How Does the Medicare Set Aside (MSA) Work?

Posted on Tuesday, March 5th, 2019 at 5:11 pm    

Some claimants, mostly older workers, are entitled to Medicare in addition to workers’ compensation. We all know that once you qualify for social security retirement, at age 65, you also qualify for Medicare. In addition, if you become entitled to Social Security Disability Benefits or SSDI, you will automatically become Medicare Eligible at 24 months from the date that Medicare deemed you to be completely disabled from all work. Since both Medicare and workers’ compensation can pay for medical expenses, a question arises – who should pay for your medical bills related to your work injuries? The workers comp insurance company or the U.S. Government? If both paid, the healthcare providers would either be paid twice, or you might get a windfall by pocketing the money for future treatment – so there needs to be some procedure to prioritize and allocate the medical bills. Generally, the employer’s workers’ compensation is the primary carrier and Medicare is the secondary payer.

The problem arises mostly when the worker and the employer are thinking about a long-term settlement (commonly called a full and final settlement or Clincher) and the worker is either already Medicare Qualified or is on SSDI currently, or otherwise expects to apply within the next 30 months.  The method used to protect Medicare from overpaying is called a Medicare Set-Aside (MSA) account.

How does the Medicare Set Aside (MSA) work?

The easiest way to think about a Medicare Set Aside is that it is a way of protecting the Medicare program from paying for something that private insurance has agreed to pay. In other words, it prevents “double dipping” by the injured worker receiving a sum of money for future medical care from the workers comp insurance company, and then turning around and using Medicare to pay for that very same medical care. (and pocketing the insurance money). That would not be fair to the Medicare system and would cost the taxpayers undue funds. So, what we are required to do is protect and consider Medicare’s interests by “setting aside” the money that is designated in any settlement to pay for future medical care related to the injured employee’s work injuries.

The Medicare Secondary Payer Act, 42 U.S.C. §1395y provides that other insurers, such as workers’ compensation, will pay for an injured person’s medical expenses in an accepted claim.  The compromise and release provides that a specific sum will be used for the employee’s medical bills. The Act then provides that when this specific set aside amount is used up, then Medicare will start paying for the reasonably necessary medical treatments. The Medicare-Set Aside estimate that is usually in the form of a detailed report and if the worker is currently Medicare eligible, the report must be submitted to the Centers for Medicare & Medicaid Services (CMS) prior to final settlement so they can review the patient’s needs and the amount of the set-aside.

The workers’ compensation medical set aside, according to Atlas Settlement Group, Inc. should be submitted to CMS as follows:

  • If the injured claimant is currently on Medicare and the amount of the settlement is more than $25,000 or
  • The injured claimant reasonably expects to file for Medicare within 30 months of the compromise and release settlement – and the amount expected to be paid for future medical expenses and lost wages during the lifetime of the settlement is expected to be $250,000 or more.

There is a reasonable expectation of enrollment if any of the following applies:

    • The claimant has applied for Social Security disability
    • The claimant is 62.5-years-of-age
    • Other conditions that may apply

How is the MSA handled?

Generally, the funds for the medical set aside agreement are placed in an interest-bearing account.

Sometimes the amount of the account is paid to the injured worker by the insurance company in one lump sum and is administered by the injured worker. Other times, particularly when there is a large amount to distribute, the payment occurs with seed money for the first year, and then annual distributions over time from the insurance company or from an annuity purchased by the workers comp insurance company. Payments should be made from the account only for reasonable medical expenses that Medicare would otherwise cover that are related to the work injuries.  These medical expenses include hospital stays, doctor visits, treatments with different types of therapists, psychiatric help, medical devices, and medications. The person administering the MSA, if the account is self-administered, is required to provide CMS with a yearly accounting of distributions to the health providers. This is done on a simple form that Medicare provides once the MSA is approved. Again, this formal accounting is only required if the injured worker is a current Medicare recipient or is otherwise qualified to receive Medicare at the time of settlement. A final audit is prepared if and when all the available funds have been spent.

Sometimes, a medical management company is hired by the workers compensation insurance company to administer and monitor the MSA funds and in those cases that company would be responsible for the annual reporting.

Of course, it is possible that all the funds in the MSA will never be spent, and in that instance, whatever is in the account remains the estate of the injured worker upon his or her passing.

According to NCCI, the time to process CMS reviews is decreasing. In 2015, the CMS took, on average, about 70 days to review the average MSA. Large MSAs take more time to review than MSAs for smaller amounts.

CMS often responds to an MSA request in a settlement by stating that more money than is recited in the proposed report needs to be set aside. CMS needs to balance what the worker needs with what it thinks it should pay. When claims are large, more than $200,000, CMS on average requests that an additional six percent be set aside. When claims are small, under $25,000, CMS on average is requesting a 51% increase in the set aside amount. The main reason for CMS increases, at every amount, are that that more money is needed top pay for future drug costs which are constantly on the rise.

