Medicare Set-Aside Update - 1

Expanding the use of structured settlement annuities as funding alternatives for Medicare set-aside arrangements (MSA) and special needs trusts (SNT) represents a strategic industry priority for growing the structured settlement market. This S2KM post provides historical background and summarizes recent developments impacting MSAs.

A Medicare set-aside arrangement (MSA) is an administrative and funding mechanism utilized in certain categories of settlements to protect Medicare's interests as "secondary payer" under the Medicare Secondary Payer (MSP) statute. 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.

The Center for Medicare and Medicaid Services (CMS) is the Federal agency within the U.S. Department of Health and Human Services responsible for enforcing the MSP rules. Until 2001, however, CMS did not enforce the MSP statute. Beginning in 2001, CMS began enforcing the MSP statute by recommending MSAs for certain categories of workers compensation (WC) commutation settlements. According to CMS, it currently receives, on average, 1550 WCMSA submissions per month. Since 2001, CMS has issued 10 policy memoranda for WCMSAs, several of which address structured settlement issues. These CMS WCMSA policy memos are available for download on this CMS website.

The application of the MSP rules to WCMSAs is further enforced by Medicare regulation 42 CFR 411.46 which states: “If a lump sum compensation award stipulates that the amount paid is intended to compensate the individual for all future medical expenses required because of the work-related injury or disease, Medicare payments for such services are excluded until medical expenses related to the injury or disease equal the amount of the lump sum payment”.

On December 29, 2007, President George W. Bush signed into law the "Medicare, Medicaid and SCHIP Extension Act of 2007" (MMSEA). Beginning July 1, 2009, Section 111 of MMSEA 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 when those claims are resolved.

If the reporting for any claimant is not done in a timely manner, MMSEA authorizes CMS to enforce a civil penalty of $1000 per day per claimant. These information requirements and penalty provisions provide the basis for expanded enforcement by CMS of the MSP statute.

During the past three months, CMS has announced several important MSA developments:

• Policy Memorandum titled "Medicare Secondary Payer - Workers Compensation - Information"
  • Published May 20, 2008, this CMS memorandum announced a new CMS policy for determining life expectancy in WCMSAs: “Effective with WCMSA submissions received by CMS’ Coordination of Benefits Contract on or after July 1, 2008, CMS will only accept life expectancies obtained from the [Centers for Disease Control] CDC Table 1 [Life table for the total population]".
  • Prior to this memo (which can be downloaded from this CMS site), CMS accepted annuity provider age ratings to determine life expectancies.
• Request for Information (RFI)
  • CMS published an RFI on its website July 8, 2008 seeking "new ideas and more efficient and more effective approaches to projecting the costs of Medicare-covered future medical services and future prescription drug treatment related to a workers' compensation (WC) injury, illness/disease for a WC claimant".
     
  • CMS states that the RFI is not a Request for Proposal (RFP). The intent of the RFI is to:
    • Identify small businesses with the necessary technical capabilities to perform the requirements of a related Draft Statement of Work (SOW) seeking a Workers Compensation Review Contractor (WCRC); and
    • Receive comments and questions from all industry participants about the related Draft Statement of Work (SOW).
  • Industry professional associations, including NAMSAP, have submitted written responses to CMS.
• Draft Statement of Work (SOW)
  • If the WCRFI is successful, CMS may award a “Set-Aside Cost Plus Award Fee” type contract in Fiscal 2009 pursuant to a related July 8, 2008 Draft SOW available for download on the RFI site. Should that occur, CMS anticipates a one-year base contract with four one-year options.
  • Under the Draft SOW, CMS would seek “to procure an impartial entity, not as an agent of the Federal government, to independently price future Medicare-covered Medical treatment costs related to the WC injury and, as an option, future prescription drug expenses.”
• Proposal Requirements Checklist
  • Also on July 8, 2008, CMS updated its prior WCMSA Proposal Requirements Checklist.
  • Under a section titled “Medicare Set-Aside Arrangement Account”, CMS states: "If an account is structured and funded by an annual annuity, identify the source of the annuity and include the annual payment amount, annual funding date, and the amount of the initial lump sum deposit.”
• MMSEA Section 111 Reporting Requirements
  • On August 1, 2008, CMS issued a “Supporting Statement for the MSP Mandatory Insurer Reporting Requirements of Section 111 of the MMSEA” (available for download on this CMS site)outlining CMS' proposal for the reporting and collection of the required data.
  • CMS has scheduled an Open Forum for Questions on September 14, 2008 with official comments due September 30, 2008. Addition information and instructions will be posted on the CMS website.  

For additional information about:

• MSP and MSA rules, see Chapter 15 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).
• MMSEA, see this earlier S2KM blog post.
• NAMSAP, see S2KM's Structured Settlement Wiki