There has always been, and continues to be, much confusion as to the obligations of plaintiffs’ attorneys relative to the “consideration” or “protection” of Medicare’s future interests in a liability settlement. That confusion turned into chaos after the Medicare, Medicaid, and SCHIP Extension Act (MMSEA) was signed into law on December 29, 2007, which created the mandatory insurer reporting requirements.
Shortly thereafter, what was once a cottage industry of Medicare Set-Aside (MSA) providers grew into a full-blown, national MSA frenzy. Virtually everyone in the settlement industry with a calculator in reach suddenly began providing Medicare Set-Aside services. Some structured settlement brokers, and the insurers they represented, insisted upon Medicare Set-Asides in every case. However, while the MMSEA did create mandatory insurer reporting, nothing therein created new liability or new requirements relative to Medicare’s future interests. It only created a requirement that CMS is notified when Medicare-eligible plaintiffs settle personal injury claims.
I. NO EXPOSURE FOR THE DEFENSE REGARDING A LIABILITY MSA
In spite of the lack of any statutory or regulatory change affecting liability carriers or self-insureds with regard to future medicals, many in the blooming MSA industry were able to convince adjusters that their carriers were exposed to “double damages” if they failed to insist upon an MSA as a condition of settlement.
We have known for some time that none of this is true. While authority unequivocally exists to establish liability for the failure to reimburse for conditional payments made prior to a settlement, no such authority exists to establish liability for payments made after a settlement, as they are not “conditional.” In fact, not only is there a lack of statutory authority for such a position, but in the Medicare Secondary Payer Manual by the Centers for Medicare & Medicaid Services (“CMS”), the agency set forth a prohibition against seeking liability or recovery against defendants and insurers for Medicare payments made post-settlement. The Medicare Secondary Payer Manual states that: “There should be no recovery of benefits paid for services rendered after the date of a liability insurance settlement.”1
A. LIABILITY INSURER/DEFENSE-PUBLISHED POSITIONS ACKNOWLEDGING THE LACK OF EXPOSURE TO THEM
Furthermore, on at least two separate occasions, prominent authorities representing the interests of the defense have come to the same conclusion: that there is no exposure to the defense side for failure to establish an MSA in a pure liability case.
First, in 2012, industry-wide acknowledgement of such was detailed by the American Insurance Association’s (AIA) Medicare and Medicaid Task Force in response to CMS’s June 2012 Advance Notice of Proposed Rulemaking for liability MSAs (ANPRM). At that time, AIA’s Task Force was made up of 34 domestic and foreign insurance groups, trade associations, and other stakeholders representing over 300 major insurance companies. The Task Force’s response to CMS’s proposed regulations for liability MSAs acknowledged that there is no exposure to insurers and self-insureds:
We understand that the proposed options do not seek to place any obligations on an insurer or self-insured with respect to “future medicals,” as there is no statutory authority permitting CMS to impose any such obligation or granting it a right of recovery against an insurer or self-insured with regard to “future medicals.” CMS’s lack of authority with respect to insurers and self-insureds regarding “future medicals” underscores the importance of properly focusing the seven options solely on beneficiaries.2
CMS’s proposed liability MSA regulations, which were the subject of the 2012 ANPRM, have since been withdrawn as of October 8, 2014.
Shortly thereafter, the Defense Research Institute published an article in May of 2013 entitled “Dispelling Medicare Myths in Tort Settlements: The Real Scoop on the Purported Insurer’s Duty to Protect Medicare’s Interests” by Kathryn Bucher, Richard L. McConnell, and Katherine R. McDonald. In the article, the authors conclude:
In summary, although Medicare beneficiaries may have a personal obligation or interest in certain circumstances to use some or all of the commercial insurance payments that they receive to pay for future medical expenses, the agency record provides no support for the position that insurers are required to allocate funds to future medicals or, more specifically, to offer MSAs to claimants.3
B. CASE LAW CONFIRMS THE LACK OF ANY MANDATE FOR A LIABILITY MSA
A number of Federal courts have determined that, while the preparation of an MSA might be appropriate in order to protect the claimant/plaintiff, there is absolutely no authority requiring the establishment of an MSA in a liability case.
