Who Really Pays For Work Injuries? The Medicare Debate

Friday, July 20, 2001 | 0

The expense to the U.S. of work-related injuries and diseases is estimated to be $155 billion, as high as the cost of cancer, a study recently found. [fn 1]. This figure accounts for both direct and indirect costs. Who is bearing these costs? Who should bear these costs?

In recent years, controversy has arisen over the issue of cost-shifting between State workers' compensation (WC) systems and other public and private health insurance systems. Particularly, the Health Care Financing Administration (HCFA) has announced an all out effort to collect monies owed to Medicare under the Medicare Secondary Payment statute codified at 42 U.S.C. Section 1395y. HCFA has stated, "We are vigorously investigating liability and workers' compensation settlement situations where in settlements involving Medicare beneficiaries have occurred absent the knowledge, consent and participation of HCFA such that Medicare's interest was not considered and protected." HCFA has forwarded letters to several WC carriers regarding Medicare's rights in WC cases. All of this suggests that Medicare believes there has been an illegal shift of medical benefits from WC insurers to Medicare.

What are the amounts? Which programs pay for work-related injuries and how much? In 1999, Social Security disability insurance (DI) paid $51.3 billion to disabled workers under 65 and their dependents for wage replacement benefits and Medicare paid $27.6 billion for hospital and medical care for those disabled workers. Total WC benefits paid in 1999 were $43.4 billion with $18 billion of that for medical expenses. [fn 2].

The amount of DI and Medicare benefits that were paid to beneficiaries as a result of work-related injuries is not known. In March, 2000, there were 6.57 million disabled workers and dependents that received Social Security disability benefits. Of those, 481,000 (7.3%) had a job related injury, 361,000 of which were actually receiving WC benefits. 120,000 DI beneficiaries indicated to SSA that they had a job related disability but their status for WC was undecided or unknown. There are around 6 million non-fatal injuries and illnesses in private industry workplaces a year.

In looking at a historical perspective, an opposing trend emerges. WC benefits were less than DI benefits during the 1970s, but grew steadily throughout the 1970s and surpassed DI in the mid 1980s. When DI benefit costs flattened out during the mid-1980s, WC payments continued to grow at a rapid rate. When WC payments declined from 1992 to 1996, DI benefit as a share of payroll continued to inch upward. In 1997 and 1998, both programs show a decline in benefits as a percent of payroll. "While the two programs serve somewhat different populations, the opposite trends in workers' compensation and Social Security disability benefits during many years since the mid-1970s raise the question of whether retrenchments in one program increase demands placed on the other, and vice versa. The substitutability of DI and workers' compensation for workers with severe, long-term disabilities that are, at least arguably, work-related or might be exacerbated by the demands of work, has received little attention by researchers and is not well understood." [fn 3].

A 1991 study found that only 60% of persons reimbursed for work injuries received workers' compensation. A more recent study reports that workers' compensation insurance covers only about 40% of the cost of work-related injuries and illness. [fn 4]. What laws are in place assuring that one program is not burdened by the responsibilities of another?

There is widespread confusion as to when medical expenses are covered by Medicare in a WC case. This confusion possibly stems from a cursory reading of the regulations that implement the Medicare Secondary Payer (MSP) Law. At first glance, these regulations (42 C.F.R. 411.46, 47) appear conflicting and contradictory. However, the principle is quite simple.

The MSP Law provides that, when a person is entitled to Medicare, payment by Medicare may not be made for any item or service which can reasonably be expected to be made under a WC law or plan. If it is determined that Medicare has paid for items or services that could have been paid for under WC, then the payment constitutes an overpayment and Medicare has a priority right of recovery of its expenditure.

