MEDICARE SET-ASIDE UPDATE I. Social Security Disability Benefits A. Social Security Disability Income (SSDI) B. Obtained via application to the Social Security Administration C. Informal Hearing process for approval (claimant must show she/he has an impairment which has lasted or is expected to last at least 12 months or result in death and which is so severe that it prevents the claimant from engaging in substantial gainful employment) D. Established Date of Onset (typically date of injury) E. Then 5 month waiting period (Date of Entitlement) F. Two years from Date of Entitlement, claimant becomes Medicare Eligible G. Essentially, 29 months from date of accident II. SSD and Workers Compensation Settlements A. SSD benefits are paid out monthly for remainder of lifetime B. The total amount of Social Security Disability benefits plus the monthly workers compensation benefit cannot exceed 80% of claimant s average earnings before disability (any excess is deducted from SSD benefit) C. Workers compensation settlement paid out in lump sum needs to be broken down in settlement documents to show monthly benefit for SSD purposes 1. Example: a. Prior to injury, claimant earned $4,000 per month. b. After injury, now receiving SSD benefit of $2,200 per month. c. Work comp settlement then provides benefit of $2,000 per month. d. Total of two benefits is $4,200 ($2,200 SSD + $2,000 WC) which is greater than 80% of claimant s average income at time of disability (80% = $3,200). e. Thus, claimant s SSD benefit would be reduced by $1,000 ($4,200 - $3,200). 2008 McAnany, Van Cleave & Phillips, P.A. 64
D. Therefore, it is important to break out work comp settlement per month even though paid in lump sum so you can determine the impact on SSD benefits: 1. The total settlement is $50,000. After attorney s fees and expenses, claimant will realize a net benefit of $37,500. $37,500 paid out over Claimant s lifetime of 15 years (based on The National Vital Statistics Reports Actuarial Table, 2008) results in a monthly benefit to Claimant of $208.33 E. Failure to have the lump sum payment broken down per month for the remainder of claimant s lifetime may result in a complete loss of SSD benefits to claimant III. Medicare Medicare Set Aside Trust A. When is a Medicare Set-Aside Trust Needed? 1. The Medicare Set Aside Trust a. Does it apply in my case? b. What steps need to be taken if Medicare involvement does apply to the case? B. Two Tests to Determine if a Medicare Set-Aside Trust is Needed: 1. TEST 1: The claimant is eligible for Medicare: a. Generally eligible if: i. Age 65 or over; or, ii. Social Security Disability 24 months after the effective Date of Entitlement; or, iii. End stage of renal failure (kidney transplant) 2. TEST 2: The settlement is over $250,000 AND there is a reasonable expectation of the claimant being eligible for Medicare within 30 months. C. The Medicare Set-Aside Review Threshold 1. July 11, 2005 Memo issued by the Director of Financial Services 2. Center for Medicare and Medicaid Services (CMS) will no longer review Medicare Set-Aside Proposals where the total settlement amount is less than $25,000 3. Calculation of settlement includes attorney fees, future medical expenses, repayment of Medicare conditional payments, and any previously paid settlement money 4. This is a low dollar workload review threshold, not a safe harbor threshold 2008 McAnany, Van Cleave & Phillips, P.A. 65
D. What Does This Mean? 1. Essentially, Medicare Set-Aside Trust Proposals are generally not required for cases settled under $25,000 (CMS simply won t review it) 2. Are you entirely protected = NO! 3. all beneficiaries and claimants must consider and protect Medicare s interest when settling any workers compensation case; even if review thresholds are not met, Medicare s interest must always be considered. 4. This is a workload review threshold. E. Practical Effect 1. You are never entirely protected in any workers compensation settlement from Medicare unless a proposal is sent 2. However, Medicare will not review a proposal unless the settlement figure is $25,000 or greater 3. So, what do you do when: a. Medicare eligible claimant (i.e. 65 or over) b. who settles a case under $25,000, and; c. there is an indication from medical expert that future medical treatment is necessary as related to the work injury F. Settlements under $25,000 1. Include an amount for future Medicare-covered medical benefits and be sure to explicitly state in settlement documents that $X.00 is intended to cover such benefits and that Medicare s interests are adequately protected by this settlement 2. Include a stipulation that the parties agree that $0.00 is required for future Medicare-covered medical benefits and that Medicare s interests are adequately protected by this settlement G. Practical Conclusion 1. workload review threshold is a double-edged sword: a. Good: generally do not have to submit proposals on settlements under $25,000 (save time, money) b. Bad: Medicare indicates that their rights are always reserved in every case (never entirely safe unless a proposal is sent, i.e. no safe harbor ) c. Risks are low: settlements under $25,000 usually involve injury without need for future treatment H. The MSA Proposal 1. Submission to Medicare with: a. Claimant s info (SSN, D/A, Age, etc.) b. Settlement info 2008 McAnany, Van Cleave & Phillips, P.A. 66
