One of the challenges for growing the structured settlement market is to successfully integrate existing structured settlement laws and documentation with government benefits including Medicare and Medicaid. Unlike more divisive (but equally important) issues impacting industry growth, such as IRC 468B and 5891, integrating structured settlements with government benefits provides an important and timely opportunity for collaboration and consensus building among all structured settlement stakeholders.
Both SSP (April 26 - 28) and NSSTA (April 28 - May 1) have scheduled their 2009 Annual Meetings in Washington, D.C. Anticipating legislative and regulatory discussions during both meetings, this S2KM blog post summarizes the status of existing Medicare rules for structured settlements. A subsequent S2KM blog post will summarize the status of Medicaid rules. For more detailed information, see Chapter 15 ("Government Benefits and Structured Settlements") in "Structured Settlements and Periodic Payment Judgments" (S2P2J) as well as prior S2KM online reporting links at the end of each blog post.
The Medicare Secondary Payer (MSP) statute enacted in 1980 applies to liability cases as well as workers compensation cases. CMS (the responsible Federal administrative agency) has heretofore limited its Medicare-set aside (MSA) rules and enforcement to workers compensation. Workers compensation cases represent a small fraction of the current structured settlement annuity market.
CMS provides information requirements for structured settlement annuities in its Proposal Requirements Checklist for workers compensation MSAs (WCMSA) plus rules for structured settlements in several WCMSA policy memoranda issued since 2001. Although CMS must approve structured settlements used to fund WCMSAs, CMS has not specifically defined "structured settlement" or linked its structured settlement rules to the tax definition for "structured settlement" in IRC 5891(c)(1).
The good news for structured settlements: existing CMS funding rules for WCMSAs are generally favorable for structured settlement annuities. Because CMS utilizes a "set-off" method for calculating WCMSA present value, annuities currently have an inherent cost advantage compared with lump sum funding alternatives. Arguably, this cost advantage also results in underfunding MSAs because the CMS annuity rules do not require annual increases for inflation. An additional reason favoring structured settlement annuities to fund MSAs is the high percentage of self-administered MSAs and/or MSAs administered by family members.
Structured settlement annuities create additional WCMSA administrative and accounting responsibilities. The responsible CMS contractor must monitor annuity payments annually and make accounting adjustments based upon actual Medicare-related costs incurred and paid. Whenever an annual annuity payment is exhausted prematurely, CMS will provide payments for the remainder of that year. Conversely, if an annuity payment in any year is not exhausted for Medicare services, the remaining amount is carried forward to the following year. Although CMS changed its rules for calculating life expectancy in 2008, structured settlement annuity providers continue to be inundated with requests for rated ages for WCMSA claimants.
Beginning July 1, 2009, Section 111 ("Medicare Secondary Payer") of the Medicare, Medicaid and SCHIP Extension Act of 2007 (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.
These MMSEA information requirements and penalty provisions could provide the basis for expanded enforcement by CMS of the MSP statute. Liability cases present legal complications for MSAs which do not occur in workers compensation cases such as multiple defendants and contributory negligence. Nevertheless, with Medicare facing increased financial and political pressure, structured settlement stakeholders should anticipate additional Medicare legislation and regulations, including MSAs for liability cases, and develop a unified and favorable political strategy.
Prior S2KM blog posts about the MSP statute, MSAs, and MMSEA:
- MSA Update - 1: Historical Background and Recent Developments
- MSA Update - 2: CMS MSA Rules for Structured Settlements
- MSA Update - 3A&B: Interview with Thomas Spratt
- MSA Update - 3C: CMS MSA Life Expectancy Rules
- Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA)
- NAMSAP 2008 Annual Meeting
Comments