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Changes to and controversies surrounding Medicare rules and regulations have typically been
of most concern for retired people and the elderly seeking to manage their federally-sponsored medical insurance coverage. However, as a result of a federally-commissioned audit, Medicare should now be a large concern for risk managers and CFOs in organizations that are self-insured or have high deductibles.
The audit identified more than $40 billion in legitimate and enforceable liens against claims settlements that did not contain approved Medicare set-aside (MSA) arrangements—allocations for future payments in a workers’ compensation settlement designated exclusively to pay for medical services that would be covered by Medicare should the injury/illness not be covered by a private insurance program.
Currently, Medicare is seeking to enforce rules governing MSAs on workers’ compensation (WC)
settlements in particular, although it is looking at other types of settlements, such as product liability, to ensure that medical treatments are covered as required. For businesses, the consequences of not accounting for MSAs in settlement agreements could be crippling.
What Is an MSA?
An MSA is an allocation for future payments under an insurance claims settlement designated exclusively to pay for medical services that would be covered by Medicare if the injury/illness is not covered by a private insurance program. The MSA money is put into a fund administered typically by a third party, and is used to pay for medical expenses for injured workers who are eligible for Medicare.
As mentioned above, the MSA requirement applies to all types of claims settlements that involve a provision for future medical needs for qualified claimants—those who are currently eligible for Medicare or will be assumed eligible within 30 months. This article only addresses WC settlements.
Medicare does not pay for individuals' medical services related to WC when they receive a WC
settlement, judgment, or award that includes funding for future medical expenses until all
such finds are "properly" expended.
Background
The Medicare Secondary Payer (MSP) regulation (42 CFR 411), which has existed since 1980,
establishes that Medicare will always be the secondary payer when a primary payer exists.
The statute requires that Medicare not provide payment for any item or service for which
payment has been or should be made under a WC law or plan. Furthermore, Medicare does not
pay for individuals' medical services related to WC when they receive a WC settlement,
judgment, or award that includes funding for future medical expenses until all such finds
are "properly" expended.
Enforcement of this regulation began in earnest in 2002 when the federal government
commissioned an audit of claims settlements and identified more than $40 billion in
potential liens. Since the federal government has begun to aggressively seek remedies for
this program, and its audit revealed insurance claims settlements to be a well-documented
resource, the requirement for MSAs has come to the forefront of WC claims handling concerns.
The unfortunate truth is that many parties in the system are unfamiliar with and uninformed
about the provisions and requirements of the law. That makes the exposure for error greater
and the need for action urgent.
All parties to the settlement are subject to Medicare's liens. According to the Center for Medicare and Medicaid Services (CMS), the right of recovery applies to any entity, including a beneficiary, provider, supplier, physician,
attorney, state agency, or private insurer that has received directly or indirectly any
portion of a third-party payment. However, the most likely target appears to be insurers and
self-insured WC plans.
The reality is that claims thought to be settled in full may need to
be reopened to satisfy Medicare liens with potential interest and penalties as well as the
possible re-construction and re-funding of improperly designed settlements.
When Do You Need an MSA Arrangement?
If you are considering a settlement of a workers’ compensation case involving an allocation
for future medical benefits, you must determine if the claim qualifies for an MSA. A claim
qualifies for an MSA if it meets at least one of the following criteria:
- The injured employee is already Medicare-eligible. (Medicare-eligible individuals must
be age 65 or older, have been on Social Security Disability Income (SSDI) for 24 months or
more, or be in end-stage renal disease.)
- There is a reasonable expectation of Medicare enrollment within 30 months. Guidelines
for a "reasonable expectation" of Medicare enrollment within 30 months provided by the CMS
are as follows:
- The individual has applied for Social Security disability benefits;
- The individual has been denied Social Security disability benefits, but expects to
appeal that decision;
- The individual is in the process of appealing and/or re-filing for Social Security Disability Benefits;
- The individual is at least 62 years and 6 months; and
- The individual has end-stage renal disease (ERSD), but does not yet quality for Medicare
based on ESRD.
- The settlement (accepted or disputed) is $250,000 or greater. In a structured settlement
the value is the ultimate payout of the settlement, not the cost of the structure.
Claims meeting any one of the above three criteria should be referred to the insurer's or
self-insurer's claims defense attorney for review. An MSA expert should then be engaged to
do the analysis and to work through the Medicare approval process before entering into a
settlement.
What Is the Process of Obtaining an MSA?
