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Medicare Set-Aside Trusts - Part 4

Saturday, November 9, 2002 | 1123 | 0 | min read

This is the last of a four part series on Medicare Set Aside Trusts by expert attorney on the topic, Susan G. Haines. First was an introduction to the concept and reasons for it. Secondwas a discussion on applicable definitions and the difference between a commutation and a compromise and release for Medicare purposes. Third was a review of the technical use of this instrument. This final article discusses some of the mechanics of the tool.

Medicare's Secondary Payer Claim

The disabled worker will usually become eligible for Medicare and SSDI, but often will receive little or no benefit under either program. Instead, the WC carrier pays a portion of the indemnity for lost wages (SSDI) and almost all of the medical bills. Nevertheless, the disabled worker is eligible for both programs of public benefits, even though he may not be receiving full benefits from either SSDI or Medicare.

While the WC carrier is responsible for all work-related medical expenses, the WC carrier and HCFA may later disagree on what is a work-related medical expense. The Medicare secondary payer statute provides that Medicare may recover directly from the claimant or the WC carrier any benefits Medicare paid for services that are reimbursable under WC.

While in the vast majority of cases involving disabled workers, this right of Medicare to recover directly does not arise, it does arise when the worker enters into either a commutation or a compromise and the individual is awarded WC benefits. Hence, when the claimant cashes out his benefits, any monies Medicare may have paid for work-related medical expenses give rise to a claim against the claimant's settlement. This claim is known as the "Medicare secondary payer" (or "MSP") claim. The MSP claim will arise in three different contexts.

The first context in which the MSP claim will arise is when providers, (i.e., hospitals, physicians, free standing clinics, etc.), are mistaken about who is the primary payer. When this happens, the provider mistakenly bills Medicare and Medicare mistakenly pays, not knowing that a WC carrier is primarily responsible. The "overpayments" subsequently become an MSP claim in any WC settlement.

The second way in which the MSP claim develops is that the WC claim is contested and the worker is without any health insurance benefits during the period of delay. Section 3407.6(B) of the MIM provides that "[t]here is frequently a long delay between an injury and the decision by the State WC agency in cases where compensability is contested. A denial of Medicare benefits pending the outcome of the final decision means that beneficiaries might use their own funds for expenses that are eventually borne by either WC or Medicare. To avoid imposing a hardship pending a decision, conditional Medicare payments may be made. They are conditioned upon reimbursement to the trust fund if it is determined that the services are covered by WC".

The third way in which an MSP claim arises is when the WC carrier pays for Medicare covered services an amount which is less than the provider's charges and less than the gross amount payable by Medicare, and the provider does not accept and is not required to accept the payment as payment in full under WC law.

In any one of these three situations, the MSP claim arises and must be paid before the individual worker is awarded benefits in any WC settlement. Unless and until the claimant cashes out his benefits, the question of an MSP claim does not arise. It is only when the claimant receives an award or enters into a compromise settlement wherein he exchanges his right to benefits for a sum of money, that Medicare is first entitled to be reimbursed. This is because the MSP statute provides that all Medicare payments are conditioned on reimbursement to the Medicare program if Medicare is or should have been the secondary payer.

The concept of Medicare's right to recover is succinctly stated in the introduction to Section 3407 of the MIM. That section provides in part:

"Payment under Medicare may not be made for any items and services if payment has been made or can reasonably be expected to be made for them under a WC law or plan of the United States. . . . If Medicare has paid for . . . services which can be, or could have been paid for under WC, the Medicare payment constitutes an overpayment."

Medicare is equally secondary to the Federal Employees' Compensation Act, the U.S. Longshoreman's and Harbor Workers' Compensation Act and the Federal Coal Mine Health and Safety Act of 1969 as amended (the Federal Black Lung Program). Not covered under the MSP program is the Federal Employer's Liability Act that covers merchant seamen and employees of interstate railroads.

