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How to Use a Medicare Set-Aside Allocation (and, how NOT to)
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How to Use a Medicare Set-Aside Allocation (and, how NOT to)

Administering Medicare Set-Aside (MSA) funds properly is a daunting task for most. Nuance in the Medicare formulary, ignorance about MSAs in the provider’s billing department, and complexity in medical coding all conspire to frustrate even the most diligent and well-meaning of beneficiaries. Truly, the successful MSA custodian has to be part educator, part negotiator, part coding wizard, and part accountant.

Conflated Ideas

In this area of compliance, it is not surprising that misunderstandings abound. One common misconception involves what can actually be paid for from a MSA account. This mistake sometimes has its origin in the failure to understand the MSA allocation report’s actual purpose. It probably does not help that the term “MSA” is sometimes used to describe both the funds in a MSA account and a MSA allocation report (“MSA allocation” or “MSA report”).

The properly prepared MSA report’s value lies in its final dollar amount. Medicare is given consideration through the establishment of an amount of money to be used to treat the injury, thereby shielding Medicare from premature payments on behalf of the beneficiary. This is necessitated by the fact that, by law[1], Medicare is secondary to workers’ compensation and liability injuries, pre and post-settlement. The amount established in the MSA allocation is intended to be spent prior to Medicare becoming primary. But also, the settlement is able to establish a limit to how much of the settlement proceeds must be isolated for the sole purpose of stepping in front of Medicare. According to the latest version of the Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) Reference Guide, where no arrangement is made for how future medicals shall be paid, Medicare may consider the entire settlement as primary[2].

An Estimate, not a Formulary

The mistake is in a literal application, not of the MSA report’s final dollar amount, but of the itemized detail of medical services and medications. It is common for a beneficiary, those counseling them, or those settling with them, to believe that only the specific items listed in the MSA report are covered by the MSA funds. It’s imagined that the beneficiary, when paying their bills, will reference the MSA allocation to determine whether a given medical expense is listed there, and if not, arrange to have it paid by other means. But, the MSA allocation is not an injury-specific formulary of allowed items any more than it is a prescription for care.

In actuality, anyone who has written a MSA allocation or administered MSA funds for a relatively short period of time knows that, at its best, the MSA allocation report is an educated guess. Moreover, the stock MSA allocation, if written to the government’s review standards, may project treatments in frequencies that would not ordinarily be expected, ballooning its amount, or completely ignore the inflationary nature of healthcare costs over time, deflating the final amount below reality’s expectation of the future. (That back x-ray costs $65 today. Do you imagine it will cost that in 10 or 15 years?) In the end, the final number is recognized as an adequate consideration of Medicare’s interests, but a supposition unlikely to hit future costs with absolute accuracy.

Consider all of the ways that actual injury expenses could differ from those in the MSA allocation report. Take prescription drugs as an example. A drug priced into a MSA report references a single NDC (National Drug Code), but that particular drug may have dozens of codes, representing different manufacturers, doses, forms, etc. It’s very likely your corner store pharmacy is going to fill your drug under a different code, and different price. The other corner store pharmacy right across from your corner store pharmacy may use still another code and price. A drug prescribed to treat a condition may become ineffective or create side effects undesired by the beneficiary and/or the prescribing physician. It is not uncommon for a physician to drop one medication in favor of another, or add or remove medications. This all changes the spend.

Also, the Medicare formulary changes annually. Something covered by Medicare today may not be covered in the future, and just because an expense was contemplated in a MSA report, it does not mean that the MSA funds should continue to cover it if that particular expense is no longer covered by Medicare. In summary, a beneficiary’s needs may change over time and the MSA allocation report is not designed to and cannot contemplate all of those changes at the time it is prepared.

What to Pay

So, what is actually to be paid from MSA funds? The answer is any and all Medicare allowable, injury-related expenses incurred on or after the date of settlement until the MSA funds are properly exhausted. Administration is all about stepping in front of Medicare to prevent any payment by it for injury-related expenses until MSA funds are gone. This is not accomplished by checking expenses against the list in the MSA allocation report. It is about identifying injury related expenses that Medicare would otherwise pay for and paying them at rates consistent with or below the applicable fee schedule. It is inaccurate to say that Medicare is responsible for any injury-related expenses not specifically contemplated by the MSA allocation. Such an assumption (though made more frequently than you may expect), if resulting in payments by Medicare for the injury while MSA funds still exist, represents an unlawful shift of burden to Medicare that may prompt a request for reimbursement if discovered.

