Medicare Set-Aside Monies Misappropriated by a Family Member – A Case for MSA Professional Administration

This sordid tale began in the 1990’s when Stephen Hubanks suffered a back injury while employed as an appliance serviceman.  A few years later he hurt his back again and was determined to be permanently and totally disabled, and unable to work.   As a result, he began receiving $1,200 per month in Social Security Disability Insurance (SSDI) payments and $1,400 per month in disability insurance from Met Life.

By August 2006, Stephen had developed a drug addiction.  While he was in jail he signed two power of attorney forms giving his half sister, Sabra Jouett, authority over all of his business and personal affairs, including all banking and financial transactions.  A joint bank account (Joint Account) was then opened with both Stephen and Sabra as authorized signers.  In February 2007, Stephen pled guilty to various criminal charges and was incarcerated in an Oklahoma state prison.   During the time Stephen was in prison, monthly disability checks totaling $116,551.24 were deposited in the joint bank account.  In addition, a settlement of the second workers’ compensation claim resulted in net proceeds of $93,793.99 plus a Workers’ Compensation Medicare Set-Aside (WCMSA) of $19,971.24 being deposited into the Joint Account and additional monthly WCMSA payments of $4,703.00 for 22 years.

Each month, Sabra emptied the Joint Account within a day or two of the disability income deposits and bought items for her own use including furniture, children’s clothing, a BMW, a Porsche, a pool table, a Carnival Cruise, and cheerleading expenses for her daughter.  One particular instance of note saw Sabra transfer $40,000 into the Joint Account to pay debts and personal loans to family members just one day after the settlement funds were deposited into the account.

Shortly after the $40,000 transfer, Sabra told Stephen that she had taken all of his money.  Although Stephen was very upset, he did not overtly react, because he was still incarcerated and feared being put into solitary confinement.

Sabra’s spending spree continued with Hubanks’ money ($82,000 of which was used to purchase a house) until he was released from prison in October 2010.

After being sued by Stephen, Sabra and her husband filed a bankruptcy case seeking to have any obligations they owed to Stephen discharged.  A judgment was entered in favor of Stephen in the amount of $229,109.23, and the judgment amount was not discharged in the bankruptcy case.

Needless to say, Stephen clearly made a serious mistake in whom to trust to handle his finances while he was in prison.  However from an MSP standpoint, there is another complication when it comes to the Medicare Set-Aside.  The Centers for Medicare and Medicaid Services (CMS) reserves the right to audit how the WCMSA was spent, and if it was used to pay for items other than Medicare-allowable, injury-related medical and prescription drug expenses (such as sports cars), Medicare may not pay for injury-related claims until those funds are restored to the WCMSA.  Based on the documented expenditures in this particular case, it is possible, and quite likely, that Stephen could lose his Medicare benefits until the funds are replenished.

This case is a textbook example that makes clear the benefits of using a professional administration company, like Medivest, to protect settlement funds from inappropriate dissipation.  Medivest will make sure all MSA funds are safely protected in FDIC insured investments, and only spent as directed by Medicare rules thereby preserving the claimant’s Medicare eligibility.  Additionally, because Medivest averages about a 40% reduction in costs paid for services, the principal is better preserved as well.  Medivest would have also recommended establishing a “custodial fund” for the non-MSA settlement monies to be held for the benefit of the claimant, so that all of his settlement funds would have  been protected until he was released  from prison.

Professional administration is truly a win-win in a situation like this, and should always be considered in every Medicare Set-Aside settlement situation.


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