Dealing with Medicare Issues in Workers’ Compensation Settlements
For the past several years, Medicare has been mistakenly paying medical expenses for injured workers even when those expenses stemmed from work-related accidents or occupational diseases. The Medicare as secondary payer statute was enacted in 1980 to prevent the burden of such expenses, which rightfully should be paid by other insurance plans including workers’ compensation, from being shifted to Medicare. Pursuant to this statute, the Centers for Medicare and Medicaid Services (CMS), the federal agency that administers Medicare, has undertaken a comprehensive effort to collect money owed to Medicare for the payment of such expenses.
The Medicare as secondary payer statute provides, in part, that Medicare may not pay for an individual’s medical treatment if payment can “reasonably be expected to be made promptly” under workers’ compensation or under an automobile or liability insurance policy or plan.1 In such instances, Medicare is the “secondary payer” while the insurance company or other responsible party remains the “primary payer.” This statute further provides that, in the event Medicare does pay such expenses, those expenses shall be paid subject to reimbursement. If such reimbursement is not made within the established time period, interest may be charged on the amount of the reimbursement until Medicare receives the same from the primary payer.
Medicare Set-Aside Custodial Agreement
Medicare set-aside custodial agreements have been recognized as a way of balancing Medicare’s interests in a workers’ compensation settlement that purports to close future medical benefits and an injured worker’s entitlement to Medicare benefits after receiving such a settlement. The Medicare set-aside custodial fund is funded with a lump sum of money or a structured settlement designated to cover future medical expenses that Medicare would ordinarily cover. After the fund is exhausted, the injured worker becomes eligible for Medicare to pay any and all future medical expenses that Medicare would normally cover.
To establish a Medicare set-aside custodial fund, approval must usually be obtained from CMS. If CMS approves the amount that will be deposited into the custodial fund, Medicare will waive any future claims against the employer or insurer for the worker’s medical treatment costs and will agree to pay such expenses after the fund has been exhausted.
In order to approve a settlement agreement incorporating a Medicare set-aside custodial fund, CMS must be provided with all of the relevant facts concerning a worker’s injury and medical treatment. The factors that CMS uses to determine whether a Medicare set-aside custodial fund amount will be approved include, but are not limited to, the following:
• The date of entitlement to Medicare;
• The basis for Medicare entitlement (disability or age);
• The type of injury or illness;
• The age of the injured worker (including an evaluation of whether the injured worker’s condition would shorten his or her life span);
• The classification of the injured worker’s disability, i.e., permanent, total, or partial;
• Prior and future medical needs of the injured worker due to the injury or illness;
• Whether the compensation is for the injured worker’s lifetime or for a lesser period of time;
• The state law governing how long workers’ compensation is obligated to cover the services related to the injury or illness;
• Whether the injured worker’s condition is stable or if medical deterioration is possible; and
• The living arrangement of the injured worker and the level of continued care required.
In addition to submitting the above information, a copy of relevant documentation, including a copy of the state court or board settlement agreement and the worker’s recent medical records related to the injury, should be provided to CMS to assist in evaluating the proposed settlement agreement. It is important to remember that no “form” agreement should be used, as several factors must be considered and appropriately addressed in each agreement.
Medicare Set-Asides Become an Issue
Although there is no reported case law at this time dealing specifically with Medicare set-asides, recently CMS has undertaken an effort to educate insurers about Medicare’s rights under the Medicare as secondary payer statute in the context of workers’ compensation settlements. During the past two years, CMS has sent letters to many insurers informing them that Medicare’s interests must be adequately considered and addressed when future medical benefits are settled in a workers’ compensation case. CMS has made it clear that it intends to make referrals to the Department of Justice for prosecution when appropriate.
Further, a coordination of benefits contract was recently awarded by CMS to consolidate activities concerning the collection, management, and reporting of other insurance coverage for Medicare beneficiaries. This will assist CMS with investigating and determining the existence of potential claims which may be asserted under the Medicare as secondary payer statute.
When to Utilize a Medicare Set-aside
Medicare set-asides should be used if future medical benefits are being closed and either of the following applies:
1) The worker is a current Medicare beneficiary, or
2) The worker will be a Medicare beneficiary within 30 months of the date of the settlement and the anticipated amount of the settlement, including indemnity, is expected to be greater than $250,000.
If an individual is currently receiving Social Security disability benefits, he or she has a reasonable expectation of qualifying for Medicare enrollment within 30 months. Individuals become eligible for Medicare after they have been receiving Social Security disability benefits for 24 months. These disability benefits do not begin until five months after the date of the accident, injury, or other disabling event. Therefore, if an individual has applied and will most likely be approved for Social Security disability benefits, he or she may also have a reasonable expectation of Medicare enrollment within 30 months.
To qualify for Social Security disability, an individual must be unable to perform any kind of substantial, gainful work because of a physical or mental impairment, or a combination of both, which is expected either to last at least 12 months or to end in death. There are additional ways to qualify for Social Security disability benefits including, but not limited to:
• The claimant is 50 years old or older and unable to perform past work (own occupation) due to a physical or mental impairment. 20 C.F.R. §404.1561 (2001).
• The claimant has a physical or mental impairment and a long history of heavy, unskilled work. 20 C.F.R. §1562 (2001).
• The claimant has a physical or mental condition that appears to satisfy the “medical listings” in the Code of Federal Regulations. 20 C.F.R. §§404.1520, 404.1520a, 404.1525 (2001).
• The claimant is illiterate and has a physical or mental impairment. 20 C.F.R. §1564 (2001).
