Workers Compensation Medicare Set-aside Arrangements (WCMSAs)

All parties in a Workers' Compensation (WC) case have significant responsibilities under the Medicare Secondary Payer (MSP) laws to protect Medicare's interests when resolving WC cases that include future medical expenses. The recommended method to protect Medicare's interests is a Workers' Compensation Medicare Set-aside Arrangement (WCMSA), which allocates a portion of the WC settlement for future medical expenses. The amount of the set aside is determined on a case-by-case basis and should be reviewed by CMS, when appropriate. Once the CMS determined set aside amount is exhausted and accurately accounted for to CMS, Medicare will agree to pay primary for future Medicare covered expenses related to the WC injury.

CMS Review Threshold

It is not in Medicare's best interest to review every WC settlement nationwide in order to protect Medicare's interests per 42 CFR 411.46. (Ref: 7/23/01 Memo Q1(c)) A WCMSA is not necessary when resolution of the WC claim leaves the medical aspects of the claim open. A WCMSA may be submitted to CMS for review in the following situations:

The claimant is currently a Medicare beneficiary and the total settlement amount is greater than $25,000; OR
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 over the life or duration of the settlement agreement is expected to be greater than $250,000.

Computing the Total Settlement Amount

Injured individuals who are already Medicare beneficiaries must always consider Medicare's interests prior to settling their WC claim regardless of whether or not the total settlement amount exceeds $250,000. That is, ALL WC PAYMENTS regardless of amount must be considered for current Medicare beneficiaries.

However, CMS no longer reviews new WCMSA proposals for Medicare beneficiaries where the "total settlement amount" is $25,000 or less (i.e., low dollar threshold Medicare beneficiaries). In order to increase efficiencies in our process, and based on available statistics, CMS instituted this workload review threshold. However, CMS wishes to stress that this is a CMS workload review threshold and not a substantive dollar or "safe harbor" threshold. Medicare beneficiaries must still consider Medicare's interests in all WC cases and ensures that Medicare is secondary to WC in such cases. In other words, if the total settlement amount is $25,000 or less, the parties to the settlement are still required to consider Medicare's interests. The recommended method to protect Medicare's interests is to enter into a Medicare Set Aside arrangement to protect Medicare's interests, even though CMS will not review the proposal. (Ref: 7/11/05 Memo Q1 and 2)

Settlements Greater than $250,000 where the Claimant is "Reasonably Expected to Become a Medicare Beneficiary" (Ref: 4/21/03 Memo Q2)

An individual has a "reasonable expectation" of Medicare enrollment if any of the following situations apply:

The individual has applied for Social Security Disability Benefits;
The individual has been denied Social Security Disability Benefits but anticipates appealing that decision;
The individual is in the process of appealing and/or re-filing for Social Security Disability Benefits;
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
The individual has an End Stage Renal Disease (ESRD) condition but does not yet qualify for Medicare based upon ESRD.

To the extent a WC settlement meets both of the criteria (i.e., the settlement is greater than $250,000 AND the claimant is reasonably expected to become a Medicare beneficiary within 30 months of the settlement date), then a CMS-approved Medicare set-aside arrangement is appropriate.

Group Health Plan (GHP) Insurance, Managed Care Plan, and Veterans' Administration (VA) Coverage (Ref: 7/11/05 Memo Q8)

In a WC settlement, a WCMSA is recommended where the claimant is covered under a GHP or a managed care plan or has coverage through the VA. A WCMSA is still appropriate because such other health insurance or health service could in the future be canceled or reduced, or the injured individual may elect not to take advantage of such services. It is important to remember that workers' compensation is always primary to Medicare and many other types of health insurance coverage for expenses related to the WC claim or settlement.

When a Medicare Set-Aside is Not Recommended (Ref: 4/21/03 Memo Q20)

A WCMSA is not recommended if ALL of the following apply:

The facts of the case demonstrate that the injured individual is only being compensated for past medical expenses (i.e., for services furnished prior to the settlement);
There is no evidence that the individual is attempting to maximize the other aspects of the settlement (e.g., the lost wages and disability portions of the settlement) to Medicare's detriment; and,
The individual's treating physicians conclude (in writing) that to a reasonable degree of medical certainty the individual will no longer require any Medicare-covered treatments related to the WC injury.