c. All medical records d. Claims Payment History e. A Set-Aside Amount (amount estimated by the submitter that would adequately provide claimant with money to pay for future Medicare-covered Medical treatment) I. What Medicare Looks at in MSA Proposals 1. Medicare is focusing its interest on recent treatment 2. What has the claimant been doing over the last two years 3. What sort of treatment has the claimant had since reaching Maximum Medical Improvement 4. What prescription medication does the claimant need for treatment of injuries J. Issue for Attorneys 1. Ensuring that Claimant understands his/her responsibilities in establishing and self-administering the Trust [claimant signs an affidavit which outlines their responsibilities in administering the trust and provides some protection from liability] 2. Should you ask for professional administration? K. How Medicare s Drug Law Affects Medicare Set-Aside Trusts 1. In 2003 Medicare formed a drug law known as Medicare Part D. 2. This drug law went into effect on January 1, 2006 3. Since January 1, 2006, all Medicare proposals are required to contemplate the cost of prescription drugs currently covered under Medicare 4. Medicare will begin individually pricing prescription drugs in proposals L. December 30, 2005 MEMO 1. All WC settlements that occur on or after January 1, 2006, must consider and protect Medicare s interests when future treatment includes prescription drugs 2. The proposal must include separate amounts for: (1) future medical treatment, and (2) future prescription drug treatment 3. Also, proposal needs an explanation as to how the cost of the future prescription drug treatment was calculated 4. Stated Beginning January 1, 2007, Medicare will independently price for future prescription drug treatment and will indicate an amount that adequately protects Medicare s interest for the cost of the claimant s future prescription drug costs (this has not happened yet) 5. Medicare continues to review proposals as in the past, indicating whether or not the proposed amount adequately protects Medicare s interests, but not indicating an actual amount for future prescription costs 2008 McAnany, Van Cleave & Phillips, P.A. 67
M. The Medicare Set-Aside Trust 1. What if the amount of money Medicare determines to be required is too high or is inaccurate due to a misunderstanding of the facts? 2. NO APPEAL PROCESS 3. Possible to re-submit proposal? N. Protocols, LLC. v. Leavitt Protocols, LLC, and Sagrillo Law Firm v. Leavitt, McClellan et. al. 2007 WL 757644 (D.Colo) 1. Protocols is a MSA vendor 2. Sagrillo law firm does MSA submissions 3. Leavitt is Secretary of Department of Health and Human Services 4. McClellan is the Administrator of the Centers for Medicaid and Medicare Services 5. Plaintiff s claim: a. CMS has no established formula for determining MSA amounts, instead CMS utilizes a formula that is not published, is secretive and is clearly violative of the applicable law. b. CMS is illegally conducting arbitrary and capricious review of MSAs without an available appeal process 6. Case was dismissed for lack of standing of plaintiffs; no concrete economic harm O. The Medicare, Medicaid and SCHIP Extension Act of 2007 1. Pres. Bush signed into law on December 29, 2007. 2. Beginning July 1, 2009, liability insurers, including self-insurers, no fault insurers and workers compensation insurers are required to: a. Determine the Medicare status of all claimants b. Report all claims (identity of claimant & settlement information) involving a Medicare beneficiary to the CMS (Centers for Medicare & Medicaid Services) when a Medicare eligible claimant s claim is resolved 3. If information is not reported to CMS in a timely fashion (definition not yet determined), insurer is subject to a civil penalty of $1,000 per day. 4. Affects not only workers compensation, but also auto accident and other liability cases (presumably it is another step toward mandating MSA submissions for auto liability and other liability cases). 2008 McAnany, Van Cleave & Phillips, P.A. 68
5. Law is somewhat vague right now as it provides for further clarification by the Secretary of CMS as far as what info is to be reported and when. 6. CMS will be designing a new web page for information regarding these requirements at some point here in the near future. IV. Medicare Conditional Payments A. Payments made by Medicare (as a secondary payor) to health providers for treatment to a claimant that should otherwise have been paid by the work comp insurance carrier (primary payor). B. Conditional payments need to be resolved prior to settlement (or at least an agreement as to who will be responsible for these). C. Medicare has the power to enforce payment of conditional payments with allowance of double damages plus interest against the party who failed to pay off conditional payments. D. Medicare Conditional Payments E. Handled by the Medicare Secondary Payor Recovery Contractor (nationwide) F. Website: www.msprc.info Disclaimer and warning: This information was published by McAnany, Van Cleave & Phillips, P.A., and is to be used only for general informational purposes and should not be construed as legal advice or legal opinion on any specific facts or circumstances. This is not inclusive of all exceptions and requirements which may apply to any individual claim. It is imperative to promptly obtain legal advice to determine the rights, obligations and options of a specific situation. 2008 McAnany, Van Cleave & Phillips, P.A. 69