In the event that real life is more expensive than the MSA report expected, what then? Medicare will assume primary responsibility for the injury’s Medicare allowable expenses once the MSA funds have been spent, provided those funds are spent properly. They will do this annually, in the case of temporary exhaustions, or from the point of permanent exhaustion onward. The key is the ability to demonstrate that the funds were spent according to the Centers for Medicare & Medicaid Service’s (CMS) guidelines. And what if the MSA report seems to have expected more expense than is actually realized? CMS wants those funds to remain in the MSA account in the event one of those unforeseen complications, hospitalizations, or changes in treatment comes along.

In conclusion, a MSA allocation is a valuable resource to any administrator of MSA funds to understand at a glance the nature of the injury and any co-morbid conditions that are specifically excluded. However, it should be used for what it was intended, namely, to arrive at an amount. Understanding the proper use of the MSA funds is critical to administering the funds correctly. A beneficiary who uses their MSA allocation report as a litmus test for what the MSA account can and cannot pay for may end up draining other settlement funds unnecessarily or end up shifting the burden to Medicare prematurely. Ultimately, improper administration places the beneficiary’s Medicare benefits at risk, as Medicare has the right to suspend benefits until it has recovered payments that should have been made by other primary funds.


[1] Medicare Secondary Payer Statute, 42 U.S.C. §1395y(b) a/k/a the MSP.

[2] See Section 8.1 titled Review Thresholds, Example 2 –“Not establishing some plan for future care places settling parties at risk for recovery from care    related to the WC injury up to the full value of the settlement.”

Does Self-Administration Ever Make Sense?
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Does Self-Administration Ever Make Sense?

Injured parties receiving lump sum settlements tend to spend their settlement money quickly. This quick spend risk is often described as dissipation risk. Statistics in a personal injury practice guide by The Rutter Group indicate that somewhere between 25 and 30% of accident victims spend all settlement money within two months of receiving the funds and that up to 90% of accident victims use all settlement proceeds within five years[1]. It would, therefore, seem prudent for attorneys representing injured parties to caution their clients about the quick spending tendency and to discuss ways to reduce that risk. One method to help reduce dissipation risk is the use of structured settlements with regular tax-free annuity payments, discussed in footnotes 4-6 of a prior blog article. Another option is using a professional administrator for payment of medical needs through Medical Custodial Accounts (MCAs) or via Medicare Set-Aside (MSA) accounts specifically designed to protect Medicare’s Trust Funds by preventing premature billing of Medicare for future injury related Medicare covered medical items and services (future medicals).  MSAs, which can and are often funded via structured settlement arrangements, are most often considered when the injured party is a Medicare beneficiary or has a reasonable expectation of becoming one within 30 months of judgment, settlement, award or other payment (settlement) (30-month Medicare window[2]), and the settlement compensates future medicals that would ordinarily be covered and reimbursable by Medicare.

The Centers for Medicare & Medicaid Services (CMS) suggests in section 17.0 of its Workers’ Compensation Medicare Set Aside Arrangement (WCMSA) Reference Guide, currently in Version 2.8, that WCMSAs “should be administered by a competent administrator” and provides examples such as a professional administrator, a representative payee, the claimant, etc. Other than cases with traumatic brain injuries for which a court may render a person legally incompetent, the question becomes whether there should be a minimum level of competence for a person to be deemed capable of self-administering a WCMSA or a Liability MSA (LMSA).

CMS explains the administration process in section 17.5 of the WCMSA Reference Guide. Requirements for administration are summarized by CMS as follows:

• Claimants should submit annual self-attestations, just as professional administrators would.

• WCMSA funds must be deposited into interest-bearing accounts separate from any personal savings or checking accounts.

• WCMSA funds may only be used for medical services and prescription drug expenses related to the workers’ compensation injury that would normally be paid by/otherwise reimbursable by Medicare.

• CMS provides some examples of care/items that Medicare does not pay for including acupuncture, routine dental care, eyeglasses or hearing aids, and suggests that claimants get a copy of the booklet entitled “Medicare & You” for a more detailed list of non-Medicare covered items.

• CMS cautions that “if funds from the WCMSA are used to pay for services other than Medicare-allowable medical expenses related to medically necessary services and prescription drug expenses, Medicare will not pay injury-related claims until these funds are restored to the WCMSA account and then properly used up.”

• Even if a person is not a current Medicare beneficiary, the requirements and prohibitions are the same as if the injured party were a Medicare beneficiary.

• While whether to submit a WCMSA to CMS for review is voluntary, Claimants that lose Medicare entitlement after such CMS approval, “. . . are not entitled to release of WCMSA funds if they lose their Medicare entitlement. However, the funds in the WCMSA may be used for medical expenses specified in the WCMSA until Medicare entitlement is re-established or the WCMSA is exhausted.”

