The Basics of a Medicare Set Aside
As a settlement tool, Medicare Set Aside (MSA) accounts function as a financial measure with dual purposes. First, MSA account funds are reserved for the treatment of projected Medicare covered future medical expenses involved in a workers’ compensation or personal injury settlement. Second, MSA accounts allocate Medicare’s share of future medical expenses, fulfilling Medicare’s obligations under the Federal Medicare Secondary Payer Act (MSP).
MSA accounts are typically funded with attorney fees out of the net settlement amount after the deduction of costs and direct Medicare liens . The CMS mandates an amount equal to the projected future medical expenses be earmarked in the MSA for an injured party to use for, or reimburse Medicare for, the cost of future medical expenses related to the injury.
The Centers for Medicare and Medicaid (CMS) set out guidelines and processes for creating qualified MSA accounts on a predetermined basis with high dollar settlement amounts or a prognosis of 30+ years, and on an ad hoc basis for lower settlement amounts or shorter life expectancies. However, only the CMS determines whether the terms of the MSA are acceptable.
Laws and Regulations
The legal framework surrounding Medicare Set Asides (MSAs) is primarily governed by federal laws and regulations, with the Centers for Medicare and Medicaid Services (CMS) playing a central role in set-aside determinations involving Medicare beneficiaries. The concept of the MSA itself is based on an attorney’s fiduciary duty to act in the best interests of his/her client, during the settlement of a claim, and to place funds into a Medicare approved "Trust" when appropriate, as required by the Conditional Payments System and settled law on Medicare Secondary Payer (MSP) recovery. The Secondary Payer System determines who should pay for a beneficiary’s costs of medical services first, and the CMS requires Medicare beneficiaries to be proactive in ensuring their future expenses are covered after a Settlement.
MSA funds are used to pay for care which is covered by Medicare, when it is reasonable and necessary for the treatment of an individual’s injury, illness, impairment, or dysfunction. An MSA must include an amount reasonably necessary to pay for the future expenses of an injured party, after consultation with a physician or other acceptable provider of treatment related to a work related injury, that will be covered under Medicare benefits. Under the MSP Extended Billings provision, any physician or provider who renders care related to a work-related injury incident, must bill the workers’ compensation carrier first, before submitting any claim to Medicare.
Medicare may not approve MSA amount proposals/allocations or guidelines, except on a case-by-case basis where a specific employer/insurer/workers’ compensation carrier submits a written request for a re-determination of the amount that should be allocated into an MSA. CMS will then review the proposed allocation as it relates to the beneficiary’s medical condition and medical needs, and will either agree with or reject the proposed allocation. CMS has initiated a process through its Regional Office and Headquarters, for submitting and responding to MSA requests. CMS may issue either a Conditional or Final Approval, depending on whether it determines the allocation is appropriate. CMS also issues a Final Determination if it determines a final determination is necessary, and the MD Provider Enrollment, Chain and Ownership System began implementing a new Active MSA File as of December 7, 2012 which will allow CMS to track MSA information. CMS is now providing Beneficiaries with a yearly benefit check reflecting the use of a MSA.
The CMS has indicated a willingness to extend an MSA period to five years or more where appropriate, and/or to offer guidance for extending MSA eligibility for cases where the amount allocated to the MSA is larger than necessary, i.e. in cases where the underlying injuries or illnesses are similar to those faced by diabetic patients or patients with a dietary restriction with respect to Medicare. CMS has also issued a Medicare Learning Network (MLN) booklet, after implementing a similar program in 2008, and the CMS continues to educate Medicare contractors about future MSA responsibilities and has expanded recoveries for Foundational Secondary Payor costs. CMS suggests that the MSP manual be reviewed, which is kept on the CMS website, and reads as follows: "The MSP Manual provides the most current information, policy and guidance pertaining to the MSP provisions of the Social Security Act, policies, and procedures for the coordination of benefits and benefit recovery." CMS has established the Recovery Auditors dedicated to resolving MSP claims. CMS also continues to conduct annual training programs for the purpose of training law firms and insurance companies on how to make CMS payments, recover payments, process claims, and question disputes, as they relate to the workers’ compensation system. CMS hosted an MSP Drug Re-Opener Training Program in 2010 for the purpose of educating lawyers and insurers on how to identify a set amount for future prescription drug coverage costs. CMS will audit and monitor MSA developments to ensure compliance with the MSP rules, through the following: CMS began implementing its policy of requiring and approving Medicare Set Asides (MSA) requirements for deemed Trusts in October 2006.