In general, the amount that workers’ compensation medical set asides need to budget for Medicare Part A and part B is fairly stable from year to year. NCCI claims that the amount for Part D prescription drug services is beginning to stabilize too.

Other NCCI findings

When there are large MSA compromises, more than $100,000, there is usually a corresponding severe injury. Severe injuries include brain injuries, back injuries that involve surgeries, burns, and the amputation of a body part. Workers with these injuries often need long-term treatment with pain management doctors for their chronic pain and treatment with emotional health doctors and counselors for their depression. These treatments often include high prescription medication costs.

Nearly 64% of workers’ compensation who need a Medicare set aside are already on Social Security Disability. 29% of claimants are eligible for Medicare because of their age. About 7% of claimants will become eligible for Medicare in the next two and half years.

Claimants generally need to wait until they have reached maximum medical improvement (MMI) before they consider a compromise and release – and the accompanying MSA. There’s no point in settling a work injury claim until you fully understand your medical condition and how much medical care you will need. Most MSA submissions take place about four years after the workplace accident happened. It’s not unheard of for an MSA to be prepared 10-15 years after the accident. Submission of MSAs in the same years as the accident are rare, although they do occur.

MSAs in general are about 42% of the compromise and settlement amount. The breakdown is typically in the following range for a compromise and release:

  • 22% for Part D, prescription drug coverage.
  • 20% for Parts A and B – the hospital stays, visits to the doctors, and other related services.
  • 58% for such things as medical costs not covered by Medicare, legal fees, and indemnity coverage.

More than half of the workers who submit MSAs use an experienced workers’ compensation lawyer. An experienced lawyer understands the need to work with your doctors to understand and verify your medical records and future needs. The lawyer will be sure to help you understand what you are looking at on the Medicare set aside, and also what future medical needs might not be covered by Medicare, (and hence need to be claimed as a separate future expense) such as long-term home care or attendant care, and how much it could cost. A skilled attorney understands what arguments the employer’s lawyer or insurance company will make to try to say everything should be part of the MSA. He’ll also explain tax consequences and other legal and practical matters.

Understanding CMS review trends helps understand what claims will be approved and which ones will need modification. The sooner a claim is approved, the sooner the payments from the compromise and release can be made. The payments include the wage loss payment and any permanent disability benefits – in addition to the medical expenses.

In cases where the claim is self-administered by the employee, we always recommend that the employee obtain a separate debit card for the account and use that card whenever he or she pays any work-injury-related healthcare costs. That way, at the end of each year, the worker has a bank statement that outlines all of the related costs and makes it very simple to do the annual report to Medicare.

Non-Obligatory MSA’s.  Oftentimes, workers engage in compromise settlements that do not meet the CMS threshold of review as set forth above. That means that the injured worker is not a current Medicare recipient and the settlement is not over $250,000.00. The problem is that the injured worker is not 100% sure about his or her future. The worker may be considering applying for SSDI within the next 30 months. Also, something could happen, such as a car accident or other unforeseen injury that completely incapacitates the injured worker. In those cases, if no attempt is made to consider Medicare’s interests, then the injured worker may run into problems when he or she qualifies for Medicare and attempts to utilize Medicare to pay for work-injury-related treatment. This could be the case, even though at the time of settlement, the worker was not a Medicare Recipient.

So in these “non-obligatory” cases, we often recommend that an “informal” Medicare Set-Aside be made, whereby some amount of funds is recited in the settlement documents to be set aside by the injured worker to protect Medicare’s potential future interests. There is typically no formal MSA report in these circumstances and of course, nothing needs to be submitted to CMS for approval. We merely come up with a very rough estimate of the amount of future funds that may be necessary to pay for the future medical care of the injured worker.  The injured worker is then advised to set up his or her own separate account for these funds and even call it an MSA account. Although there are no yearly accountings necessary in these cases, we also recommend the same thing as in a normal MSA, namely, that the injured worker obtain a separate debit card to make it easier to track expenses and utilize the funds in the MSA for nothing except healthcare for the work-related injuries.

That way should the injured worker bump up against any issues in the years following settlement whereby he or she should be forced to make use of Medicare, the injured worker will have ample evidence that Medicare’s interests were taken into account.

At the North Carolina and Virginia Law office of Joe Miller Esq., our experienced workers’ compensation lawyers understand when the right time is to consider an overall settlement. We fight to get you the correct sum for your medical needs and lost wages. For help now, call 1-(888) 667-8295 or complete my contact form to schedule a free appointment.