The CMS Does Not Provide "Verification" Letters (Ref: 5/23/03 Memo Q2)

When an injured individual's WC Settlement does not meet the current review thresholds, the Regional Offices (ROs) will not provide the settling parties with "verification" letters confirming that approval of a Medicare set-aside arrangement is unnecessary. The ROs will not provide "verification" letters.

Workers' Compensation Medicare Set-aside Arrangements Ethical and Legal Considerations (Ref: 4/21/03 Memo Q12)

When an attorney's client effectively ignores Medicare's interests in a WC case, the attorney should consult their national, state, and local bar associations for information regarding their ethical and legal obligations. Additionally, attorneys should review applicable statutes and regulations, including, but not limited to, 42 CFR 411.24(e) and 411.26.

Do Medicare Set-Asides apply to Liability Settlements?

The Medicare Secondary Payor statute clearly says that liability settlements are covered by the MSA guidelines:

USC Title 42, Chapter 7, Subchapter XVIII, Section 1395y comprises the Medicare Secondary Payer Statute.According to the Code of Federal Regulations(CFR) Title 42, Part 411, Subpart B, Section 411.20 (2), “Section1862(b)(2)(A)(ii) of this Act precludes Medicare payments for services to the extent that payment has been made or can reasonably be expected to be made promptly under any of the following:”

Workers’ compensation
Liability insurance
No-fault insurance

CMS has not started enforcing Medicare Set-Asides in standard liability cases but during a CMS Conference in Atlanta (June 2004), representatives of the Office of General Counsel of the United States confirmed the intention of Medicare to begin enforcing the MSP against liability and no-fault cases in the future.

Ramifications of non-compliance can be severe. Among these, the Centers for Medicare and Medicaid Services (CMS) may:

Deny the claimant future medical care
Designate its own allocation (which may be the entire settlement amount) if an allocation is unreasonable or non-existent at the time of settlement
Sue the claimant, the claimant's attorney, and/or the insurance carrier for payment. In a suit against an insurance carrier to recover its MSP claim, double damages may be sought.

In addition, a claimant may file a malpractice suit against his/her attorney after the case has been settled.

The Lien Resolution Group can establish a Medicare Set-Aside

The following general components are involved in computing a comprehensive MSA:

Review of medical records, including billing records
Verification of eligibility for Social Security and/or Medicare benefits
Secure rated age, if applicable
Obtain treating provider recommendations and research applicable standards of care and clinical malpractice guidelines
Conduct a Medicare lien inquiry
Identify future medical needs, Medicare-covered items, and costs charged to Medicare within the injured individual’s geographic region

forms and fees for The Lien Resolution Group to establish a Medicare Set-Aside

An MSA can either be self administered or professionally administered. Regardless of the administrator a few guidelines need to be followed. Below are some of the rules that govern administering an MSA. To review the actual CMS published guidelines for administering an MSA please visit www.hhs.gov:

1. An MSA should be placed in an interest bearing account.

2. It should be administered by a competent administrator (the representative payee, a professional administrator, etc.).

3. If it is permitted under State law and the claimant is self‐administering his or her own CMS approved MSA they should submit an annual self‐attestation form to CMS when monies have been exhausted.

4. If the MSA has been approved by CMS, the administrator of the Set‐aside arrangement must forward annual accounting summaries concerning the expenditures of the arrangement to the agency.

5. Taxes generated from the interest gained in an MSA account can be paid from the MSA account itself. "If a claimant receives a Form 1099‐INT for the interest income earned on his or her MSA account, the claimant or his/her administrator may withdraw an amount equal to the additional tax as a "cost that is directly related to the account" to cover the additional tax liability. This assumes that there is adequate documentation for the amount of incremental tax that the claimant must pay for the interest earned on this MSA. Moreover, such documentation should be submitted along with the annual accounting.

6. The administrator of the CMS‐approved MSA should not release Set‐aside funds for any purpose other than the purpose for which the MSA was established.

7. If the treating physician concludes that the claimant's medical condition has substantially improved, then the claimant (or the claimant's representative) may submit a new MSA proposal covering future expected medical expenses. Such proposals must justify at least a25% reduction in the outstanding MSA funds. In addition, such proposal may not be submitted until at least five years after a previous CMS approval letter and should be accompanied by all supporting documentation not previously submitted with the original WCMSA proposal. The CMS decision on the new proposal is final and not subject to administrative appeal.10

Medicare Set-Aside Administration