In Sipler v. Trans Am Trucking, Inc.4, the United States District Court for the District of New Jersey recognized, “Indeed, no federal law requires set-aside arrangements in personal injury settlements for future medical expenses.”5
In Bertrand v. Talen’s Marine & Fuel LLC6, the United States District Court for the Western District of Louisiana found that:
CMS does not currently require or approve Medicare set-asides when personal injury lawsuits are settled. CMS does not currently have a policy or procedure in effect for reviewing or providing an opinion regarding the adequacy of the future medical aspect of a liability settlement or recovery of future medical expenses incurred in liability cases.7
Additionally, in Bruton v. Carnival Corp.8, the United States District Court for the Southern District of Florida stated, “There is no legal requirement that the settlement in this personal injury lawsuit include a Medicare set-aside trust account, a point Defendant has implicitly conceded.”9
Recently, there was much euphoria over the decision in Aranki v. Burwell10, from the District Court of Arizona, with many commentators suggesting that this ruling had finally imposed a death sentence on liability MSAs in personal injury cases. In reality, that case was dismissed due to a lack of subject matter jurisdiction, with the Court determining only that, “This case is not ripe for review because no federal law mandates CMS to decide whether Plaintiff is required to create a MSA.”11
C. CMS HAS REPEATEDLY ACKNOWLEDGED THAT THERE IS NO STATUTORY MANDATE FOR AN MSA
CMS has repeatedly affirmed the absence of any requirement that claimants must submit an MSA for approval. In fact, in the now well-known 2011 “Stalcup Memorandum,” CMS Regional Director Sally Stalcup stated:
Medicare’s interests must be protected; however, CMS does not mandate a specific mechanism to protect those interests. The law does not require a “set-aside” in any situation. The law requires that the Medicare Trust Funds be protected from payment for future services whether it is a Workers’ Compensation or liability case. There is no distinction in the law. Set-Aside is our method of choice and the agency feels it provides the best protection for the program and the Medicare beneficiary.12
Further, the recent update to the Workers’ Compensation Medicare Set-Aside Reference Guide published by CMS states: “There are no statutory or regulatory provisions requiring that you submit a WCMSA (Workers’ Compensation Medicare Set-Aside) for review.”13
CMS has long ago acknowledged the difference between the plaintiff’s attorney’s obligations and those of the defense/insurer. In the earlier referenced “Stalcup Memorandum,” CMS made it clear that the defendant insurer/self-insured’s sole obligation with regard to future medicals was only triggered if the settlement included payment for future medicals. Even then, however, the defendant/insurer/self-insured’s obligation was limited to simple notification:
Each attorney is going to have to decide, based on the specific facts of each of their cases, whether or not there is funding for future medicals and if so, a need to protect the Trust Funds. They must decide whether or not there is funding for future medicals. If the answer for plaintiff’s counsel is yes, they should see to it that those funds are used to pay for otherwise Medicare covered services related to what is claimed/released in the settlement judgment award. If the answer for defense counsel or the insurer is yes, they should make sure their records contain documentation of their notification to plaintiff’s counsel and the Medicare beneficiary that the settlement does fund future medicals which obligates them to protect the Medicare Trust Funds.14
Lastly, it is important to point out that, while none of the seven options offered by CMS in its proposed Liability MSA regulations in 2012 (now completely withdrawn) gave a clear picture of CMS’s outlook about Medicare beneficiaries who receive settlements, none of those options sought to impose any liability on the defendants or insurers. All of the options imposed obligations on plaintiffs only. Hence, the balance of this article will examine the current exposure to plaintiffs and their counsel for failure to properly consider Medicare’s future interests.
II. THE PLAINTIFF’S POTENTIAL EXPOSURE
Attorneys might ask: “Without a formal statutory or regulatory requirement to establish an MSA, why would I advise my client to consider one?” The answer is simple and is derived from the Medicare Secondary Payer (MSP) statute set forth below.
A. THE MSP EXCLUSION STATUTE
Payment under this subchapter may not be made, except as provided in subparagraph (B), with respect to any item or service to the extent that—
. . . (ii) payment has been made or can reasonably be expected to be made under a workmen’s compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance.15
This statute has been interpreted to empower CMS to deny coverage anytime that it determines that a claimant had been compensated for the same past, or future, medical expenses related to the settlement of a liability claim. Keep in mind that this determination could have devastating effects on the plaintiff’s future healthcare expenses, as those who are Medicare-eligible are not eligible for coverage under the Affordable Care Act.16
One needs only to review the regulations promulgated by CMS which apply to Workers’ Compensation settlements to fully appreciate the agency’s interpretation of the “Exclusion Statute”:
42 CFR § 411.46 Lump-sum payments.
(a) Lump-sum commutation of future benefits. If a lumpsum compensation award stipulates that the amount paid is intended to compensate the individual for all future medical expenses required because of the work-related injury or disease, Medicare payments for such services are excluded until medical expenses related to the injury or disease equal the amount of the lump-sum payment.
