Medicare Set-Aside Trusts - Part 2

Sunday, October 13, 2002 | 0

Our first article in this series introduced the Medicare Set Aside Trust and compared the application of Medicare in tort claims versus workers' compensation. This next article in the series will discuss applicable definitions and the difference between a commutation and a compromise and release as applicable to Medicare.

Definitions

Medicare is distinguishable from Medicaid. Unlike Medicare, eligibility criteria and funding for Medicaid are provided partly by the states. Therefore, the rules on Medicaid liens and Medicaid eligibility vary from state to state. This variance is not true for Medicare, which is governed solely by federal law. Eligibility for Medicaid is based on the applicant's assets and income as they measure against federal poverty guidelines. Therefore, a personal injury recovery could disqualify the Medicaid recipient from Medicaid benefits. On the other hand, eligibility for Medicare is unrelated to financial need. A personal injury recovery will not affect the Medicare beneficiary's continued eligibility for Medicare benefits.

However, Medicare will have a claim against the personal injury recovery for its post-injury payment for services that reasonably could have been expected to be paid by WC insurance. A recovery deriving solely from a WC settlement will affect Medicare benefits.

Medicare Manuals. The most valuable sources for understanding how the government monitors WC settlements and overpayments are the Medicare Fiscal Intermediary Manual, Part 2, (hereinafter referred to as "MIM"), and the Medicare Carrier's Manual, Part 2, (hereinafter referred to as "MCM"). These manuals are promulgated by the Health Care Financing Administration (HCFA), the federal agency that administers the Medicare program. They are written to guide the Part A fiscal intermediaries and the Part B carriers on how to recognize and reject claims for Medicare covered services where WC benefits are involved. "Fiscal intermediaries" are insurance companies that contract with Medicare to administer Part A Medicare benefits in a particular region. "Carriers" are providers, (e.g. doctors, clinics, labs, etc.) who have contracted through an insurance company to provide Part B Medicare benefits for a particular region.

Medicare Parts A and B. Medicare Part A will primarily cover hospitalization and will pay partially for semiprivate room and board, general nursing, and miscellaneous services and supplies while a beneficiary is hospitalized. Medicare Part A also pays for home health care and hospice care for beneficiaries who qualify.

Medicare Part B pays partially for physician's services, inpatient and outpatient medical and surgical services and supplies, physical and speech therapy, diagnostic tests, durable medical equipment, and similar items, in or out of the hospital.

Social Security Disability Income. After an employee is disabled on the job, he may apply for Social Security Disability Income (SSDI) benefits. Within five months of applying, and assuming that he is totally disabled (so as to be unable to engage in any substantial, gainful employment), the disabled worker qualifies for SSDI. -four (24) months, he qualifies for Medicare. However, provided that his medical expenses were covered under his WC policy, none of his medical bills are likely to have ever been paid by Medicare prior to settlement of the WC claim. That is, the WC carrier will always be primary and Medicare will always be secondary. (Medicare is not likely to make any secondary payments until all WC benefits and remedies have been exhausted by the claimant. ) Since Medicare is secondary, the government will not pay claims for medical bills for a work-related injury or illness unless the WC carrier contests liability and there is a long delay anticipated in coverage for the disabled worker. When this happens, Medicare may make secondary payments, subject to its right to recover those payments later on.

Since, under the laws of all fifty states, when a worker is totally and permanently disabled, the WC carrier is responsible for lifetime medical expenses for the disabled worker, Medicare will seldom make a primary payment. Thus, even if the WC case settles and the worker releases the carrier from liability for medical bills in exchange for a cash settlement, Medicare will nevertheless remain secondary because the WC carrier had primary medical responsibility for the life of the disabled worker.

IV. The Worker's Compensation Settlement A lump sum settlement, whether that sum is a structure or up front in cash, is deemed to be a WC payment for Medicare purposes, regardless of the language in the settlement. The MIM, at Sections 3407.1 D and E, defines both a settlement which is a commutation and a settlement which is a compromise. The difference is meaningful.