If an injured worker is receiving Social Security disability benefits but the amount of the settlement does not reach $250,000, a Medicare set-aside may still be considered. Utilizing a Medicare set-aside in those circumstances will ensure future protection for the worker, employer, and insurer.
Amount Placed in Medicare Set-aside
Practically speaking, the amount of money placed in a Medicare set-aside is not negotiable between the worker, employer, and insurer. Instead, allocation experts are consulted to determine such amount. These experts begin the allocation process by performing in-depth evaluations of the injured worker’s medical records. Inquiries are then made to medical providers to determine the future medical treatment anticipated for the worker. Next, a review is conducted of Medicare regulations to determine what part of that treatment Medicare would normally cover, as that is the only treatment for which money must be set aside. A projection is then made of the likely expenses for the covered treatment based upon the applicable workers’ compensation or Medicare fee schedule. This is the amount that should be placed in the Medicare set-aside.
Medicare set-asides may be administered by custodians. Indeed, if the amount of the set-aside is significant, it is often advisable to utilize a custodian for the administration of the fund. Medical providers for injured workers covered by a Medicare set-aside may send bills for their services directly to the custodian. The custodian pays the medical bills in accordance with either the applicable state workers’ compensation fee schedule or the Medicare fee schedule, depending upon which fee schedule the allocation was based.
The custodian is limited, however, in what may be paid from the set-aside fund with regard to medical expenses. First, the custodian may only pay for treatment that Medicare would usually cover. In addition, the fund must only be used to pay for medical expenses connected with the work-related injury. Furthermore, no expenses may be paid from the Medicare set-aside fund until the worker is actually a Medicare beneficiary.
At least on an annual basis, the custodian must send reports to the appropriate regional office of Medicare. This report must indicate all of the expenditures from and deposits made into the fund for that period of time. When the fund is exhausted, the custodian must then forward a report to the appropriate Medicare regional office detailing all expenses paid from the fund and all deposits for the life of the fund. Upon approval of the report, the custodian’s duties end.
Should the worker die before the custodial fund is exhausted, the money will usually revert to the worker’s estate. In such case, the custodian must ensure that the appropriate transfers are made before being released from obligations in connection with the Medicare set-aside.
• By the Injured Worker
Medicare set-asides may be administered by the injured worker. Several stringent guidelines, however, must be followed if this option is utilized. In fact, an injured worker is essentially held to the same standards to which a custodian is held with regard to what may and may not be paid from the set-aside fund. In addition, the same reporting requirements must be met by the worker.
Failing to Consider Medicare’s Interests
In order to recover payments described in the Medicare as secondary payer statute, the U.S. is authorized to bring “an action against any entity which is required or responsible (directly, as a third-party administrator, or otherwise),” to pay for the expenses at issue.2 In addition, the statute provides that double damages may be collected from the primary payer.3 The statute further establishes a private cause of action for damages “in an amount double the amount otherwise provided,” when a primary payer fails to provide for payment or reimbursement under the statute.4 In addition to paying, then seeking reimbursement for a worker’s medical expenses, Medicare also has the option to simply refuse to pay such expenses.5 This could occur if the injured worker has previously reached a lump sum settlement with the primary payer regarding future medical benefits. Medicare regulations specifically provide as follows:
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.6
In the event that no part of the lump sum settlement is specifically allocated for future medical expenses, Medicare has a formula for apportioning an amount of the settlement itself. The regulations further provide that “[i]f a settlement appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for treatment of a work-related condition, the settlement will not be recognized. ”7
When Medicare set-aside custodial agreements and Medicare set-aside agreements are properly utilized, employers and workers’ compensation insurance carriers may settle a workers’ compensation claim closing future medical benefits without fear of Medicare either attempting to make a claim for reimbursement of medical expenses resulting from a work-related injury or refusing to pay an injured worker’s medical expenses. Utilization of a Medicare set-aside custodial agreement should allow parties to settle future medicals with greater ease, since the worker will have insurance, through Medicare, for future treatment. Additionally, trial courts and workers’ compensation boards are more likely to approve settlements that include this safeguard.
These agreements can also provide a substantial cost savings to employers and workers’ compensation carriers. While Medicare recognizes that the employer or insurer likely will put less money into the custodial account or the annuity than it would expend over the remainder of the injured worker’s life, this type of compromise with an injured worker is accepted by Medicare as an incentive to the employer or insurer to settle claims for future medical expenses. Moreover, because any amount remaining in the Medicare set-aside at the time of a worker’s death will usually go to his or her estate, Medicare set-asides provide an added benefit for injured workers.
1 42 U.S.C. §1395y(b)(2)(A)(ii) (2000).
2 42 U.S.C. §1395y(b)(2)(B)(ii) (2000).
4 42 U.S.C. §1395y(b)(3)(A) (2000).
5 42 C.F.R. §411.46 (2001).
6 42 C.F.R. §411.43(a) (2001).
7 42 C.F.R. §411.46(b)(2) (2001) (emphasis added).
Melisa C. George is a member of the Birmingham, Alabama, office of Carr Allison Pugh Howard Oliver & Sisson, P.C. Her practice focuses on employment law, including workers’ compensation, and general civil litigation.
Bennett L. Pugh is a partner in the Birmingham, Alabama, office of Carr Allison Pugh Howard Oliver & Sisson, P.C. His practice focuses on workers’ compensation.
This column is submitted on behalf of the Workers’ Compensation Section, Martin Leibowitz, chair, and Pamela L. Foels, editor.