(b) Lump-sum compromise settlement.
(1) A lump-sum compromise settlement is deemed to be a workers’ compensation payment for Medicare purposes, even if the settlement agreement stipulates that there is no liability under the workers’ compensation law or plan.
(2) If a settlement appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for the treatment of a work-related condition, the settlement will not be recognized. For example, if the parties to a settlement attempt to maximize the amount of disability benefits paid under workers’ compensation by releasing the workers’ compensation carrier from liability for medical expenses for a particular condition even though the facts show that the condition is work-related, Medicare will not pay for treatment of that condition.17
Consequently, MSAs have become routine in the Workers’ Compensation setting where the obligation to pay future medicals has been “commuted” or “compromised.”
In these situations, it is clear that Medicare will not cover claim-related expenses until the entire settlement is exhausted. The exception to that rule occurs when an MSA is utilized and CMS approves it. With an MSA tied into the settlement, the claimant need only exhaust the MSA amount ? not the entire settlement ? before returning to Medicare coverage. This results in a significant savings to the claimant. Further significant savings may occur when the claimant annuitizes the MSA obligation (essentially, only paying the cost of an annuity to fund the total future obligation).
With an annuitized plan, the beneficiary may exhaust the amount allocated each year to the MSA account before returning to full Medicare coverage. Once exhausted, the beneficiary is then free to receive Medicare coverage until the next annuity payment is received. CMS has approved these methodologies, and they are set forth in the CMS Self-Administration Toolkit for Workers’ Compensation Medicare Set-Aside Arrangements. Even greater savings occur when an annuitized MSA takes advantage of rated ages.
B. THE PROPOSED LIABILITY MSA REGULATIONS
In the 2012 Advance Notice of Proposed Rulemaking, CMS gave notice that it was seeking comments on proposed regulations for set-asides in liability cases. By November 2014, presumably after consideration of numerous and extensive comments submitted during the comment period, the proposed regulations were withdrawn. However, while the regulations are not in effect, the effort served as a further communication to the public about CMS’s interpretation of the Exclusion section of the MSP Act.
CMS’s interpretation of the Exclusion Statute is clear: if the claimant has been compensated for future medicals in the settlement, coverage for those medicals is excluded and will be denied. Challenging those denials of coverage will be difficult and time-consuming. Since exhaustion of administrative remedies is a prerequisite to judicial review of a denial of coverage, several years may transpire before you have your day in court. Under current law, those who are Medicare beneficiaries are not eligible for Affordable Care Act coverage, and if your client has not otherwise established an MSA account from which to pay medical expenses, there will be no coverage of those expenses.
I will use one real life example as a final illustration. When researching MSAs in liability cases a few years ago, I ran across an article in an AAJ publication authored by a prominent Florida trial attorney who regularly monitored CMS activities in relation to set-asides. Before mediating a significant case, he sought and received a letter from CMS confirming that MSAs are not required in settlements or judgments awarded in FELA and Jones Act cases. Notwithstanding this letter, CMS denied coverage of his client’s future medical expenses related to a settlement made in a Jones Act case, and insisted upon an MSA more than two months after a $5.4 million mediated settlement. Until the plaintiff established the MSA, he was denied Medicare coverage until the full settlement was exhausted on claim-related medical expenses.
The denials in that case were triggered by a hostile defense counsel’s delivery of the plaintiff’s life care plan, pleadings, and details of settlement directly to CMS.
C. ANNOUNCEMENT OF POSSIBLE EXPANSION OF MSA REVIEW PROCESS TO LIABILITY MSAs
On June 8, 2016, CMS sent out the following announcement:
The Centers for Medicare and Medicaid Services (CMS) is considering expanding its voluntary Medicare Set-Aside Arrangements (MSA) amount review process to include the review of proposed liability insurance (including self-insurance) and no-fault insurance MSA amounts. CMS plans to 60 Bill of Particulars work closely with the stakeholder community to identify how best to implement this potential expansion. CMS will provide future announcements of the proposal and expects to schedule town hall meetings later this year. Please continue to monitor CMS.gov for additional updates.
