Medicare Set-Aside Trusts - Part 3

Saturday, October 26, 2002 | 0

Two articles thus far have been presented in this series. The first introduced the concept and reasons for it. The second discussed applicable definitions and the difference between a commutation and a compromise and release for Medicare purposes. This article reviews the technical use of this instrument.

Using the Medicare Set-Aside Trust

A Medicare Set-Aside Trust is funded with a lump sum specifically designated in the release and settlement as being for those medical bills which Medicare would otherwise be required to pay. The claimant may "submit bills related to the injury or illness" to the trustee. Each year, the trustee provides an accounting to Medicare. When the monies in the Medicare Set-Aside Trust are exhausted, then pursuant to the MIM, the claimant is eligible for Medicare benefits for all covered medical expenses, whether work-related or not.

Theoretically, the monies in the Medicare Set-Aside Trust could be spent down in one year or ten years. What matters is that Medicare approved the amount allocated toward future medicals (medicals that Medicare would pay) before the case is settled. In this way, the claimant is assured that the monies set aside in the Medicare Set-Aside Trust will be sufficient to satisfy Medicare that its interests have been reasonably considered.

It is not a good idea to fund a Medicare Set-Aside Trust with a structured settlement. The monies in the trust must be readily available to the beneficiary and they must be such that they can be expended, concluded and depleted. When the monies are gone, the claimant is eligible for Medicare coverage of his work-related medical expenses. If the trust is funded with a structure, the amount of the structure payment may be insufficient, in any one year, to cover unanticipated skilled medical expenses. Further, the pay out period on the structure may be arbitrary or unrealistic. It is far better to fund the Medicare Set-Aside Trust with a lump sum calculated to cover the claimant's skilled medical expenses for a future period of time and to structure the balance of the settlement.

Reopening The Worker's Compensation Settlement

Carriers are often skeptical that Medicare must be involved in a compromise settlement before the settlement is final. Generally speaking, the practice in the country is to settle WC claims, having the claimant sign a settlement agreement in which the claimant acknowledges that his right to future Social Security and Medicare benefits is not guaranteed and the carrier is released from all claims. This is a mistake - both for the carrier and the claimant.

Section 2370.6 of the MCM provides that:

"A decision by a state WC agency on a . . . compromise settlement which has been approved by the agency should be accepted as a basis for applying the WC exclusion, except where the settlement did not make reasonable provision for payment under WC of all work-related medical expenses. Thus, where an individual has been denied WC benefits for a particular illness or injury, allow claims for treatment of that condition, unless the settlement is clearly inconsistent with the medical facts . . . and has the effect of shifting to the Medicare program, liability for medical expenses which are the responsibility of the state WC program. Where it is clear that an attempt was made to shift responsibility to the Medicare program, deny the Medicare claim. Explain your conclusions in detail in the denial notice and state that the beneficiary may wish to request a reopening under the WC law."

A claims adjuster recently assured me that once the WC board had approved an obviously disproportionate settlement on an unrepresented claimant, the case could not be reopened. This is obviously not so.

A claimant whose case represents an attempt to shift responsibility to the Medicare program will find that the settlement is insufficient to cover his future skilled medical expenses. He will also find that he is unable to secure group health insurance coverage. The claimant's only secure source of catastrophic health insurance coverage is Medicare. When Medicare denies coverage for work-related medical expenses, the claimant will be without adequate health insurance coverage and will be required to use his own resources to pay for his medical expenses.

If it is later represented to the WC board that the claimant believed or the board was led to believe that the claimant would retain his Social Security and Medicare benefits, but did not, the claimant will be persuaded to reopen his WC case. If Medicare has then sent the claimant a letter encouraging the claimant to reopen his WC case because the settlement represented an unlawful attempt to shift responsibility to Medicare for medical expenses which were the responsibility of the state WC program, the WC board may also be persuaded to reopen the claimant's case.

Provided that the release allocates the settlement monies appropriately, as discussed above, and provided that the settlement agreement establishes a Medicare Set-Aside Trust with monies earmarked for work-related skilled medical expenses, and provided that the compromise agreement has been approved by a WC agency, HCFA will approve the settlement. Section 3407.6 of the MIM admonishes the intermediaries that they should accept a decision by a state WC agency:

"In general, accept a decision by a state WC agency on a contested claim, or a compromise settlement which as been approved by a WC agency, as a basis for applying the WC limitation, except where the settlement did not make reasonable provision for payment under WC of all work-related medical expenses."

The regulations envision that carriers are likely to negotiate a settlement, whether that settlement is a commutation or a compromise.

Therefore, the amount allocated to the Medicare Set-Aside Trust may reflect that negotiation. That is, the monies allocated to the Medicare Set-Aside Trust need not equal the claimant's calculated medical expenses for life. Otherwise, why should the parties settle at all? Further, the claimant may die within a year or less of the settlement. Rather, the amount allocated to the Medicare Set-Aside Trust reflects a compromise on the part of the carrier and the claimant, but must be sufficient to demonstrate that Medicare's interests have been reasonably considered and must be reflective of the overall settlement and the particular facts and circumstances of the case.

The next, and last, article in this series will review Medicare secondary payer principles.

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.