FIRM NEWS & PRESS

By Kevin M. McGowan, Esquire

If you are settling any workers’ compensation claim for a lump sum for a claimant who is 1) 65 years of age or older, 2) is a Medicare recipient or 3) has a reasonable expectation of becoming Medicare eligible within the next 30 months and the anticipated total settlement amount for future medical expenses and disability/lost wages during the duration of the settlement is expected to exceed $250,000.00, you must care about and learn how to use a Medicare Set-Aside Arrangement to protect yourself and promote the best interests of your client.

What is a Medicare Set-Aside Arrangement

Section 1862(b)(2) of the Social Security Act states that Medicare payments may not be made for any item or service for which payment has been made or can reasonably be expected to be made promptly by a workers’ compensation carrier. While this law has been in existence since the initial passage of Medicare, there has only recently been a push to enforce it. The federal government has experienced a reduced tax base as a result of tax reductions and recent, tough economic times. As a result, it is predictable that the Social Security Administration will continue its recent emphasis on seeking reimbursement of Medicare dollars that should have been paid by workers' compensation insurance carriers and self-insured or uninsured employers.

According to General Accounting Office report Number 367 dated May 4, 2001, "between 1991 and 1998, workers received an average of about $43 billion each year in cash and medical benefits through the nation's workers' compensation programs to cover work-related injuries." This amount should be even larger, according to the report. The report indicated that the federal government is unintentionally subsidizing the workers' compensation insurance carriers throughout the United States on a dramatic scale.

The GAO conducted the study right here in Virginia between March 2000 and March 2001 to review Medicare medical payments that should have been paid by workers' compensation carriers or by workers' compensation claimants who had reached settlements with such carriers. The study found that about 39% of the joint workers' compensation and Medicare beneficiaries had received some Medicare benefits for treatments that were potentially related to the workers' compensation injury. A further review of the Virginia cases showed that, of the 139 beneficiaries, 78% were enrolled in Medicare. Of those enrolled, 83% had closed their workers' compensation claims through settlements. Of the settled cases, 40% waived their workers' compensation coverage for future medical expenses, designated no money from the lump sum to cover future medical expenses and ended the insurer's liability for covering future medical expenses. In the remaining 60% of the settled cases, some provision was made in the settlement for future medical expenses, often covering related medical expenses for short periods of time after the settlement, typically six to twelve months.

Given that the regulations of the Centers For Medicare and Medicaid Services (CMS) state that the workers' compensation settlements must satisfy Medicare's interests in regard to the payment of future medical expenses, the GAO examined the Virginia workers' compensation sample cases to determine whether there was any indication that the parties sought CMS' approval of the settlement terms. The case file review found no evidence that the parties to the workers' compensation settlement advised CMS of the terms of the settlement or sought its approval.

The concept behind a Medicare Set-Aside Arrangement is to ensure that Medicare is not responsible for payment of a claimant's future medical care necessitated by a work- related injury. The set-aside is funded by the estimated amount of money that, absent settlement, would have been paid in the future by the insurance carrier for injury related Medicare "covered" medical expenses. These set-aside funds are then used exclusively for the future payment of the covered medical expenses required for the work-related injury or condition.

Simply stated, when Medicare has assumed an obligation for medical treatment, it will be interested in any settlement agreement which is reached with a workers' compensation insurance carrier that includes a waiver of payment for any future medical benefits. Attorneys involved in any such settlement should calculate the amount that would be paid over the claimant's life expectancy by Medicare for the work-related injury, as if Medicare was responsible for such coverage. The amount for such treatment should be withheld from the total amount of the settlement with the workers' compensation carrier and placed into a Medicare Set-Aside Arrangement.

When Is A Medicare Set-Aside Arrangement Necessary

CMS cannot from a practical standpoint review every workers’ compensation settlement. Therefore, CMS has determined that that it will review cases where the workers’ compensation claimant

• is 65 years of age or older,
• is a Medicare recipient, or
• has a reasonable expectation of becoming Medicare eligible within the next 30 months and the anticipated total settlement amount for future medical expenses and disability/lost wages is expected to exceed $250,000.00

1. whether the claimant has applied for SSDI
2. whether the claimant has been denied SSDI but is in the process of or considering appealing the decision or reapplying
3. the age of the claimant – if the claimant is 62 years and six months old, the claimant will be Medicare eligible within 30 months
4. whether there is expert medical evidence that the claimant is permanently and totally disabled or cannot engage in any substantial gainful employment

Even the concept of “exceed $250,000.00” is not as simple as it may seem. This threshold amount for requiring approval, which amount CMS can change at anytime as it sees fit, applies to potential exposure to future medical and indemnity payments and not just the gross dollar amount of the settlement. Furthermore, CMS applies this threshold to the uncommuted value of these benefits, not the discounted present value.

Obtaining Approval of a Medicare Set-Aside Arrangement

If you feel a settlement needs Medicare approval, what is the next step? The agreement to set aside a portion of the settlement funds to be used to pay for future medical treatment must be approved by CMS. Although approval could come from any office nationwide, the nearest to Virginia is the Philadelphia office. The agreement can be prepared by the attorney or by one of a few firms that will prepare an agreement and obtain CMS approval, such as Health Advocates, Inc. out of Tampa, Florida.