While statutory or regulatory change appears unlikely at the current time, there is no doubt that CMS will attempt to put mechanisms in place to at least “review” liability MSAs in the near future. When this effort is combined with the defendant/insurer’s statutory obligation to report settlements for Medicare beneficiaries and the ICD codes associated with the plaintiff’s claims, it seems prudent to take appropriate steps to prevent application of the Exclusion provisions of 42 U.S.C. 1395y(b)(2)(A).
Your client may be lucky enough to fall under Medicare’s radar and the denial of your clients’ future coverage may never occur, but plaintiffs’ attorneys should at least have a detailed conversation with their clients about these potential issues. In consultations with numerous settling claimants, I have found that the one thing that many of them fear the most is the possibility of being left exposed, without coverage for medical expenses in the future.
Currently a Medicare Set-Aside, though not formally required, is simply the most efficient and effective practice for protecting yourself, and most importantly, your client’s future claim-related coverage.
The alternative is to properly include documentation in your file which confirms any of the following: (a) no part of the settlement represents payment for future Medicare-covered medical expenses; (b) by the attestation of a treating physician, no future medical treatment is required; and/or (c) client acknowledgement of the potential Medicare denial of coverage for future accident-related treatment (keeping in mind that the ACA/Exchange coverage is not currently available to Medicare eligible claimants).
The most important thing – whether an MSA is utilized or not – is to ensure that your client fully understands the potential risk of losing future medical coverage if Medicare’s future interests are ignored.
Paul Isaac, Esq. is the founder and managing partner of Paramount Settlement Planning, LLC and Precision Resolution, LLC. He is a past president of the NYSTLA Western Region Affiliate Group.
A trial attorney and strategic life planner, Mr. Isaac’s years of experience allow him to anticipate a plaintiff’s long-term financial needs. Mr. Isaac has helped several clients obtain large settlements and favorable verdicts. In addition to assisting plaintiffs with the strategies for handling settlements from all types of personal injury lawsuits, Mr. Isaac is experienced in navigating the intricacies of complicated cases in which Medicaid and future Medicare benefits must be preserved. Mr. Isaac received both his undergraduate and law degrees from Duquesne University and is admitted to practice law in New York and Pennsylvania.
- Centers for Medicare & Medicaid Services, Medicare Secondary Payer (MSP) Manual, Chapter 7, Section 50.5 (February 22, 2008).
- American Insurance Association, Letter to Marilyn Tavenner dated August 14, 2012, available at https://www.regulations.gov/#!documentDetail;D=C MS-2012-0073-0059.
- Bucher, McConnell & McDonald, Dispelling Medicare Myths in Tort Settlements: The Real Scoop on the Purported Insurer’s Duty to Protect Medicare’s Interests, For the Defense, May 2013 at 53.
- 881 F. Supp. 2d 635 (D. N.J. 2012).
- Id. at 638.
- 6:10-CV-1257, 2012 WL 2026998 (W.D. La. June 4, 2012).
- Id. at *3.
- 11-21697, 2012 WL 1627729 (S.D. Fla. May 2, 2012).
- Id. at *3.
- CV-15-0668-PHX-SMM (D. Ariz. October 16, 2015).
- CMS Memorandum, Division of Financial Management and Fee for Service Operations, Region IV, May 25, 2011, at 1.
- Centers for Medicare & Medicaid Services, Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) Reference Guide, Version 2.5, available at https://www.cms.gov/Medicare/Coordination-of-Benefitsand-Recovery/Workers-Compensation-Medicare-Set-Aside-Arrangements/ Downloads/WCMSA-Reference-Guide-Version-2_5.pdf. [UPDATED FEB. 28, 2022 to ver. 3.5]
- CMS Memorandum, Division of Financial Management and Fee for Service Operations, Region IV, May 25, 2011, at 3.
- 42 U.S. Code § 1395y(b)(2)(A)) (emphasis added).
- See Medicare & the Marketplace, https://www.medicare.gov/about-us/medicare-the-marketplace (last visited April 29, 2016).
- 42 C.F.R. § 411.46 (emphasis added).