When is a Medicare Set Aside Necessary?
In workers’ compensation situations, a Medicare Set Aside is required when there is a reasonable expectation that the treatment of your client’s work related injury will include a Medicare Covered Expense, including:
Part A – Inpatient hospital stays and costs for skilled nursing facility care.
Part B – Services by physicians, providers and suppliers like nurse practitioners, physician assistants, therapists, clinical laboratory services, and durable medical equipment.
Part D – Who can enroll in a drug plan that is available in their area. This helps cover outpatient prescription drugs.
Workers’ compensation conditional payments are payments made by the carrier for medical expenses that are covered by Medicare, but in fact should be paid by workers’ compensation. When the carrier fails to pay for these medical expenses, they can be reimbursed from the judgement/settlement. Once the conditional payment is made, the case must be reviewed by a Medicare specialist to determine if the settlement should be subject to a Medicare set aside. For cases based on settlements in workers’ compensation, if the settlement is over $250,000 then a Medicare set aside must be calculated. This is accomplished by collecting medical records and claiming bills from your client’s medical past present and future (until he is deemed MMI), and comparing that amount to the Medicare rate payment for those same items. In some cases, the amount determined will not be sufficient to be subject to a Medicare set aside. A certain filing needs to happen to demonstrate to CMS that that the case is inappropriate for a Medicare set aside. In all cases, no matter how old the case, designating the portion for the Medicare set aside can qualify as a conditional payment. A Medicare set aside is required in liability and no-fault cases (other than tied to workers’ compensation) if an individual is settling their case for future medical expenses, and the total settlement amount is over $250.000. If so, then the case needs to be looked at to see if it would be subject to a Medicare set aside. We do not do liability cases, but we know accountants who do and would be happy to refer you to them if you ask us. When submitting a Medicare set aside through the CMS approved request for review process, you will indicate if the basis for the claim included a Medicare set aside funded by future medical, and that will allow the processing of the case to be done following the Medicare set aside guidelines.
How to Determine the MSA Amount
This table illustrates for a professional allocation service how to calculate a proper amount. The date of inception of the Medicare medical condition is the 9/19/2014 date of accident in the pending workers’ compensation case. Under the 65 year old factor tables, liability is divided by 3.2. For this case, $157,000.00 was divided by 3.2 to equal $49,062.50. The $49,062.50 figure is then multiplied by .87 for indirect costs, third party liability reduction, which equals $42,701.17. This is the cost for the first year. The second year sealed as of the date of inception of the Medicare medical condition would be multiplied by the 65 and older table factor of 8.0. That result is then multiplied by the .5 factor for costs associated with accident related bills. This figure is then multiplied by the indirect costs, third party liability discounted 13% for an MSA set aside of $160,416.67. The table then progresses downward for the next 15 years.
Submitting for Approval
Submitting a CMS approved Medicare Set Aside Agreement may be required particularly by insurers if a claimant has a substantial Medicare set aside obligation. CMS may even require the CMS Maldodex to approve the settlement amount and/or allocation.
If not required, the process can nevertheless be a valuable opportunity to ensure that both the employer and employee are protected from Medicare’s recovery rights. In such instances, the insurer and/or the defense attorney should (1) prepare a MSA proposal for submission to CMS, and (2) request a Medicare set aside allocation or an approval that a Medicare set aside is not yet needed.
The process starts with a final settlement proposal. The proposal should include the following information: In addition, the proposal should indicate whether the claimant is entitled to Medicare benefits as of the anticipated approval date. Finally, an expected life (life expectancy) should be included for purposes of supporting a reasonable allocation of funds.