Upon casual reading of 42 C.F.R. 411.46 and 411.47, it would appear that the Regulations contradict themselves. Section 411.46(b)(2) notes that if a settlement attempts to shift to Medicare the responsibility of payment of medical expenses for treatment of a work-related condition, the settlement will not be recognized and Medicare will not pay for treatment of that condition. Then, paragraph (d) notes that the basic rule with regard to lump sum compromise settlement is: "If a lump sum compromise settlement forecloses the possibility of future payment of workers' compensation benefits, medical expenses incurred after the date of the settlement are payable under Medicare." These paragraphs appear to contradict each other until it is pointed out that paragraph (b)(2) is referring to a situation where the parties to a settlement, in order to maximize disability benefits, illegitimately shift responsibility for payment to Medicare by releasing the WC carrier from liability for medical expenses even though the facts show that the condition is work-related. Medicare is increasingly resisting any attempt by the WC carrier to shift liability for lifetime medicals to Medicare.

When some part of the WC settlement is set aside to pay for specific future medicals, Medicare will not pay for those services until those expenses equal the amount of the lump-sum settlement allocated to future medical expenses. Typically, if the settlement agreement does not make a reasonable allocation of a portion of the lump sum to future medical expenses, Medicare determines the portion considered as payment for medical expenses based upon a rough application of formula contained in 42 C.F.R. 411.47(a)(2). However, if the settlement does not allocate benefits, Medicare is not required to negotiate, and can deem the settlement attributable entirely to future medicals, whereupon Medicare may deny coverage for any post-settlement, injury-related medical expenses until all settlement proceeds are exhausted.

The Medicare regulatory scheme simply reflects the rationale that WC settlements involving Medicare beneficiaries must give reasonable consideration and protection to Medicare's interest by a segregated allocation to the claimant's future medicals.

Currently, there is no hard and fast method of assuring that there will be no potential future problems with Medicare when resolving a WC claim. However, there are ways that afford far more certainty than a settlement comprising all future medicals and disability benefits in an undifferentiated manner.

Perhaps the most definitive solution is the Medicare Set-Aside Trust. HCFA has accepted this trust. The commutation or compromise must allocate an amount roughly equal to the amount of the lump sum settlement allocated to future medicals. Only medicals that Medicare would normally cover are placed in the Medicare Set-Aside Trust. The amount allocated to the Trust need not necessarily equal the claimant's calculated medical expenses for life (after all, the claimant may die a year after the settlement), it simply reflects the negotiation of the compromise or commutation and must be sufficient to demonstrate that Medicare's interests have been reasonably considered.

Differentiating the release and settlement into five separate categories also minimizes the risk of the claimant losing his DI payments and his Medicare benefits: (1) past medicals (a lien can only be asserted against that portion allocated to past medicals); (2) future medicals (exclusive of skilled care); (3) future medicals (encompassing skilled care); (4) indemnity (life-time lost wages); and finally, (5) attorneys' fees and costs.

Securing Medicare's approval of the proposed settlement before the claimant releases the carrier assures that Medicare will pay for future medical expenses once the set-aside monies are spent.

To help define which conditions are work-related and which are not for future Medicare benefits, strictly limit the job-related injury through precise language in order to succinctly define what condition was considered work related.

When one social program burdens and shifts responsibility to other programs, all taxpayers, insurers, and participants alike are affected now and far into the future. Given the magnitude of the problem, relatively little research exists concerning the impact and costs of work-related injuries and illness. What are the health care costs to Medicare for retirees with work-related cancers and lung diseases? How much do social and rehabilitative services for treatment of work-related disabilities cost State and local governments? What portions of State taxes and private health insurance premiums are providing welfare or health care to injured and disabled workers who are not being reimbursed by workers' compensation? What is the comparison of the costs (or benefits) of safety and health programs with the total economic and social costs of workplace injuries or fatalities?

Research will quantify cost shifting between State WC systems and other public and private health insurance systems. Better measures of both economic impacts (direct and indirect) and non-economic impacts will help improve targeting of resources for research, prevention and compensation.

Source: workcompcentral.com exclusive by staff editor Curtis Kimble

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Fn 1- Costs of Occupational Injuries and Illnesses, J. Paul Leigh. University of Michigan Press (2000).
Fn. 2, 3- National Academy of Social Insurance, 2001. Workers Compensation: Benefits, Coverage, and Costs, 1999 New Estimates and 1996-1998 Revisions.
Fn 4- Costs of Occupational Injuries and Illnesses, J. Paul Leigh. University of Michigan Press (2000).