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Medicare "Set-Aside" Requirements in Third Party Liability Cases

Is it necessary to create a “Medicare Set-Aside Account” (MSA) when settling third party liability cases? For many, this has become a hot issue and one that has impeded some settlement negotiations. There has been too much confusion and misinformation on this subject. At present we believe the technical/legal answer is “maybe” and the practical answer for most cases is “probably not”.

By law, Medicare-paid health benefits are now and have always been “secondary” to other available healthcare funding sources. If another entity1 is already responsible for paying for your health care expenses, their money must be exhausted before Medicare is supposed to pay a dime.

However, since the process of sorting out who else might be financially liable can take time, protection for Medicare must take different forms. When they advance payment for care that has been delivered before other financial liability can be determined, they protect themselves by asserting a lien on settlement proceeds. But how to guard against paying for future care that may not be delivered until long after a claim is settled? These may be costs related to a claim that Medicare likely doesn’t even know about.

The answer is to put the onus back on the parties who do know about the claim – the settling parties. And that is what the law requires: settling parties must take Medicare’s interests “into account” when settling a claim.2

Most professionals who handle liability work are accustomed to dealing with Medicare liens and, in that connection, with CMS . These liens are statutory and though notice of the lien is not required, the lien must be cleared. However, unless you have experience in handling worker’s compensation claims, you are probably not used to dealing with protecting Medicare’s interests with respect to future medical care costs. Fortunately, I am and we can help you in this regard.

It’s not really that hard; you do it by exercising a little forethought. The settlement must honestly anticipate the need for future medical care and provide for the funding of that care. Basically, you must avoid being found to have intentionally shifted future costs to Medicare and away from a primary responsible party. How does one go about this?

Since the rules are explicit in workers compensation claims and not yet even issued for liability claims, we think it’s all premature. However, your first step would be to assess whether yours is a case to which the rule would even apply. The rule applies only in the case of current Medicare beneficiaries or those who at the time of settlement expect to receive Medicare benefits within 30 months.4 If that’s not your claimant, move on.

Your next step is to consider the practical risks posed by not “taking into account” Medicare’s future interest in the absence of clear rules from CMS. Small settlements or those not involving future medical care pose less risk than larger cases involving substantial future medical expenses.

For all practical purposes, until the rules come out, your current choices look something like this:

• Do nothing. CMS has not made any formal pronouncements on liability MSAs. Based on the absence of statutory, regulatory or administrative directive or guidance, this option is not unreasonable, especially in “low risk” cases.

• Explicitly account for Medicare’s interests in the settlement agreement. Place protective language in the settlement agreement and release addressing the issue.

• Estimate the cost of the claimant’s future medical care and allocate a specific amount to that in the settlement agreement. This amount can be funded with a structured settlement to align the timing of payments to anticipated future needs and to reduce its cost.

• Obtain a formal “outside” allocation from a professional vendor, limited to the claimant’s future anticipated “Medicare allowable” expenses. Again, this solution is most effectively funded through the use of a structured settlement.

• Formally submit the professional’s set-aside allocation to CMS for review and approval, acknowledging that CMS is unlikely to respond.5 Even if they do not review the MSA, you at least establish a record of acting in good faith.

The message to take home is this: be aware of this issue and at least begin preparing to deal with it. Do the right thing and document what you did. The preparations suggested here, all to be done in advance of settlement discussion, mediation, and trial, are likely things you should be doing anyway.

So, is it currently necessary to create a Medicare “set-aside” in third party liability cases? In most situations, probably not. But in some cases it may make sense and we should talk about those. Have a case you are concerned about? Call Frank C. Kilcoyne CSSC at 800 544 5533, I am here to help.

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1So-called "primary payers" might include an insurer or self-inisured entity that becomes responsible for medical expenses by virtue of a third party claim.

2Medicare Secondary Payer Statute of 1980 42 U.S.C. 1395y

3The Centers for Medicare & Medicaid Services

4The 30-month rule is established for workers compensation cases; in the absense of other guidance for liability cases, one should presume its application here as well.

5Not all CMS regional offices are actually accepting liability MSAs review (a rumored 4 out of 7)