The Centers for Medicare & Medicaid Services (CMS) will generally accept a Medicare set aside proposal that provides allocation amounts, verbal support, and administrative payment amounts that are within Medicare’s prescribed amount, as determined by the Medicare set aside manual, and consider the matter settled.
CMS provides MSA submission instructions on its website. The preliminary steps involve two basic requirements. First, the MSA must be submitted, via a form 6, through www.CDISpace.com, a CMS file-sharing website. Second, the MSA file is uploaded to CDISpace. For the most part, files should not exceed 10 megabytes.
Upon receipt of the proposal, CMS will issue an acknowledgment. CMS will then review the proposed MSA for accuracy and completeness. If the review is completed within 120 business days, CMS will send a Notice of Final Determination. If, however, the review exceeds the 120 business day requirement, CMS will issue a notice of Medical Review Timeliness Determination. Even if the claim takes more than 120 business days to complete, the file is still eligible for CMS approval. Because claims take longer than the prescribed turn-around time, it is important to understand the process. However, the applicant and/or attorney may contact CMS regarding open claims.
After 120 business days (or more), CMS can issue a Notice of Final Determination. Normally, claims shepherded through the process by CMS receives an approval for the amount requested. If this is not the case, a claimant can appeal CMS’s decision. A request for addendum, along with the original Notice of Final Determination, can be made. A claimant has four (4) months after CMS’ decision to assert an appeal of the initial determination. The appeal may be in writing and may be supported by affidavits and declarations.
Thus, if a MSA proposal is timely submitted and the proposal supports the prescribed amount CMS will likely approve the proposal. In fact, the top three reasons for the initial CMS denial of a MSA proposal are a lack of information.
The appeal process also assumes proper and thorough claim preparation, as indicated in the previous section.
MSA Management and Administration
The administration of a Medicare Set Aside is subject to the Centers for Medicare and Medicaid Services (CMS) guidelines, which, as indicated above, vary based on the size of the settlement. For MSAs in cases up to $25,000, if the only Medicare beneficiary is the injured party, there are no special MSA reporting requirements or payment conditions. Case settlements subject to workers’ compensation Medicare set-aside arrangements (WCMSA) (CMS’ equivalent of an MSA) of $25,000 or less require that the settlement terms be accounted for in the settlement agreement.
An MSA containing $25,000 or more requires a full set-aside proposal for CMS review and approval of amounts to be paid into the MSA and a full accounting at the end of each year and the status of the MSA. Additionally, CMS places special conditions on the administration of the account. There are costs associated with the administration of the MSA account, which are generally not covered by the insurer, but are of course allowable Medicare expenses and MSA funds may be used for these administrative expenses .
MSA accounts may be administered by the employee, employer, or a professional custodian, provided that the custodian is covered by an insurance policy that covers Errors and Omissions (E&O) and provide at least $1,000,000 in coverage per claim, $1,000,000 per incident, $3,000,000 aggregate. Costs of the policy must be paid from MSA funds. We previously discussed how to choose a custodian. The parties cannot choose CMS as the custodian. A custodian must be someone in a fiduciary capacity, such as an insurance company or accounting firm with trust powers. However, CMS has identified the following services that should be paid out of the account: monthly management fees, investment management fees, federal and state taxes, miscellaneous expenses that do not need CMS approval, fees for legal and accounting services necessary for administration, and all service charges related to the banking of the award.
However, CMS does not allow the following items to be paid from the account: attorney’s fees and costs associated with settling the case, set-up fees, fees associated with creating or maintaining a sub-account for each beneficiary, custodial fees not paid in accordance with the fee schedule, claims examiner fees not paid in accordance with the fee schedule, subcontractor service costs, and fees for services not provided.