Medicare's right to recover it's secondary payments is superior to any other claim for subrogation in the country, including that of Medicaid. Medicare's superiority as a subrogee stems directly from the MSP statute which provides that: 1) Medicare's right to recover is superior to that of any entity; 2) Medicare may recover directly from the employer or the employer's WC carrier; and 3) Medicare may recover any overpayment directly from any entity that has been paid under WC.

Compromise of Medicare's Secondary Payer Claim

The Medicare program is administered nationally through regional offices. There are 10 regions. These regions are directly under the U.S. Department of Health and Human Services and its sub-agency, HCFA. HCFA is responsible for administering both the Medicare and the Medicaid programs nationally. The regional offices that administer the Medicare program are known as HCFA regional offices.

Each regional office has authority to administer the MSP program, including the collection, enforcement and compromise of Medicare's claims. In addition, each regional office has the authority for determining the validity of the Medicare Set-Aside Trust and the reasonableness of the amount set aside in the trust. Further, the annual accounting for each Medicare Set-Aside Trust is sent to the HCFA regional offices.

The authority to compromise the MSP claim was not always vested in the HCFA regional offices. Prior to 1995, that authority was vested exclusively in the central office in Baltimore, Maryland. Compromising an MSP claim took months. It was not unusual for a claimant to settle out his case, discover that Medicare was owed a third of his recovery and then wait months to seek a compromise of his claim.

Since 1995, the resolution of the MSP claim has been expedited. The claimant must sign an appointment of representative form (HCFA Form 1696 - available from HCFA or any regional office) that is then forwarded to the HCFA regional office for the region in which the claimant lives. This form allows the claimant's attorney or counsel for the carrier to ascertain whether there is indeed an MSP claim.

The HCFA regional office first ascertains whether Medicare is owed any monies. Assuming Medicare is owed monies, the representative for the claimant is notified. The representative has the right to request an audit of the claim and should do so. That audit is nothing more than a print out of all the Medicare payments to date.

The MSP claim can be either compromised or waived, pursuant to the Federal Claims Collection Act, ("FCCA"), under the MSP statute, or under 42 U.S.C. section1395gg(c). These federal statutes apply equally to the compromise or waiver of the MSP claim in tort settlements and the HCFA regional offices are authorized to address those as well.

Since 1995, either the regional offices or the lead contractor, usually the Part A fiscal intermediary, may negotiate directly with the claimant or the claimant's representative. While the negotiations to compromise the MSP claim must be done in an approved manner, on approved forms, the process is nevertheless greatly expedited and a compromise can now be reached in weeks, sometimes days, where before it took months.

The bases for a compromise under the FCCA are: 1) the claimant does not have the money to repay the claim within a reasonable period of time; 2) HCFA would find it difficult to prevail on the claim in a court of law; or 3) the costs to HCFA of collecting the claim exceeds the value of the claim.

Under 42 U.S.C. section1395gg, claims can be compromised for economic hardship, for equity and good conscience, and for reasons beyond the fault of the claimant - that is, the claimant was not responsible for the overpayment.

Under the MSP statute, claims can be waived, in whole or in part, if waiver is determined to be in the best interests of the MSP program. A denial of a waiver request under this provision is not appealable.

Generally, HCFA will compromise claims on the basis of economic hardship, good sense and fairness. The claimant should never be expected to compromise his own MSP claim. It takes skilled lawyering to maneuver the compromise of a MSP claim through the system.


It is tragic when an individual becomes permanently disabled on the job. However, there is no reason why settlement of his or her WC claim should compound the tragedy. Through the proper treatment of Medicare's interests, regarding both past and future medical expenses, the use of a Medicare Set-Aside Trust tailored to the specific needs of the case, and comprehensive medical benefit planning, future coverage for necessary medical care can be assured. Absent this necessary medical care, the individual will be forced to resort to welfare for payment of his medical bills. Both the government and the claimant have an interest in seeing that this does not occur.

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.


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