Are the above bullets easy to understand and follow? Does the WCMSA Reference Guide language clearly explain what is expected? Even if a person can understand what they are reading, are injured parties likely to comply with the described procedures?

Regarding WCMSAs, The National Council on Compensation Insurance, Inc. (NCCI) published a February 2018 research brief updating its 2014 study on WCMSA reviews. According to the 2018 NCCI brief, approximately 98% of all WCMSAs (from the study’s 11,000 MSA data sample between 2010 and 2015) were self-administered.

Shouldn’t CMS want to try to plug this 98% administration compliance hole? CMS has “highly recommended that settlement recipients consider the use of a professional administrator for their funds”, does that language go far enough to protect the Medicare Trust Funds, one of which (covering Medicare Part A hospital insurance) is on track to be exhausted in 2026, three years earlier than projected just a year ago?

Are injured parties flying blind when self-administering their MSA funds? How does the dissipation risk described above affect injured parties’ decision-making process? There is an entire industry devoted to helping injured parties consider and protect Medicare’s interests in accordance with the Medicare Secondary Payer Act[3] and that keep up with CMS policies on WCMSAs, LMSAs, and administration. Regardless of whether CMS might ever mandate professional administration, insurance carriers and attorneys for injured parties should want competent and professional compliance partners to dispute and negotiate Medicare conditional payment reimbursements, estimate future injury related Medicare covered medicals, and above all else, to help injured parties competently administer their Medicare Set-Aside funds.

After all, should injured parties really be the ones making payments, coordinating benefits and/or negotiating bills? Can they really be expected to keep up with the detailed accounting and  reporting expected by CMS? CMS has shown a rekindled interest in both review of WCMSAs and LMSAs with the increased scope of work and dollar amount of its awarded WCRC Contract and in its recoveries of conditional payments. Because best in class administrators provide network discounts for Durable Medical Equipment and Prescription Drug pricing through Pharmacy Benefit Managers (PBMs), professional administration can help ease the burden of MSP compliance and save injured parties money.

Take Aways:

• Professional administration should be thoroughly discussed with injured parties by their attorneys. After all, lawyers are not only attorneys, but “Counselors at Law”.

• Insurance carriers and their attorneys should see also see value in minimizing MSP exposure.

• Even when outside the commonly referred to 30-month Medicare window, when future medicals are in play, parties to a settlement should strongly consider the use of a professional administrator, regardless of whether the primary driver is to coordinate and negotiate bills, or to reduce dissipation risk.

• The need for professional administration becomes even more apparent when the injured party is within the 30-month Medicare window, now combining the advantages of wiser spending with reduced MSP exposure.

• Allowing non-competent individuals to self-administer MSA funds turns a blind eye on our nations’ at-risk Medicare Trust Funds.

• MSP enforcement by CMS regarding past medicals will likely continue to proceed via the conditional payment recovery process. MSP enforcement by CMS regarding future medicals will likely be addressed through denial of Medicare coverage for injury related medicals when beneficiaries ignore the law or don’t keep accurate records of their Medicare covered medical spending.


[1] The Rutter Group, “California Practice Guide: Personal Injury” Chapter 4.

[2] CMS workload thresholds established for suitability of review of WCMSAs, as listed in the current WCMSA Reference Guide, have one tier for claimants who are Medicare beneficiaries and one for claimants with a reasonable expectation of becoming enrolled in Medicare within 30 months of judgment, settlement, award or other payment.

[3] 42 U.S.C. §1395y(b)(2) et. seq.

 

Settlement Funds Protected by Professional Administration
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Settlement Funds Protected by Professional Administration

Injured Medicare beneficiaries or those with a reasonable expectation of becoming enrolled in Medicare within 30 months of settlement (claimants) have a legal responsibility under the Medicare Secondary Payer statute enacted in 1980 (MSP)[1], to not prematurely bill Medicare for injury-related otherwise Medicare allowable, medical expenses (future medicals).  Because many claimants and even their attorneys still don’t know the MSP law exists or how to comply with it, many settlements for claimants don’t properly consider and protect Medicare’s interests as a secondary payer for future medicals.  Medicare Set-Aside (MSA) compliance programs consider Medicare’s MSP interests and implement actions to protect those interests.  MSP compliance companies rely heavily on two valuable tools that work best in conjunction to achieve MSP compliance goals; a MSA allocation report (also known as a Set-Aside arrangement) estimating future medicals, and administration of MSA funds, with spending restricted to applicable future medicals.  If administration of MSA settlement funds is handled by the injured claimant, it is referred to as self-administration and when performed by a company like Medivest Benefit Advisors, Inc., it is known as professional administration.