If you prepare the agreement yourself, the following should be addressed:

1. Reimbursement of Conditional Payments or Inaccurate Billing to Medicare
   If payments were made by Medicare on behalf of the claimant for his or her work-related injury prior to the date of the settlement, the regulations state that reimbursement must be first made to Medicare. Medicare often extends such conditional benefits prior to the claimant obtaining an order for compensability, or as a result of inaccurate billing to Medicare by a medical provider instead of billing to the workers' compensation insurance carrier. When workers' compensation benefits become available, Medicare has a priority right of recovery. If a settlement with the workers' compensation carrier has been reached and a set-aside arrangement is proposed, the attorney should disclose at the beginning whether any conditional payments have been made or whether any known inappropriate billing to Medicare has been made. The attorney should then propose the terms by which Medicare will be reimbursed for the conditional payments.
   
2. Commuted and Compromise Settlements
   Medicare makes a distinction between a lump sum commuted value settlement and a lump sum compromise settlement when it determines the sufficiency of a set-aside arrangement. An explanation of both are found at 42 C.F.R. §411.46 (2001), which is set forth below, in part:
   1. Lump-sum commutation of future benefits. If a lump-sum 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.
   2. 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
   3. Lump-sum compromise settlement:
      Effect on payment for services furnished after the date of settlement —
      1. Basic rule. Except as specified in paragraph (c2) of this section, if a lump-sum compromise settlement forecloses the possibility of future payment of workers' compensation benefits, medical expenses incurred after the date of settlement are payable under Medicare.
      2. Exception. If the settlement agreement allocates certain amounts for specific future medical services, Medicare does not pay for those services until medical expense equals the amount of the lump-sum settlement allocated to future medical expenses
   Although the settlement documents tendered to Medicare may specify the type of settlement, attorneys should clearly advise Medicare whether the claimant has an admitted workers' compensation case and is waiving future medical benefits as a commutation or whether it was a contested case where a compromise settlement was reached. As the regulation indicates, if a good faith value is stated or inferred for future medical services, Medicare will offset its medical services related to the injury only until that amount has been reached, assuming the set-aside arrangement was Medicare approved. This is the case regardless of whether the lump sum settlement is deemed a commutation or a compromise. However, compromises which do not allocate funds for future medical care, based upon a reasonable analysis of the factsof the underlying workers’ compensation claim, will not result in offsets.
   
3. Determining Future Medical Expenses
   In a commutation case, the attorney submitting the set-aside proposal to Medicare should determine the claimant's projected future medical treatment from reading the medical records, discussions with claimant and his or her medical providers, and reviewing past medical expenditures by the insurance carrier. The amount of the claimant's medical care costs since reaching maximum medical improvement is most relevant. A cost should be assigned to each future medical expense which is considered a "covered service" under Medicare.
   
   Once a projected yearly cost is determined, the claimant's attorney should prepare a present value analysis which shows the amount that should be invested in order to provide the claimant's yearly expenses for his or her life expectancy. The life expectancy can be determined by looking at the statutory provisions and taking into consideration any individualized circumstance of the claimant. The same computer software used to compute the present value of the settlement can be used to compute present value of the projected "covered services" related to the injury over the lifetime of the claimant. Of course, the discount figure used in preparing the present value analysis is critical in arriving at a present value. Obviously, the higher the amount of interest one is able to obtain for the arrangement, the lower amount of the initial money the claimant needs to place in the set-aside arrangement. The principal and the anticipated interest must be sufficient to provide for the claimant's Medicare-approved expenses and set-aside administration fees for his or her lifetime.
   
4. Selecting the Best Type of Administration for the Arrangement
   Depending upon the claimant's individual capabilities, the attorney may arrange to have the set-aside funds self-administered or choose an independent manager to provide the necessary administration. For set-aside arrangements with a smaller amount of money, the claimant may desire to have a self-administered fund. While this sounds like a large undertaking for most workers' compensation claimants, a fund administrator basically has to: consult with Medicare's toll-free customer service prior to paying for any medical treatment or apparatus from the set-aside arrangement; maintain copies of all canceled checks or receipts; ensure the fund is continually earning interest in a bank account, annuity or certificates of deposit; and provide copies of all earnings statements and documented expenditures to Medicare annually to account for any money earned on or spent from the set-aside arrangement.

In the event the Medicare Set-Aside Arrangement is for a large amount of money, the medical reimbursement requests will be frequent throughout the year, or the claimant does not feel capable of undertaking the paperwork required for self-administration, then the claimant's attorney should locate an independent administrator. Medicare will require a separate agreement which is signed by a Medicare representative, the administrator and the claimant. This agreement will set forth the role of the administrator in paying only Medicare "covered services," the duty to report to Medicare the expenditures from the set-aside fund and the necessary duties to be undertaken in the event the set-aside arrangement is depleted and Medicare is called upon to pay for all future medical expenditures pertaining to the work-related injury.