A commutation is a "settlement in which the beneficiary accepts a lump sum payment as compensation for all future medical expenses and disability benefits related to the work injury or disease."

A compromise is a "settlement which provides less in total compensation that the individual would have received if the claim had not been compromised."

Medicare will not pay for any future medical expenses after a lump sum settlement is received until the total future medical expenses related to the employee's injury equals the amount of the lump sum settlement which was allocated to future medical expenses. If the settlement agreement does not make a reasonable allocation of a portion of the lump sum to future medical expenses, Medicare can make the allocation itself according to a formula set out in the regulations. The formula is carefully explained in the MIM, Section 3416.2, appropriately entitled "Apportionment of a Lump-Sum Compromise Settlement of Contested Worker's Compensation Claim". That section states: "If the settlement covers both medical care and disability benefits but does not apportion the sum granted between them and income replacement, or does not give reasonable recognition to both medical care and disability, calculate the amount of the award deemed to be payment of medical and hospital expenses as follows:
- Determine the ratio which the amount awarded (less the reasonable and necessary costs incurred in procuring the settlement) bears to the total amount which would have been payable under WC for both medical and hospital expenses (including expenses not covered under Medicare) and income replacement, if the claim had not been settled by compromise.
- Multiply this ratio by the total medical and hospital expenses incurred as a result of the injury or disease up to the date of the settlement. The product is deemed to be the amount of WC settlement intended as payment for medical and hospital expenses. Apply the latter amount to the medical and hospital expenses incurred due to the work-related injury."

While this formula us useful, it is only useful in those cases where the liability of the carrier was contested and Medicare made significant secondary payments which have not yet been reimbursed. The formula is used to determine which portion of the award is for future medicals and which portion of the award is for past, unreimbursed medicals.

Nevertheless, in either a commutation or a compromise, the release must allocate an amount roughly equal to the amount of the lump sum settlement allocated to future medicals. However, not all future medicals allocated in the agreement need be set aside to cover skilled care. Only those medicals that Medicare would normally cover are required to be set aside. Thus, monies for custodial care, prescriptions, nursing home care and other items not covered by Medicare need not be allocated, as well as those medicals not related to the work-related injury.

This is because Medicare's concern is that the carrier not shift liability to Medicare. If, for example, the claimant's care is primarily custodial, (Medicare does not pay for custodial care), there can be no argument that the carrier attempted to shift liability to Medicare.

The MIM provides, at Section 3407.7, that

"if the beneficiary agrees to a compromise lump sum settlement, . . . which provides less . . . than the individual would have received if the claim had not been compromised . . . the settlement may be accepted. . . . If the individual signed a final release of all rights under WC, medical expenses incurred after the date of the final release are reimbursable under Medicare . . . ."

However, regardless of the agreement between the disabled claimant and the carrier, Medicare regulations preclude an attempt to shift liability for the claimant's future medical care and treatment to Medicare.

From these regulations, it appears that Medicare has several objectives:

a) Medicare wants to make sure that it's interests are considered and protected and there is no attempt to shift liability from the carrier to Medicare;

b) Medicare will require a compromise agreement and settlement;

c) the agreement and settlement must make a fair allocation between income replacement, future medicals, attorney's fees and costs; and

d) of that portion related to future medicals, Medicare must know what portion is set aside to cover medical expenses that would normally be paid by Medicare.

Assuming that the carrier and the claimant have complied with all of the above conditions, the MIM requires yet one more step before the claimant can be assured that Medicare will be primary and available following the compromise and settlement of his WC claim. The last paragraph of Section 3407.7 of the MIM provides that: "Where the settlement specifies that a portion of the settlement is for future medical expenses, Medicare may not pay for expenses until the beneficiary has submitted all bills related to the injury or illness totaling the amount of the lump sum settlement allocated to medical treatment." How does a disabled individual account to Medicare for that portion of the settlement allocated to consideration of Medicare's interest, i.e., how does he show Medicare that the amount allocated has been spent on the appropriate medical bills? The best way to accomplish all these objectives is through the use of a Medicare Set-Aside Trust.

The next article in this series will discuss using the Medicare Set-Aside Trust.

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.