MEDICARE SET-ASIDE (MSA) FAQ
Attorney MSA FAQ
A Medicare set-aside (hereinafter MSA) is a tool that allows injury victims to preserve Medicare benefits by setting aside a portion of the settlement money in a segregated account to pay for future Medicare covered services. The funds in the set aside can only be used for Medicare covered expenses for injury related care. Once the set aside account is exhausted, an injury victim gets full Medicare coverage without Medicare ever looking to the remaining settlement dollars to provide for any Medicare covered health care. If Medicare review of the MSA is available, Medicare will be bound by its determination once the MSA amount is fully funded and properly exhausted.
At present, if a client has a workers’ compensation claim that is settled either on its own or in conjunction with a third-party claim, a Medicare Set Aside may be appropriate to preserve their future eligibility for Medicare benefits. An MSA should be considered if the claimant is Medicare eligible or there is a reasonable expectation of Medicare eligibility within 30 months of the settlement. A Medicare set aside allows a claimant to preserve Medicare benefits by apportioning some of the settlement funds for Medicare covered expenses. The MSA funds should then be placed in a segregated account. Once the set aside account is properly exhausted, the claimant gets full Medicare coverage without Medicare ever looking to the claimant’s remaining settlement dollars to provide for his or her care. At this time, the Centers for Medicare & Medicaid Services (CMS) allows for the voluntary review of a Workers’ Compensation MSA (WCMSA) when a proposed settlement with a current Medicare beneficiary exceeds $25,000. CMS is also willing to review any workers compensation settlement if there is a “reasonable expectation” of Medicare enrollment within 30 months of settlement and the anticipated total settlement amount over the life or duration of agreement is greater than $250,000. A failure to meet CMS’ internal workload review thresholds does not provide a safe harbor when it comes to MSP compliance.
There are no guidelines or formal review process for liability settlements at this time. However, according to CMS:
“… [u]nder the Medicare Secondary Payer provisions, Medicare is always secondary to workers’ compensation and other insurance such as no-fault and liability insurance. Accordingly, all beneficiaries and claimants must consider and protect Medicare’s interest when settling any workers’ compensation case; even if review thresholds are not met, Medicare’s interest must always be considered.”
CMS has also said:
“Third party liability insurance proceeds are also primary to Medicare. To the extent that a liability settlement is made that relieves a Workers’ Compensation (WC) carrier from any future medical expenses, a CMS approved Workers’ Compensation Medicare Set-aside Arrangement (WCMSA) is appropriate”.
If you have a settlement that is non-workers’ compensation but involves a Medicare beneficiary you should consider protecting Medicare’s interest under the MSP and the only known way to do that is with an MSA.
42 CFR 411.46 – Lump-sum payments.
(a) Lump-sum commutation of future benefits. If a lump-sum compensation award stipulates that the amount paid is intended to compensate the individual for all future medical expenses required because of the work-related injury or disease, Medicare payments for such services are excluded until medical expenses related to the injury or disease equal the amount of the lump-sum payment.
(d) (2) If the settlement agreement allocates certain amounts for specific future medical services, Medicare does not pay for those services until medical expenses related to the injury or disease equal the amount of the lump-sum settlement allocated to future medical expenses.
According to CMS, when an attorney’s client effectively ignores Medicare’s interests in a WC case, the attorney should consult their national, state, and local bar associations for information regarding their ethical and legal obligations. Additionally, attorneys should review applicable statutes and regulations, including, but not limited to, 42 CFR 411.24(e) and 411.26.
(Test 1) If the claimant is currently a Medicare beneficiary AND is likely to require post settlement injury related Medicare covered treatment.
— OR —
(Test 2) The claimant has a reasonable expectation of becoming entitled to Medicare within 30 months AND is likely to require post settlement injury related Medicare covered treatment.
A set aside may be funded with a lump sum or structured settlement. The advantage to funding it with a structured settlement is that it typically reduces the amount that has to be set aside substantially. In addition, a structured settlement “rated age” can be used as evidence of reduced life expectancy which also results in a lower figure for the set aside. When a structured settlement is used to fund a set aside it operates similarly to a deductible. Each year a payment is made from the structured settlement annuity into the set aside, that payment (plus any accumulation from past years) must be spent down before Medicare will pay for services. Because structured settlements are tax-free and reduce the amount of the set aside dramatically, they should be considered in nearly every set aside arrangement.
Medicare considers the sufficiency of an arrangement on a case-by-case basis. Some factors they consider include basis for entitlement to Medicare benefits, nature and extent of the injury, age and workers’ compensation classification of the beneficiary, prior medical expenses paid by the insurance carrier, and the total amount of the settlement. Synergy’s Settlement Services’ staff of nurses thoroughly reviews the medical records, consults with the settling parties and ultimately makes a recommendation that adequately protects Medicare’s interests.
As of 2020, CMS takes anywhere from 30-45 days to review and approve a WCMSA proposal absent a development letter… It is important to plan ahead and get the process moving forward if it is determined that a Medicare Set-Aside arrangement is needed.
What happens if Medicare’s interests with respect to future medicals in a WC settlement, judgment or award that includes an amount for future medical are not considered?
“If Medicare’s interests are not considered, CMS has a priority right of recovery against any entity that received any portion of a third-party payment either directly or indirectly- a right to recover, or take back, that payment. CMS also has a subrogation right with respect to any such third-party payment….. Medicare may also refuse to pay for future medical expenses related to the WC injury until the entire settlement is exhausted.”