If you have applied the criteria and determined that an MSA is needed, assume that the
process will take three to six months to complete. Generally, obtaining an MSA involves the
following:
- confirming with defense counsel that an MSA should be included as part of the
settlement;
- selecting the MSA expert (typically a vendor or law firm) who will do the evaluation and
submission to CMS for approval;
- sending all medical records and, when available, a life-care plan to the MSA expert to
determine the future medical service requirements and those services that would be covered
by Medicare;
- beginning discussions of settlement with the injured worker and/or applicant attorney;
- if settlement discussions proceed, beginning to decide on an MSA administrator and the
proposed amount of the MSA. The administrator will be responsible for fulfilling the
multiple requirements of the MSA fund management and his/her fee is subject to approval by the CMS as well as the amount of the fund;
- if a preliminary settlement agreement is reached, drafting the settlement documents for
submission to CMS along with the proposed MSA arrangement;
- sending the settlement documents and the MSA administrator arrangements to the MSA
expert, as both will be needed to gain approval from the CMS of the MSA arrangement; and
- approval of the MSA arrangement from CMS allowing for the settlement to process.
Should the funds in an approved and well-administered MSA be exhausted, Medicare will
provide coverage and pay for medical services from that point forward.
Should Medicare discover its lien and assert its subrogation claim, the primary payer, which
is typically considered the insurance plan responsible for paying the claim, must reimburse
Medicare within a prescribed period of time or be subject to interest and penalties that can
potentially double the damages.
How Do I Find an MSA Expert, and How Much Does It Cost?
There are MSA vendors who dedicate their time exclusively to this work. Some are highly
experienced and have good track records for first-time approvals. This becomes important
when you are trying to settle a claim with an eager claimant and/or applicant attorney. With
a first-time approval, the process takes a minimum of three months. If you have to go back
to the CMS several times, the process time alone may derail your plan. When selecting a
vendor, look for experience in the field, good references, and a strong track record of
success.
Many services are available for purchase. The complexity of the work and responsibility
attached to the service provider generally determine the price. Some examples of the service
tiers are:
- preliminary case evaluation only;
- simple-case MSA submission;
- complex-case MSA submission; and
- submission plus administrator responsibilities—administrator fees are also evaluated and approved by the CMS as part of the approval process.
When looking at cost, carefully consider the value and quality of the service you are
purchasing. Current pricing ranges from several hundred dollars for a simple-case evaluation
without submission and CMS approval, to thousands of dollars for the submission of a
complex-case to the CMS for approval. The cost for lifetime MSA administrator services
varies widely by the vendor and by the case and must be approved by the CMS before the MSA
arrangement will be approved.
What Are the Risks of Noncompliance with the Federal Regulation?
If you have settled claims that qualified for MSA arrangements and did not get one approved
by the CMS, Medicare has a valid lien for any payments it may have made. Federal regulations
allow Medicare to bring an action against "any responsible party."
Should Medicare discover
its lien and assert its subrogation claim, the primary payer, which is typically considered
the insurance plan responsible for paying the claim, must reimburse Medicare within a
prescribed period of time or be subject to interest and penalties that can potentially
double the damages. Ongoing responsibility for medical payments may continue, and Medicare
may refuse future benefits to the injured worker.
As earlier indicated, liens going back to the inception of the law in 1980 exceed $40
billion. When and if a lien is identified and asserted, irrespective of this unofficial 2001
date, you should deal with it quickly as the time frame for compliance is short and the
penalties stiff for failure to act.
What Should I Do to Bring My Company into Compliance Now?
MSA vendors recommend an approach of letting Medicare come to you with their liens and
concerns about past practices. If you respond quickly and reimburse Medicare for payments
that would have been your responsibility had you known more about the Secondary Payer
Statute, you should face nothing more than unanticipated claims payments.
The following are recommended protocols to follow regarding MSAs:
- Become educated in the requirements of the MSP statue.
- Ascertain if your insurer and /or third-party claims administrator has a well-designed
and current protocol for MSAs to ensure compliance. This is especially important if your
funds are at risk.
- Include an MSA evaluation in future claims administration RFPs.
- Identify the best MSA vendors and request that your claims administrator use them for
your claims in your special-handling instructions.
- Instruct your claims administrator(s) that should Medicare liens be asserted, they will
be given immediate attention and valid liens will be paid within the shortest prescribed
time frame to avoid interest and penalties.
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