For many claimants, negotiating the payment of future medical bills is an essential component of a favorable settlement. Claimants who currently receive Medicare or who expect to receive Medicare in the near future must follow specific guidelines when it comes to their future medical payments.
Medicare Secondary Payer provisions specify that Medicare will not pay for medical services related to a lawsuit when the proceeds include funds for future medical expenses until all such funds are properly expended. In other words, Medicare becomes the secondary payer to the settlement or award.
What Is a Medicare Set-Aside?
A Medicare Set-Aside (MSA) is the government’s preferred method for protecting Medicare’s interests. A portion of the settlement is placed into an account to cover future medical costs related to the claimant’s injury. Once the account is depleted, the claimant can begin receiving Medicare payments again.
To create a proposal with a recommended allocation amount, the claimant’s estimated total cost of future medical care will be reviewed, as will the claimant’s medical history, including any pre-existing conditions, current treatments, physician statements, life expectancy, and other factors.
Criteria for Reviewing a Proposed Medicare Set-Aside
An expert can help determine the appropriate amount to “set aside” so that the MSA is not over- or under-funded. To date, the Centers for Medicare and Medicaid Services (CMS) have only released guidelines for reviewing Workers’ Compensation Medicare Set-Asides (WCMSAs).
CMS will only review WCMSA proposals that meet the following criteria:
- The claimant is a Medicare beneficiary, and the total settlement amount is greater than $25,000; or
- The claimant is not a Medicare beneficiary at the time of settlement but has a reasonable expectation of Medicare enrollment within 30 months of the settlement date, and the total settlement amount is greater than $250,000.
Within the past few years, CMS has also made advances on the Liability Medicare Set-Aside (LMSA) process. While official guidelines have yet to be released, CMS released a change request (which was modified and reissued on October 27, 2017) that indicates the following:
- Medicare Administrative and Recovery Contractors (MACs) may deny payment for items and services that should be paid from a Liability MSA (or No-Fault MSA);
- Medicare may deny payment for claims if it determines that the claims should have been paid by a liability insurance policy or another payer as outlined in the Medicare Secondary Payer (MSP) provisions; and
- Medicare is within its rights to seek reimbursement for expenses it has paid if those expenses should have been paid for out of the settlement or by another payer.
As guidance continues to unfold, it is imperative that attorneys and claimants work closely with a settlement planning expert to avoid Medicare issues. Failure to comply with Medicare Secondary Payer provisions may result in severe consequences for the attorney and the claimant.
Funding a Medicare Set-Aside
There are two methods of funding a Medicare Set-Aside: with a lump sum or with a structured settlement.
Funding Option #1: Cash Lump Sum
If a claimant chooses to fund a Medicare Set-Aside (MSA) with a lump sum cash payment, then the entire MSA must be exhausted before Medicare will resume as the primary payer.
Funding Option #2: Cash + Structured Settlement Annuity
If a claimant chooses the structured settlement annuity option, here’s how it works:
- A smaller lump sum is used as seed money to establish the MSA. The lump sum is equivalent to the amount of the first surgical procedure or replacement, plus two years’ worth of annual payments.
- The MSA is then replenished with annual structured settlement annuity payments. Any funds remaining at the end of an annual period are carried over and added to the deposit for the next period.
How does the cash + structured settlement annuity option save money?
As an example, let’s say that nine months into the annual period, the claimant’s MSA funds for that period have been exhausted. If that happens, Medicare will pick up the medical costs for the remaining three months of the annual period. The structured settlement annuity will then make the next annual deposit and the MSA will once again begin paying for medical costs.
Funding with a structured settlement annuity routinely saves claimants an average of at least 25%, allowing the settlement proceeds to stretch further. Funding with a structured settlement annuity is also typically less expensive for the defendant or insurer, making it an appealing tool for resolving the claim. There are various annuity options to choose from, each with varying cost savings and its own set of guidelines regarding how and if payments are made upon the death of the claimant.
Contact Sage Settlement Consulting for Medicare Set-Aside Assistance
A proactive approach to establishing and properly funding a Medicare Set-Aside will help maximize settlement proceeds and protect a claimant’s long-term Medicare eligibility. Sage Settlement Consulting partners closely with industry leaders on all aspects of MSAs, including allocation, funding, and administration. To learn more, contact us today.