For Injury Victims
Medicare is always supposed to be secondary to all forms of insurance according to federal law. This means that when there is a primary payer for injury related care, they are supposed to pay first. Therefore, if you have a workers’ compensation claim or a third party personal injury case you aren’t supposed to settle with the insurance company and then treat with Medicare for those injury related conditions. Instead, a set aside is done where a portion of the settlement is placed into a segregated account and used to pay for Medicare covered care until exhaustion. Once the set aside is exhausted, Medicare should be again billed for injury related care. You can think of the set aside as a large deductible for injury related care.
According to Medicare:
The burden of future medical expenses in a personal injury case may not be shifted to Medicare. Federal law provides that Medicare’s interest must be considered in injury settlements, when future medical expenses are a component of the settlement.
Because Medicare does not pay for an individual injury related medical services when the individual receives a settlement that includes funds for future medical expenses, it is in the best interest of the individual to consider Medicare at the time of settlement. For this reason, CMS recommends that parties to a settlement set aside funds, otherwise known as a Medicare Set-aside Arrangements (MSAs) for all future medical services related to the injury or illness/disease that would otherwise be reimbursable by Medicare.
Below you will find select topics in the form of frequently asked questions. The information is provided as an overview of the issues. If you have specific questions, please contact us.
What is a Medicare Set Aside?
A Medicare set aside (hereinafter MSA) is a tool that allows an injury victim to preserve Medicare benefits by setting aside a portion of the settlement money in a segregated account to pay for future Medicare covered. The funds in the set aside can only be used for Medicare covered expenses related to your injury. Once the set aside account is exhausted, you get full Medicare coverage without Medicare ever looking to your remaining settlement dollars to provide for any Medicare covered health care. Medicare may approve the amount to be set aside in writing and agree to be responsible for all future expenses once the set aside funds are depleted. However, there is no requirement for Medicare to review and approve the set aside amount.
Who Needs an MSA and Why do you Need One?
If you are currently a Medicare beneficiary and you settle your case you may need an MSA. In addition, if you are not a current Medicare beneficiary but have a “reasonable expectation” of Medicare enrollment within 30 months of the settlement date then you may need an MSA. Assuming you fall into one of these two categories, you may need to establish an MSA because if you do not you could lose Medicare eligibility for your personal injury related medical conditions.
Who Determines the Amount Set Aside?
A professional who specializes in “allocations” examines your medical records/payouts and makes recommendations based on the amount of future care you will require that is covered by Medicare. The company hired to perform the allocation determines how much of your future medical care is covered by Medicare and then multiplies that by your remaining life expectancy to determine the suggested amount of the set aside. Medicare does not necessarily simply accept the allocation recommendation if it is submitted to them for review. Medicare, if the set aside is submitted, could require more to be set aside than the amount suggested in the MSA allocation.
How is the Set Aside Funded?
The set aside can be funded with a single lump sum out of the settlement proceeds or with future periodic payments using a structured settlement. A single lump sum funding makes the set aside easier to administer but means more must be set aside over using a periodic payment arrangement. Funding with future periodic payments via a structured settlement annuity makes the administration of the set aside harder but it is a much cheaper way of funding the set aside. When a set aside is funded with a lump sum, as soon as the account is exhausted Medicare should be billed for injury related health care. However, when a set aside is funded with periodic payments via a structured settlement annuity it functions much like a yearly insurance deductible. Each year, the structure payment would flow into the set aside and when the funds are exhausted in that year Medicare would begin paying for services related to the injury. If the funds are not all spent in the year the periodic payment is made, the funds in the set aside carry over to the next year. Thus, Medicare only pays once all funds for any given year have been exhausted.
Why is a Rated Age with a Structured Settlement so Important to my MSA?
