Frank C. Kilcoyne, CSSC

Anxiety Over Medicare Set-Asides?

Join the crowd. Enough has been said in seminars and in print to make even careful professionals a little nervous. Everyone wants a definitive answer to this question: do settling parties in a liability case have to set money aside to cover potential future Medicare-covered expenses or don’t they?

To a degree of certainty, that question is probably unanswerable. However, if you relax just a bit, ratchet down and consider the issue on a case-by-case basis, the picture becomes a little bit clearer.

If you’ve been following the issue, you will probably have already taken a turn through the following touchpoints:

1. You’ve heard it said that Medicare’s interests “must be considered.”

2. You are aware that federal law prohibits Medicare from making a payment for future medical expense which has already been paid for by a tortfeasor or liability insurer.

3. You’ve heard of “Medicare Set-Asides” (“MSAs”) and know that their use is standard practice in worker’s compensation claims.

What you may not know is that:

A. The phrase “must be considered” exists nowhere in the governing statute, nor will you find it in the Code of Federal Regulations. It was plucked from an internal agency memo which has no legal force or effect.

B. No one disputes that a primary responsible party may not scrape off its liability for accident-related medical expenses on Medicare. But, in the vast majority of liability tort settlements, “liability” is never established. Liability is most often flatly denied, hotly contested, and is usually expressly denied as a material term of settlement.

C. The first attempt to develop regulations to guide the parties was wholly unworkable, vigorously objected to by both the plaintiff’s bar and the property and casualty insurance industry. It was quietly withdrawn in 2014, and we are aware of no pending second effort on the near horizon.

We are not saying that no issue exists, it’s just that the issue is way, way, WAY more complicated in liability cases than in worker’s comp for the very reason that liability is contested. Worker’s compensation regulations are easy because worker’s comp is no-fault. Primary responsibility for future accident-related medical care is a bedrock element of these programs. But developing a meaningful and workable set of regulations for a liability case will require an extremely sophisticated approach, because there are so many more variables.

Certainly, angles of attack exist which may be argued. One federal document asserts that, by including compensation for future medical expense as a component of damages, a plaintiff opens the door to potential applicability of the statute. (1) Maybe…but in what amount or proportion? How do you factor in the costs of recovery (e.g., legal fees and litigation expenses)?

In the absence of clear regulatory guidance, you simply have to analyze the specific facts of each case. Have future medicals been pled or claimed? Do current negotiations contemplate payment of future injury-related care? If yes, how much of the total settlement has been allocated for this purpose? Are future medicals to be specifically released as part of the resolution of the pending claim?

Does the settlement provide compensation for future medicals in whole or only in part? And - either way - is the amount explicitly set forth in the settlement agreement? Is it implied? The most important thing is to determine whether such compensation exists in the first place. If not, no issue.

If you determine that it exists, and you can reasonably identify a sum allocated for this purpose, one way to mechanically prevent an accident-related claim from being presented to Medicare for payment or reimbursement would be through use of an MSA. But note this: no federal law requires the parties to establish an MSA. They are one option which works well in the right situation, but they are not the only way to approach the problem.

Other options may exist. For example, if not already Medicare-enrolled, a claimant might choose to purchase private insurance and keep accountings of the premiums and co-payments made in support of that policy while receiving services typically covered by Medicare. Once the amount provided by that insurance exceeds the amount identified as “compensating” the claimant for future medicals, the plaintiff would arguably have complied with the statute. Since such insurance is typically paid for over time, you could fund future premiums through a structured settlement. This maximizes the value of settlement dollars through double-leverage: the risk-spreading value of insurance plus the time-value-of-money savings of a structure.

Structured settlements are now and have always been an outstanding method for meeting future medical needs. And it doesn’t matter whether you establish an MSA or not: structures add value both inside and outside of an MSA.

Suffering anxiety over Liability Medicare Set Aside issues? Would you like to discuss other options for handling this issue? Contact Frank C. Kilcoyne, CSSC. I am here to help. frank.kilcoyne@jmwsettlements.com.


(1) HHS Future Medicals Letter of early 2015 which stated “The issue here is whether the settlement Mr. [redacted] will receive compensates him for future medical care he will require due to the accident.” Link