Structured Settlements

Medicare Set-Aside

Changes to Medicare Law May Affect Businesses Settling Personal Injury Claims

Signed into law by President George W. Bush on December 29, 2007, Congress passed Senate Bill 2499, the Medicare, Medicaid, and SCHIP Extension Act of 2007 (P.L. 110-173). This Act was passed by the House on December 19, 2007, and by a voice vote in the Senate on December 18, 2007. While there are many changes and extensions within the Act that affect the nation’s major health programs, only a very small section of the Act addresses the Medicare Secondary Payer Act (MSP), which has heretofore been focused on workers compensation claims, but will soon have an impact on general liability cases.

Prior to this law, general liability insurers were covered by the MSP but the Federal Government openly stated that it was not going to monitor compliance. Therefore, parties involved in a general liability claim typically paid little attention to the requirements of the MSP. The new law, with sharpened teeth and claws, clearly indicates a shift in policy, as the Federal Government will now be monitoring the general liability claims as well. There are still many questions that need to be answered (and have been promised by the Government in the coming months), but it appears that the general liability parties will have no alternative but to also comply with the MSP.

Basically, under the MSP, the obligation of parties in a general liability involving a Medicare beneficiary provides: (1) protection of Medicare’s interests with respect to benefits it has already paid at the time a personal injury case is resolved, and (2) that to the extent that the injured party recovers from the tortfeasor for future medical expenses that are within Medicare coverage categories (i.e. hospitals, doctors, therapy, diagnostics, etc), the recovery must be used to pay the post-settlement incident-related medical expenses of the plaintiff/claimant until it is exhausted, and only then will Medicare coverage be available. Obligation #1 is not new, this is standard practice to the plaintiff attorney with subrogation claims, but Obligation #2 is the new twist and far more complicated.

In these applicable cases, the Center for Medicare and Medicaid Services (CMS)—part of the Department of Health and Human Services -- will not recognize a settlement that does not protect Medicare’s interests. Because Federal law has precedence over state law and private contracts, Medicare has a right of action against entities who are responsible for making payments (insurers) and entities who receive proceeds from the primary payer (claimants; plaintiffs; attorneys; consultants; medical providers).

According to CMS, the amount allocated to future medical expenses must be placed in a Medicare Set- Aside (MSA). A MSA is an account established to pay a projected portion for future medical covered expenses for an injured party that would have been paid by Medicare. The MSA can be self-administered or professionally-administered. As the preferred funding mechanism to the projected MSA allocations, structured settlement annuities meet the rules CMS has identified in a series of policy memoranda. Through a structured settlement earning tax-free interest, the injured party receives the benefit of meeting the Medicare annual payments at a discount cost. Specifically, the CMS October 15, 2004 policy memorandum includes rules for calculating discounts and inflation. Structured Settlement proposals that are part of an MSA arrangement must be approved by CMS.

Commencing July 1, 2009, this recently-passed law contains provisions establishing new reporting requirements that provide the Secretary of the Department of Health & Human Services with details of these settlements involving a Medicare beneficiary. The Secretary is charged with working out the details of the reporting requirements. The law specifies that the repercussions for not complying will be severe. If the reporting for any claim is not done in a timely manner, the Secretary will be able to issue a civil penalty in the amount of $1,000 per day of noncompliance for each individual for which the information should have been submitted.

The Federal Government will be providing the means by which it can easily monitor settlements involving Medicare beneficiaries. The stiff civil penalty means that participants in a settlement will be eager to provide the Secretary with the required information. The Secretary will then be able to determine (from the information collected) if the parties have complied with MSP. Those parties that have not complied could then face further action by the Secretary. Further, Medicare is entitled to double damages plus interest if the primary payer knew or should have known of Medicare’s interest and paid the claimant/plaintiff anyway.

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