Medicare Set-Aside Trust Part 1

Monday, September 30, 2002 | 0

I. Introduction

Over the last decade, much progress has been made in devising of preserving public benefits for disabled individuals. However, scant attention has been given to the special problems of preserving public benefits in the context of worker's compensation settlements. Settling a worker's compensation claim involves preserving Medicare and Social Security Disability benefits for disabled individuals.

The worker's compensation laws of every state place primary responsibility for payment of medical expenses for a work-related injury upon the employer and the employer's worker's compensation insurance carrier. As a result, virtually every private and group health insurance policy available in this country will contain language excluding coverage for work-related injuries or illnesses. Therefore, a worker's compensation claimant who already had private or group health insurance prior to his injury will never receive coverage from that insurance for his work-related medical expenses.

When the claimant settles and receives a large lump sum payment for future medical expenses, this typically triggers a battle with the private insurance company over coverage for any future medical expenses. The worker's compensation claimant who does not already have private or group health insurance coverage will find as a practical matter that he will not be able to purchase private or group health insurance at all. This makes it paramount to preserve the claimant's future eligibility for Medicare benefits due to his disability.

Federal law places primary responsibility for payment of medical expenses for a work-related injury upon the employer. Federal law, like state law, requires that Medicare not pay for any of the claimant's work-related medical expenses until all worker's compensation benefits for those expenses are exhausted. This includes benefits received in a lump sum as part of a worker's compensation settlement. As a result, Medicare becomes the secondary insurer, not only for work-related medical expenses incurred prior to settlement, but also for future work related medical expenses. In this regard, Medicare's status is unique in the context of a worker's compensation settlement.

The special problem, then, in worker's compensation settlements is how to preserve the claimant's future eligibility for Medicare coverage for work-related medical expense without the claimant having to first completely exhaust his entire lump sum settlement on his future medical expenses.

The focus of this series of articles will be on the preservation of a different kind of public benefits in the context of a different settlement - the worker's compensation settlement. The public benefits at issue here are an entitlement program - Medicare. Just as a trust is necessary to preserve Medicaid benefits in a tort case, (e.g. a disability trust under 42 U.S.C. section 1396p(d)(4)(A)), a trust is necessary to preserve Medicare benefits in a worker's compensation (WC) settlement. This trust is known as a Medicare Set-Aside Trust and was first proposed by our office in 1995. The Health Care Financing Administration (HCFA) has approved this trust in many cases since then as a means of reasonably considering Medicare's interests and of preserving the claimant's entitlement to Medicare benefits after the receipt of a WC settlement. The purpose of this article is to set forth the theory behind the Medicare Set-Aside Trust and help the reader understand the context in which it should be used. Provided that the Medicare Set-Aside Trust is properly used, the disabled worker can be guaranteed that his Medicare benefits will be available to him, even after he receives a WC settlement.

II. Tort Claims v. Worker's Compensation

When an individual is disabled on the job, he has two kinds of damages: financial and physical. The difference between an individual disabled on the job and an individual disabled through the fault of another is that the latter has a chance to start over. Most states provide that the disabled worker will receive up to two-thirds of his average weekly wage, as well as work-related medical expenses. In a tort settlement, the plaintiff often recovers a lump sum intended to compensate him not only for his lost income and his medical bills, but his lost self-esteem, his lost limb and even his lost marital relations. None of this is true for the individual who is disabled on the job.

The individual disabled on the job relies on the government's disability insurance - Social Security Disability Income (SSDI). In 32 states, receipt of WC benefits profoundly affects SSDI. Receipt of WC disability benefits in those states will directly reduce the SSDI payment on a dollar-for-dollar basis, to the extent that the claimant will receive no more than eighty percent (80%) of his gross income.[ ] Although the injured worker will also have all of his work-related medical expenses paid by the worker's compensation carrier, his income will still be below the standard of living he enjoyed before this injury.

The vast majority of WC cases throughout the country are riddled with disputes about what constitutes "work-related" medical expenses. The carrier and the claimant are often in disagreement about whether the presenting medical symptoms are the result of the original accident or the result of a new illness or some new stress in the claimant's life. Open an old worker's compensation file and you will find years of squabbling, bitter feelings and even litigation. In this sense, every WC case is contested.

Even if the carrier and the claimant agree on the definition of work-related medical expenses and the carrier pays all medical bills, the claimant still lacks the necessary funds with which to restart his life.

In a tort settlement, the plaintiff may recover funds with which to purchase a handicapped equipped van, renovate a home, enroll in special schooling or rehabilitation programs or provide for outside care management services. In a WC case, the claimant who receives even 100% medical coverage will still not have the available funds to accomplish what is available to a plaintiff in a tort settlement.

The disabled plaintiff in a tort settlement does not lose his eligibility for coverage under his group health insurance policy by virtue of having received the settlement for damages. The plaintiff can recover a lump sum settlement and still qualify for health insurance benefits. The individual disabled at work does not recover a lump sum and is not awarded monies for loss of consortium or mental anguish, although his anguish may be just as great as that of the plaintiff in a tort case. Further, his group health insurance policy will have a clause excluding coverage for any work-related medical expenses. In America, it is preferable to become disabled as the result of the fault of another, rather than to become disabled on the job.

In 1997, Congress provided for qualified assignments of structured settlements in WC cases. As a result, the structured settlement industry began to target WC cases as possible candidates for structured settlements. In the last few years, there has been a dramatic rise in the number of WC cases settled with annuity products as opposed to lump sums.

Carriers compromise WC cases by cashing out the worker's entitlement to future medicals and lost wages. The compromise is paid as a lump sum and is less than the worker would have received had he not settled out his case, but rather lived into old age continuing to receive benefits, both medical and wage replacement ("indemnity") from the WC carrier. The disabled worker is motivated to settle out his benefits because he is anxious for money with which to restart his life.

The carrier wants to get the claimant "off the books" and the claimant wants to start life over. Both sides are anxious to separate. In the cynical, litigious atmosphere that has developed between the claimant and the carrier, both are motivated to settle.

Unlike the liability plaintiff, the WC claimant cannot get health insurance benefits once his case settles. That leaves Medicare as the only potential source of health insurance for the disabled worker. Within 24 months of receiving SSDI benefits, the claimant will be eligible for Medicare. However, Medicare is always secondary to WC and will not recognize or condone any attempt to shift the carrier's responsibility to pay for the injured worker's medical care.

It makes sense that the disabled worker wants a cash settlement for his injuries and wants, just as the plaintiff in a tort settlement wants, to preserve his eligibility for public benefits. In the case of the disabled worker, the most important of those public benefits will be Medicare and not Medicaid. Federal law already provides a means to preserve Medicaid benefits when the plaintiff recovers a tort settlement.[ ]

The next article in this series will define the variables in this area of the law, and the applicability to workers' compensation settlements.

By Susan Haines, Esq. (C) 2002 The Law Offices of Susan G. Haines, P.C. -- Reprinted by Permission. Further articles on this topic may be read at www.haineselderlaw.com/WhitePaper_.htm. Ms Haines may be reached by e-mail at: loosgh@privatei.com