In the event the claimant or the administrator has made any expenditure which Medicare does not consider a "covered service," then the claimant will be advised that the same amount of funds should be reimbursed to the set-aside arrangement and expended on Medicare approved expenses before Medicare will pay for any future work-related medical treatment. Since the administration fees are taken from the set-aside funds, many claimants prefer to delegate the administration duties. One such professional administrator service is Medi-Bill of Walnut Creek, California.

The claimant's attorney should set forth in the set-aside proposal to Medicare the medical history of the work-related accident or condition, including past medical treatment, surgeries, therapies, medications and counseling, as well as a detailed description of any non-work-related medical conditions. This history has two purposes.

First, Medicare will assign the appropriate diagnostic codes in their computer for the work-related and non-work-related conditions. These codes will assist Medicare in the event a medical provider erroneously bills Medicare for services which should be paid from funds in the Medicare Set-Aside Arrangement. Second, Medicare can determine through investigation whether the claimant has disclosed all relevant work-related injuries, the concomitant medical treatment for the particular conditions and if the amount of money in the set-aside arrangement will be sufficient for such treatment over the claimant's lifetime.

The following instructions from the Deputy Director of CMS to the Associate Regional Administrators taken from a Management Memorandum dated July 23, 2001 set forth the items that they must review prior to an approval:

“The criteria that Medicare will use to determine whether the amount of a lump sum or structured settlement has sufficiently taken its' interest into account are: date of entitlement to Medicare; basis for Medicare entitlement; type and severity of injury or illness; age of beneficiary (whether the medical condition would decrease the life span of the individual); the workers' compensation classification of the petitioner whether it be permanent partial, permanent total or a combination of both; prior medical expense paid by the workers' compensation carrier and whether or not any of those payments must be recovered by Medicare; the amount of lump sum or amount of structured settlement; whether the commutation was for the beneficiary's lifetime or specific period of time; where the beneficiary is resident — home, nursing home, or receiving assisted living care; and are the expenses for Medicare covered items and services appropriate in light of the beneficiary's condition.”

When the claimant's attorney prepares the initial submission letter to Medicare, he or she should include a complete copy of all relevant medical records pertaining to the claimant, a copy of the initial Award Order showing the date of injury and information identifying the respondents, the amount of medical benefits paid to date, a copy of the proposed or actual settlement documents, signed privacy act and general medical releases and a life-care plan or any additional information pertaining to purchasing future durable medical apparatus for the claimant, if applicable.

Medicare will review the information provided by the claimant's attorney and respond with either additional questions, a written determination approving the set-aside arrangement, or a rejection letter. Typically, a proposal to Medicare is rejected for lack of information or insufficient funds proposed for the set-aside arrangement. These matters can be resolved with additional information from the claimant's attorney to Medicare or negotiation on the additional amount required to fund the set-aside arrangement.

Benefits of a Medicare Set-Aside Arrangement in Workers' Compensation Cases

When workers' compensation claimants have received SSDI benefits and permanent total disability workers' compensation benefits are at issue, admitted or awarded, these claimants often find it to their advantage to settle their workers' compensation case. Such settlements are desired since these claimants have a reliable source of income from the Social Security Disability Insurance benefits and will become eligible in the future for Medicare benefits to cover their general health needs. These individuals desire a lump sum settlement of their workers' compensation case to pay debts incurred as a result of their injury, to invest the money to obtain greater income, or for other personal reasons. The advantage in establishing an approved Medicare Set-Aside Arrangement is that, in the event the approved amount in the set-aside fund is expended, from that point forward, Medicare will provide reimbursement for medical costs not only for non-work-related medical expenses, but also any medical care related to the work-related injury.

Another advantage to the claimant in settling his permanent total workers' compensation case and simultaneously setting up a Medicare Set-Aside Arrangement is that, in the future, the claimant is free to choose medical providers, instead of being required to use those providers designated by the workers' compensation insurance carrier. As a result, the claimant no longer needs to argue with a workers' compensation adjuster over whether certain treatment is authorized or "reasonable and necessary." The claimant will be able to end what may have been a distasteful experience with the workers' compensation carrier with regard to obtaining his or her medical care.

Conclusion

It is not necessary to fear Medicare approval of a settlement of a workers’ compensation case. Oftentimes defense attorneys will spearhead the effort since some comp carriers will not allow settlement of cases that arguably may or may not need approval without obtaining the approval. The first Medicare Set-Aside Arrangement this author was involved with arose after a structured settlement was reached in a permanent and total case without a consideration of Medicare set-aside. The carrier was so insistent on approval by Medicare that defense counsel arranged for preparation and approval of the agreement through Health Advocates, Inc. The carrier funded the entire Medicare Set-Aside Trust that was used in that situation with no monetary reduction in the previously agreed to.structured settlement.

Medicare Set-Aside Arrangements in appropriate cases protect the claimant from unwelcome surprises when Medicare benefits are attempted to be used for healthcare for work-related injuries. The time and effort spent in explaining and approving a Medicare Set-Aside Arrangement is time well spent.