Considering Medicare's Interest
Prior Articles
More on Medicare? Yes indeedy. If you are in the business of settling personal injury claims, you simply must understand how Medicare’s interests factor into the algorithms of settlement math. If you don’t understand what this is about, you simply cannot do your job, no matter which side you represent. It can all seem pretty dense from the outside, but there are ways to clarify its essentials which is why we are revisiting the issue in this month’s newsletter.
As far as Medicare’s interests go, you need to remember three key things: to the extent any other party is responsible for medical treatment related to an accident, in the process of settling a liability claim they can’t scrape that financial responsibility off on Medicare. This is why Medicare is said to be a “Secondary Payer”. Congress passed a law making this so but it’s more helpful to understand this in your head: if there is liability and coverage from any other source on the claim, that source pays first.
The second and third things you have to remember are that this “paying second” role applies to any accident-related expenses Medicare may have already paid in the past and also any which may be needed in the future. So if you are dealing with a claimant who is already Medicare eligible or is expected soon to qualify, you have to give both ends of this math some thought.
Have any treatments already been paid for by Medicare? If so, those have to be paid in full and in hard dollars. Technically, these are called “conditional payments” because Medicare paid them in good faith prior to resolution of any claim “on the condition” that any funds owed by primary parties would be paid back(1). For a while it was a real struggle to learn what the owed amount was. It took a long time and the information provided was not always accurate or complete. But recent passage of what was called the “SMART” act has improved those problems significantly.(2)
Who is responsible for figuring this stuff out? Technically, it’s the claimant’s responsibility to pay back Medicare since they received the original benefit. But in practical terms, in represented cases, the job falls to the claimant’s attorney to secure the information and coordinate actual reimbursement.
But that doesn’t mean defendants and their insurers don’t worry about non-payment; they do. They worry that a claimant’s failure to reimburse might spill over onto them. One simple early solution proposed was to secure contractual protection by inserting indemnification and hold harmless agreements into settlement agreements and releases. A word of caution here: early versions of these agreements may have been overly broad by including the plaintiff’s attorney in such language. Concerns were raised in legal circles that doing so might constitute an ethics violation for any defense attorney who proposed that term and these are being narrowed to include only the plaintiff who received the original benefit.
These hard dollar obligations for past Medicare payments have to be factored into the settlement math because they affect how much money the claimant will actually net. There is nothing worse than the parties arranging and travelling to a mediation only to discover this homework has not been done. No meaningful offers can be made or considered if some huge chunk might be taken out of it by an un-researched and unknown Medicare lien.
How to handle Medicare’s interest in any future payments is not quite as clear. It is clear in worker’s compensation claims because regulations have been promulgated which instruct the parties how to handle them. Although Medicare’s interests in future payments on liability cases is probably no less strong at its statutory origin, it is inherently a much more complex undertaking because primary liability is often unclear (indeed disputed liability forms the lawsuit). Furthermore, no regulations have yet been developed which mandate and clearly instruct the parties on what they should do.
Some assert that this means no steps need to be taken currently by settling parties on a liability case because, absent the regulations, there is simply no legal requirement to do so. They may be right. But occasionally, some parties will agree to take a proactive step in this direction either by building funding for future medical treatment into a classic structured settlement or by doing what’s often done on workers’ compensation claims: establish a Medicare “set-aside” account (“MSA”). Essentially, this just means establishing a reserve fund to pay for estimated future care which might also qualify for coverage by Medicare.
If you consider this latter strategy, don’t forget to ALSO do what the worker’s compensation people are doing: structure that reserve set-aside fund! Medicare will indeed let you fund a series of future payments using a structure and let you keep the discounted savings. And these savings can be substantial: we recently saved over $131,000 by structuring an MSA instead of funding it fully with cash.
Do you have a case where you should be considering Medicare’s interest? Would you like some help in sorting this all out? If so, call or ping me, Frank C. Kilcoyne, CSSC, at 800.544.5533 or frank.kilcoyne@jmwsettlements.com. I am here to help.
(1) Under the MSP statute, CMS has a statutory right of reimbursement for all injury-related medical expenses paid by Medicare that should have been paid by a primary payer.
(2) Passed in 2012
(3) Reporting Obligations Under the Medicare Secondary Payer Act. Diane S. Davis, Journal of American Law, Issue One, Spring 2015.