Implications of Non-Compliance
In recent years, Congress and the Centers for Medicare & Medicaid Services (CMS) have been clamping down on Medicare Set Aside (MSA) compliance. Employers and carriers who fail to satisfy MSA requirements may be subject to legal and financial consequences. Keep in mind that MSA compliance is more important than satisfying "Medicare’s Interest." Satisfying Medicare’s Interest involves satisfying Medicare’s secondary payer regulation by paying for those expenses that are not otherwise covered by WC. In other words, an employer/carrier can satisfy Medicare’s interest by paying what WC would have paid if the injury had occurred after Medicare coverage started. Satisfying Medicare’s Interest does not relieve an employer/carrier from its obligation to establish and fund an MSA. An employer/carrier can satisfy its obligation to establish and fund an MSA but still fail to satisfy Medicare’s interest and vice versa.
The failure to comply with MSA requirements involves both legal and financial risk to the employer/carrier. First, failure to comply with MSA requirements violates the Medicare Secondary Payer (MSP) statute that subjects the employer/carrier to a potential penalty of double damages. Double damages means that the employer/carrier would be liable to pay the full amount of the overpayment plus a 12% per annum interest.
In addition to double damages, CMS has extended its Recovery Audit Contractor’s (RAC) authority to enforce MSP policy directly against employers, carriers and self-insureds. The RAC’s audit reviews could result in a cease and desist order, suspension of billing privileges and/or the imposition of a range of civil monetary penalties, including CMP’s of $5,000.00 per claim filed, sanctions for kickbacks and false claims, and exclusion from participation in the Medicare and Medicaid Programs.
Moreover, the failure to satisfy MSA requirements creates a substantial delay in the Resolution of Clients’ cases. Specifically, the necessary delay in establishing and funding an MSA often requires a carriers’ Mandatory Settlement Offer (MSO) to be increased. In certain cases, the augmentation can be very substantial, resulting in significant adverse litigation costs.
Latest Developments and Changes
In 2020, CMS made a notable policy change to the MSA review threshold, up from $750.00 to $1,000.00 from a workers’ compensation claim or settlement. This amendment changes the monetary threshold for reviewing MSA proposals submitted to CMS. After March 1, 2021, CMS will not review cases with an MSA proposal below $1,000.00. CMS estimates that 80% of the current workload of reviewing MSA proposals will be removed upon this new policy.
CMS stated in the 2021 Medicare Fee Schedule that its 2020 Proposed Rule amends the threshold for designated filing authority to also include state approved voluntary employee beneficiary associations (VEBA) trust, and health reimbursement arrangements (HRA). CMS is removing the requirement for VEBA trust and HRA to seek CMS approval for MSA proposal submission. If the individual’s MSA proposal can be processed by CMS, then the VEBA trust or HRA may submit a proposal on behalf of the individual who would otherwise be considered a "person authorized to act on the beneficiary’s behalf" under 42 C.F.R. ยง 405.9105.
CMS estimates that the overall amount it collects from Medicare recovery on future settlements, where Medicare remains a primary payer, will be approximately $900 million in the next year, which represents a $300 million increase over last year. CMS estimates that its MSA reviews will require total program costs of $16.67 million, which includes costs associated with receiving and reviewing submissions, issuing decisions, and conducting post-review verification procedures, including periodic compliance reviews. Moreover, CMS anticipates it will take an average of 67 days to complete MSA reviews as more MSA proposals are submitted to CMS. CMS is working to hire additional staff in the Office of Medicare Hearings and Appeals to help reduce the backlog of appeals of CMS MSA review determinations.
Tips and Tricks
Timeliness is critical, and it is important to obtain the Medicare Conditional Payment amount as soon as possible. Also remember to budget for the 20% co-insurance and 4% Medicare reporting fee. Steamroll Medicare Set Aside expenses into the settlement dollar amounts such that a claimant will not be receiving more money than they bargained for. Ms. Pope advises taking advantage of Medicare’s benefits and services as early as possible , including via a request for a Medicare Beneficiary Identifier number which can be expedited through the Internet. She also recommends shopping for an experienced Medicare Set Aside allocator who is also knowledgeable about other aspects of the process so that they can address any additional considerations more efficiently. Ms. Karp also reminds lawyers that claims that are likely to have litigation-related costs associated with them, such as future medical expenses, are the types of cases that should be utilizing a Qualified Settlement Fund.