who self-administers must adhere to the administration rules and understand all obligations. He or she must comply with the following:
(1) Place funds in an interest bearing account where funds can be separately accounted for (apart from checking and savings); (2) understand that the funds may only be used to cover future medical expenses for the treatment of the allowed conditions in the workers’ compensation claim which would normally be covered by Medicare; (3) become knowledgeable about what Medicare will and will not cover; (4) administer the MSA as it was written and presented to CMS; (5) ensure appropriate charges for treatment of the allowed conditions are paid from the MSA and not billed to Medicare; (6) report annually to Medicare (and keep accurate records of payments made from the account) so that Medicare can monitor expenditures and will commence payment for covered services when the MSA account is exhausted; (7) understand primary payer obligations in structured MSAs. As noted above, if the MSA is funded with a yearly annuity, Medicare becomes primary payer in any year that the account becomes temporarily exhausted and until the next annuity payment is provided. If funded in lump-sum, then Medicare is primary payer at exhaustion of the account. If it is too complex for the injured worker to administer his or her MSA, professional administration is available to accomplish all of the above.
Attorney Fees
In Ohio attorneys for injured workers are normally paid a contingent fee on settlements of workers’ compensation claims. The attorney fee (typically between 25 percent and 40 percent) is charged on the gross amount of the settlement. The question has been raised as to whether an attorney can charge a contingent fee on the medical portion (MSA portion) of the settlement. In Ohio there is no prohibition on an attorney charging a contingent fee on the medical portion of a settlement. Rule 1:5 of the Rules of Professional Conduct permits a reasonable contingent fee with no restriction regarding the medical portion of a settlement. At least one court decision directly addressed this issue. In Hinsinger v. Showboat Atlantic City, 2011 N.J. Lexis 96 (January 21, 2011), the issue was whether the CMS regulations and directives permit an attorney to recover fees for a judgment or settlement obtained on behalf of a client from the Medicare set-aside itself. The court held that the attorney could recover fees from the MSA. The court recognized the value of the legal services of the attorney in achieving the entire settlement including the MSA portion of the settlement. Keeping in mind that the attorney fee must be reasonable, I have been unable to find any prohibition to an attorney charging a contingent fee on the MSA portion of an Ohio workers’ compensation settlement.
Conclusion
The settlement of any workers’ compensation claim is complicated. When Medicare is involved, the settlement is oppressively complicated. Therefore, when Medicare is involved and an MSA is needed, I strongly advise that all injured workers confer with an attorney prior to attempting to settle a workers’ compensation claim. The rules and directives from CMS are subject to change at any time. Determining the amount of a settlement to be allocated to an MSA is a complicated process and involves negotiation. Legal advice and representation by a qualified workers’ compensation attorney is therefore indispensable in achieving a correct result.
