S2KM's first blog post of 2008 provides an addendum to Structured Settlements in 2007 and highlights the "Medicare, Medicaid, and SCHIP Extension Act of 2007" (Extension Act) which President George W. Bush signed into law on December 29, 2007.
For structured settlement and settlement planning professionals, the Extension Act may prove to be the most important long-term strategic development of 2007.
Beginning July 1, 2009, Section 111 ("Medicare Secondary Payer") of the Extension Act requires liability insurers (including self-insurers, no-fault insurers and workers compensation insurers) to:
- Determine Medicare status for all claimants; and
- Report all claims involving a Medicare beneficiary to CMS (the federal administrative agency responsible for administering Medicare and Medicaid) when those claims are resolved.
If the reporting for any claimant is not done in a timely manner, the Extension Act authorizes the Department of Health and Human Services (through its agency CMS) to enforce a civil penalty of $1000 per day. These information requirements and penalty provisions provide the basis for expanded enforcement by CMS of the Medicare Secondary Payer (MSP) statute, which has heretofore been limited to workers compensation claims. The anticipated result: fundamental changes in how most personal injury claims are evaluated, negotiated and settled.
Congress enacted the MSP statute in 1980 to curb the rising cost of Medicare. The 1980 provisions require insurers to pay for medical services rendered to Medicare beneficiaries leaving Medicare to provide benefits only as a "secondary" payer. Medicare may make conditional payments for medical services if payment by a primary payer cannot reasonably be expected to be made promptly in which case the primary payer must reimburse Medicare.
In applicable cases, CMS will not recognize a settlement that does not protect Medicare's interests. Because Federal law has precedence over state laws and private contracts, Medicare has a direct right of action against entities who are responsible for making payments (insurers) and entities who receive proceeds from the primary payer (claimants; attorneys; consultants; medical providers). Medicare is entitled to double damages plus interest if the primary payer knew or should have known of Medicare's interest and paid the claimant anyway.
Despite existing MSP legislative authority, CMS did not begin to enforce the MSP requirements until 2001. Since 2001, CMS' enforcement of the MSP rules has been restricted to certain categories of workers compensation cases. For such cases, CMS has issued a series of policy memoranda to be used by contractors and CMS regional offices in evaluating proposed settlements to determine whether the amount allocated for future medical expenses is reasonable.
Medicare set-aside arrangements (MSAs) have emerged as the standard administrative and funding mechanism to allocate settlement money for future medical expenses that would otherwise be covered by Medicare. Neither CMS nor the Code of Federal Regulations defines the specific types of funding arrangement that are acceptable for MSAs. However, trusts and custodial accounts are the primary funding alternatives.
Current MSA funding and administrative requirements are the same regardless of the type of funding and whether the funding is professionally administered or self-administered:
- The claimant cannot use any moneys from the MSA allocation until the claimant becomes a Medicare beneficiary;
- The MSA assets are held in an interest-bearing account;
- The MSA can only be used for Medicare-covered expenses;
- No claims for services can exceed the workers compensation fee schedule unless state law permits and CMS approves;
- MSA accounting must be reported to the CMS Regional Office annually until the MSA funds are exhausted;
- Legal fees and administrative costs cannot be charged to the MSA.
Structured settlement annuities are permitted in MSAs provided they meet rules CMS has identified in a series of policy memoranda. See especially the CMS October 15, 2004 policy memorandum which also includes rules for calculating discounts and inflation. Structured settlement proposals that are part of an MSA arrangement must be approved by CMS.
- Existing MSP and MSA rules create responsibilities and potential penalties for all parties and participants in settlements involving future medical expenses that would otherwise be covered my Medicare;
- CMS has focused its preliminary enforcement of these rules on workers compensation cases.
- The Extension Act requires information and provides penalties that will allow CMS to expand enforcement of MSP and MSA rules to liability cases beginning July 1, 2009;
- Structured settlement and settlement planning participants should recognize the likelihood they will need to adjust and integrate their own funding products, work products, documentation and work processes to satisfy the MSP rules and MSA requirements.
For additional information about the Medicare Secondary Payer statute and Medicare Set-aside Arrangements, see