Once the information needed for completion is received, you will receive the Medicare Set-Aside report from Synergy Settlement Services within 10 business days. Rush report services are also available upon request for an additional fee.
Injury Victim MSA FAQ
An MSA is a tool that allows an injury victim to preserve Medicare benefits by setting aside a portion of the settlement money in a segregated account to pay for future Medicare covered medical services. The funds in the set aside can only be used for Medicare covered expenses related to your personal injury settlement, award or judgment. Once the set aside account is exhausted, you get full Medicare coverage for your injury related conditions without Medicare ever looking to your remaining settlement dollars to provide for any Medicare covered health care. Medicare may approve the amount to be set aside in writing and agree to be responsible for all future expenses once the set aside funds are depleted. At this time, Medicare review is only available in workers’ compensation settlements that meet CMS voluntary internal workload review threshold. There is no requirement however for Medicare to review and approve the set aside amount.
If you are currently a Medicare beneficiary and you settle your case, you may need an MSA. In addition, if you are not a current Medicare beneficiary but have a “reasonable expectation” of Medicare enrollment within 30 months of the settlement date, then you may need an MSA. Assuming you fall into one of these two categories, if you do not set up an MSA you could lose Medicare eligibility for your personal injury related medical conditions.
A professional who specializes in “allocations” examines your injury related medical records and makes recommendations based on the amount of future care that will be covered by Medicare. The company hired to perform the allocation determines how much of your future medical care is covered by Medicare and then projects that over your remaining life expectancy to determine the suggested amount of the set aside. If CMS review is sought, Medicare may not necessarily simply accept the allocation recommendation. Medicare could require more to be set aside than the amount suggested in the MSA allocation.
The set aside can be funded with a single lump sum out of the settlement proceeds or with future periodic payments using a “structured settlement”. A single lump sum funding makes the set aside easier to administer but means more must be set aside than using a periodic payment arrangement. Funding with future periodic payments via a structured settlement makes the administration of the set aside harder but it is a much cheaper way of funding the set aside. When a set aside is funded with a lump sum, as soon as the account is properly exhausted Medicare begins to pay for injury related health care. However, when a set aside is funded with periodic payments via a structured settlement annuity, it functions much like a yearly insurance deductible. Each year, the structure payment would flow into the set aside and when the funds are exhausted in that year, Medicare would begin paying for services related to the physical injury. If the funds are not all spent in the year the periodic payment is made, they carry over to the next year. Thus, Medicare only pays once all funds for any given year have been exhausted.
Age ratings can save on the cost of the structured settlement annuity and reduce the amount of the set aside. A rated age is a life expectancy adjusted age used to calculate the cost of a structured settlement. If you receive a rated age, it means that the life insurance company has decided that your life expectancy is less than normal due to your medical conditions and accordingly allows the annuity to be priced as if you were older. Shortened life expectancy translates into a lower structured settlement cost when compared to a structured settlement priced with normal life expectancy. Additionally, CMS considers a reduction in life expectancy when determining how much must be set aside. As evidence of reduction of life expectancy, CMS will look at the median age rating issued by the life insurance companies issuing age ratings. Therefore, not only does it cost less to fund a set aside with a structure, but it also reduces how much must be set aside in the first place.
There is a cost savings by purchasing a stream of benefits today that will provide benefits tomorrow especially if there is a rated age. What this means is that less money must be set aside when a structure is used to fund the set aside. In addition, interest earned on the funds in the structured settlement is not taxable. The structure becomes a tax-free, cost-free investment to fund the set aside. CMS routinely approves set asides being funded with structured settlement annuities.
No. An MSA only protects future Medicare eligibility. If you receive Medicaid in addition to Medicare, a special needs trust (hereinafter SNT) might be necessary to preserve Medicaid eligibility. If it is necessary, a hybrid MSA/SNT can be created to deal with this issue.
No. You are not entitled to release of the MSA funds if you lose your Medicare entitlement. However, the funds in the MSA may be expended for medical expenses specified in the MSA arrangement until Medicare entitlement is re‐established or the MSA is exhausted.
The MSA funds, either in lump sum or structured settlement (if guaranteed), would go to your beneficiaries under the MSA arrangement. Medicare only requires the funds to be used for your future Medicare covered injury related expenses. Therefore, once you pass away those funds can flow to your family or named beneficiary. If a structured settlement is set up and you want money to go to your family or named beneficiary, you should request that the annuity be “guaranteed” instead of life only. The MSA is typically held open for a period of 12-15 months post death to pay for any outstanding bills providers may have for dates of service prior to death.
“There is no means by which a claimant can permanently waive his or her right to certain specific services related to a WC case and, thereby, reduce the amount of a WCMSA. CMS cannot approve settlements that promise not to bill Medicare for certain services in lieu of including those services in a Medicare set-aside arrangement. This is true even if the claimant/beneficiary offers to execute an affidavit or other legal document promising that Medicare will not be billed for certain services if those services are not included in the Medicare set-aside arrangement.”
“A WCMSA is still recommended where the claimant is covered under other private health insurance, the Veterans Administration, or Medicare Advantage (Part C) . Other coverage could be cancelled, or the claimant may elect not to use such a plan. A WCMSA is primary to Medicare Advantage and must be exhausted before using Part C benefits on the WC illness or injury.