Age ratings can save on the cost of the structured settlement annuity and reduce the out of pocket cost of the set aside. A rated age is a life expectancy adjusted age used to calculate the cost of a structured settlement. If you receive a rated age it means that the life insurance company has decided that your life expectancy is less than normal due to your medical conditions and accordingly allows the annuity to be priced as if you were older. Shortened life expectancy translates into a lower structured settlement cost when compared to a structured settlement priced with normal life expectancy. Additionally, CMS considers a reduction in life expectancy when determining how much must be set aside. As evidence of reduction of life expectancy, CMS will look at the median age rating issued by the life insurance companies issuing age ratings. Therefore, not only does it cost less to fund a set aside with a structure but it also reduces how much must be set aside in the first place.
Why Should I fund my MSA with a Structured Settlement Annuity?
There is a cost savings by purchasing a stream of benefits today that will provide benefits tomorrow especially if there is a rated age. As a result, less money must be set aside when a structure is used to fund the set aside. In addition, interest earned on the funds in the structured settlement is not taxable. The structure becomes a tax free, cost free investment to fund the set aside. CMS routinely approves set asides being funded with structured settlement annuities and mentions their use in their memo.
Who administers the set aside?
There are two options assuming the injury victim is competent; the set aside may be self-administered or professionally administered. If the injury victim is incompetent, then the set aside must be professionally administered. Regardless of whether it is self-administered or professionally administered, the funds must be put in an interest bearing account and accounted for in terms of expenditures on Medicare covered services.
According to CMS, if it is self-administered then the claimant should submit an annual self-attestation form when monies have been exhausted. If it is professionally administered, the administrator of the set aside must forward annual accounting summaries concerning the expenditures to the CMS Medicare contractor responsible for monitoring the individual’s case (MSPRC).
If I am not yet eligible for Medicare, Can I use the MSA Funds?
For those who are not yet Medicare beneficiaries and for whom CMS has reviewed a Medicare Set-aside Arrangement, the MSA may be used prior to becoming a beneficiary because the amount of the set aside was based on the date of the expected settlement. Use of the MSA is limited to services that are related to the personal injury conditions and that would be covered by Medicare if the injury victim were a Medicare beneficiary.
Will the MSA Also Protect my Medicaid Eligibility?
No. An MSA only protects future Medicare eligibility. If you receive Medicaid in addition to Medicare, a special needs trust (hereinafter SNT) might be necessary to preserve Medicaid eligibility. If it is necessary, a hybrid MSA/SNT can be created to deal with this issue.
If I am no Longer Entitled to Medicare can I Withdraw Funds from the MSA?
No. You are not entitled to release of the MSA funds if you lose your Medicare entitlement. However, the funds in the MSA may be expended for medical expenses specified in the MSA agreement until Medicare entitlement is re-established or the MSA is exhausted.
What Happens to the Funds in the MSA Should I Pass Away?
The MSA funds, either in lump sum or structured settlement (if guaranteed), would go to your beneficiaries under the MSA agreement. Medicare only requires the funds to be used for your future Medicare covered injury related expenses. Therefore, once you pass away those funds can flow to your family or named beneficiary. If a structured settlement is set up and you want money to go to your family or named beneficiary, you should request that the annuity be “guaranteed” instead of life only.
Can I waive my right to future Medicare coverage to avoid an MSA?
“There is no means by which a . . . [injury victim] can permanently waive his or her right to certain specific services related to a . . . [PI] case and, thereby, reduce the amount of a . . . MSA. CMS cannot approve settlements that promise not to bill Medicare for certain services in lieu of including those services in a Medicare set-aside arrangement. This is true even if the claimant/beneficiary offers to execute an affidavit or other legal document promising that Medicare will not be billed for certain services if those services are not included in the Medicare set-aside arrangement.”
What if the Claimant has Group Health, a Managed Care Plan or VA Coverage?
“In a . . . [PI] settlement, a . . . MSA is recommended where the claimant is covered under a GHP or a managed care plan or has coverage through the VA. A . . . MSA 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 . . . [liability insurance] is always primary to Medicare and many other types of health insurance coverage for expenses related to the . . . claim or settlement.”