Settlement comes as a relief. However, personal injury plaintiffs who are Medicare beneficiaries can lose eligibility for benefits if they do not take proper action. The answer for some is a Medicare set aside.
Medicare is a government-provided health insurance program designed to assist certain people with hospital care, medical costs, and other expenses. Qualifying beneficiaries are people who are 65 or older, those younger than age 65 with certain disabilities, and people of all ages with permanent kidney failure.
What is a secondary payer?
When your client’s health insurance is covered by Medicare and you are in the middle of a workers’ compensation or liability case for an injury or illness, it can be confusing to figure out who should be paying their health care bills. To better understand Medicare’s role in the payment process, we need to first explore its history.
Medicare was started under the Social Security Act of 1965. It is a government-provided health insurance program designed to assist those who are age 65 or older, those younger than 65 with certain disabilities, and people of all ages with end-stage kidney disease. It helps with the costs of hospital care, medical services, and other expenses.
At its beginning, Medicare was the primary payer or party responsible for paying its beneficiaries’ health care bills. The only exceptions to this were when the beneficiary was also covered by workers’ compensation, Federal Black Lung benefits, or veterans’ benefits. If any of those were involved, then Medicare either did not pay toward the health care claims or it became the secondary payer, meaning the other entity was billed first. This setup caused Medicare to be very costly for the federal government.
Congress passed The Medicare Secondary Payer Act in 1980 to help curb federal spending and ensure the appropriate party was held responsible for paying the medical claims. Some of the instances in which Medicare is the secondary payer include injuries covered under:
- A worker’s compensation plan
- No-fault insurance
- An automobile or liability insurance policy or plan (including a self-insured plan)
- A structured settlement annuity
- Greater than $25,000 if you’re a Medicare beneficiary at time of settlement OR
- Greater than $250,000 if you’re not a Medicare beneficiary at time of settlement but expect to enroll within 30 months of settlement
- A group health plan (either held by you or as a dependent through a spouse or guardian)
- Through an employer with 20 or more employees OR
- Through an employer with 100 or more employees if the beneficiary is disabled OR
- During the first 30 months of treatment for ESRD
Providers (ex. hospitals, doctors, and medical suppliers) who bill Medicare are responsible for determining whether Medicare or another entity is considered the primary payer for items and services rendered to beneficiaries. Generally, when payment for a beneficiary’s medical expenses has already been made or can reasonably be expected, Medicare will not pay or will pay as the secondary payer. When Medicare pays as the secondary payer, they pay either the difference between the total cost and what the primary payer paid or the difference between what the primary payer paid and the gross amount payable by Medicare. However, if the billing provider accepts a lower payment from the primary payer than they charged, then Medicare does not need to make an additional payment.
A Medicare set aside (MSA) pays toward future health care expenses associated with the workers’ compensation or liability claim that Medicare would otherwise have to pay. That way, Medicare remains the secondary payer and the beneficiary does not risk losing benefits. Once the money in the MSA is gone, then Medicare resumes paying for the covered claim-related medical costs. It can sound overwhelming, but it’s very manageable, especially with the help of a seasoned professional. For liability settlements, Milestone’s goal is to get to a zero MSA.
Complying with Medicare
A Medicare set aside is an account created from a settlement of a workers’ compensation case or a liability case such as a medical malpractice or auto accident lawsuit. The account is funded by using a portion of the settlement proceeds that were awarded to the claimant or plaintiff in order to pay for future medical expenses related to the injury or illness. Those expenses would otherwise be paid for by Medicare, but because Medicare is a “secondary payer,” adequately complying with Medicare means a beneficiary’s settlement must help cover those expenses.
There is a very specific set of steps beneficiaries must take to properly set up an MSA and comply with Medicare. Funds must be established in insured bank accounts, health care providers must be notified, and claims must be properly paid and recorded. The claimant must decide whether to manage the account alone or set up the MSA in a custodial account. A custodial account is a financial account set up for the benefit of a beneficiary, and administered by a responsible person, known as a custodian.
Taking a streamlined, systematic approach to the MSA process will ensure beneficiaries set up their program properly and keep their Medicare eligibility. It can sound overwhelming, but it’s very manageable, especially with the help of an experienced consultant.
Types of Medicare set asides
Medicare set aside accounts are funded using a portion of an injured person’s settlement.
Workers’ Compensation Medicare Set Aside Arrangement (WCMSA)
Milestone can establish a WCMSA when a plaintiff is due to receive money from a workers’ compensation claim.
Liability Medicare Set Aside (LMSA)
Milestone can establish an LMSA when a plaintiff is due to receive a personal injury settlement.
The two types of Medicare set asides are largely similar, in that they both allocate a portion of a settlement to pay for future medical services related to an injury, illness, or disease.
Are Medicare set asides required?
Establishing a Medicare set aside account is not mandatory. These funds are the U.S. Centers for Medicare & Medicaid Services’ (CMS) preferred method for overcoming primary payer issues, but all MSA arrangements are voluntary.
An MSA is often not recommended if the plaintiff is Medicare-eligible but none of the settlement money is meant to cover future medical care. On the other hand, an MSA might be helpful to maintain eligibility if some of the settlement proceeds are intended to cover injury-related expenses. Consider consulting with our settlement planners as early as possible to determine whether an MSA is advisable.
How to calculate a Medicare set aside
Many people ask us how to figure out how much money they need to put in their MSA. Every case is different, but in short, the following four factors determine the appropriate amount for an MSA:
- The personal injury settlement recovery amount,
- The full value of your case if you went to trial or arbitration,
- The amount allocated to future medical care, and
- How much future Medicare-allowable medical treatment will be needed over your lifetime.
Funds for a Medicare set aside must be established under an insured account and may be managed by the injured plaintiff or administered through a custodial account. Milestone coordinates the administration and setup of Medicare set asides through a third party to ensure plaintiffs do not over-fund the account. Our recommended four-step MSA process is as follows:
1. Determine if an MSA is necessary.
This is based on the individual’s anticipated settlement amount, potential cost of future related medical care, and current Medicare status and eligibility.
2. Determine the appropriate allocation.
An expert allocator will gather information about the beneficiary’s covered and non-covered medical needs.
3. Prepare for compliance.
Plaintiffs may choose to self-administer their Medicare set aside accounts. However, self-administration could mean making critical accounting errors and improperly using funds. A professional administration firm can handle the process instead to ensure proper use and management.4
4. Implement the most cost-effective funding solution.
MSAs can be funded in different ways. A member of our team can explain each option to determine which is best for the individual beneficiary.
An experienced settlement planner can assist claimants in determining how much money to set aside in their account. It’s important to mention here that MSAs are not mandatory. Some companies will aggressively market MSAs to unsuspecting people even when they’re not necessary for those individuals.
What happens to the account after death?
In cases where the beneficiary passes away before the funds are gone, what happens to unused Medicare set aside funds? If the claimant has named a beneficiary on the Medicare set aside account and has passed away before the proceeds are exhausted, the remaining money will go to that person—but only the amount of money that is already in the account as cash. If there is no named beneficiary, then these funds pass in accordance with state intestacy statutes.
However, the majority of Medicare set asides are set up with life-only annuities with no remaining interest to beneficiaries—a potential windfall to the insurance company, but not to the beneficiary.
At Milestone, our philosophy is to make sure each client is informed about their options. Our plaintiff settlement planning consultants provide guidance on MSAs when they are the best step to take to ensure government compliance.