With a federal law on the books prohibiting premature billing of future medicals to Medicare and the potential for those not complying with the MSP being denied Medicare benefits for the claimed/released injury, is it wise to allow injured parties to manage and administer post settlement future medicals?  The National Council on Compensation Insurance, Inc. (NCCI) recently published a research brief updating its 2014 study on Workers’ Compensation MSAs (WCMSAs) and WCMSA reviews and reported that between 2010 and 2015, approximately 98% of all WCMSAs from the study’s 11,000 MSA data sample were self-administered.  That seems outrageous when injured parties are notorious for quickly spending money received from lump-sum settlements.  Statistics in a personal injury practice guide by The Rutter Group indicate that somewhere between 25 and 30% of accident victims spend all settlement money within two months of receiving the funds and that up to 90% of accident victims use all settlement proceeds within five years.[2]  Spending sprees seem common with lottery winners, some professional athletes, and most likely other people that come into money quickly.   Congress considered the poor spending habits of settlement recipients when it enacted the Periodic Payment Settlement Act of 1982 (PPSA)[3],[4] and in subsequent related legislation.[5]  Because annuity payments paid under the PPSA are paid tax-free and injured parties can often be irresponsible with their spending when they receive lump-sum settlements, structured settlements are often a wise choice to help injured parties preserve settlement funds for their needs.[6]

Irresponsible spending of settlement funds by injured parties is sad, but when settlement funds are misspent by people other than the injured parties, it can be tragic.  A Wall Street Journal article recently highlighted this risk.[7]  In 1980, Nicole Herivaux lost the use of one of her arms due to alleged medical malpractice at the time of her birth in New York.  In 1983, the minor’s family settled a malpractice lawsuit in exchange for a structured settlement that paid monthly annuity payments and a few hundred thousand dollars in lump sum money that could be used for Nicole’s education, among other things.  The company that started making settlement payments initially deposited the annuity checks in Nicole’s mother’s name, “as guardian” of Nicole directly into a bank account.  That company later transferred the responsibility for making those payments to a different insurance company in 1995, when Nicole was 15 and still a minor.  Nicole Herivaux is now an adult with student loan debt and alleged in a 2018 lawsuit that the new company sent the annuity payments directly to her mother without any payment restriction or oversight and that her mother misused and inappropriately exhausted Nicole’s settlement funds.  If the settlement had included professional administration of a custodial account, money intended for the minor could have paid off Nicole’s education expenses and provided her a better chance to live with peace of mind, dignity and security.

The Centers for Medicare & Medicaid Services (CMS), the regulatory body running the Medicare program and charged with the responsibility of interpreting the MSP has promulgated regulations and issued memos helpful to determining reasonable and appropriate measures to comply with the MSP.  A 2011 memo from CMS’s Regional Office in Dallas from Sally Stalcup, as MSP Regional Coordinator, announced that Medicare Set-Aside is CMS’s “method of choice and the agency feels it provides the best protection for the program and the Medicare beneficiary.”[8]  From the context of the Stalcup memo, it is clear the use of the term “Set-aside” included a MSA arrangement described above, and that Set-asides (MSAs) would apply in both workers’ compensation and liability cases.  The Stalcup Memo also announced that “each attorney is going to have to decide, based on the specific facts of each of their cases, whether or not there is funding for future medicals and if so, a need to protect the Trust Funds.”

However, it is one thing to set money aside for the intended purpose and quite another to properly administer the money.  Even when an injured claimant hires an attorney to represent them to obtain a settlement, judgment or award (“settlement”), settlement funds reserved for future medicals can be misspent.  For example, attorney misconduct was found in a South Carolina Bar disciplinary case where an attorney representing a claimant failed to properly administer funds set aside to protect Medicare’s interests (MSA funds) as a secondary payer for future medicals.[9]  In another bar disciplinary case, an Illinois licensed attorney used trust funds for improper purposes when the trust funds were to be maintained in trust until it was determined whether they belonged to the attorney’s client or Medicare.[10]

Did the attorneys in these matters know how to report settlements to CMS’ Benefits Coordination & Recovery Center (BCRC) contractor, how to request Medicare conditional payment amounts, perform bill review and potentially dispute and finalize conditional payment lien amounts?  Did they consider whether their client’s injury and/or financial condition might lend itself to a conditional payment lien compromise or waiver request? Furthermore, did the attorneys know how to properly administer the MSA funds that were set aside for their clients’ future medicals?  If the attorneys had sought the advice of a competent company that performs these functions regularly, they would have been in a better position to protect their clients, protect the Medicare Trust Funds and protect their professional standing.

Allowing incompetent, injured claimants to self-administer their own MSA accounts cannot be a prudent way to protect Medicare’s interests in preserving the nation’s Medicare Trust Funds.  Even competent claimants likely experience difficulties attempting to self-administer MSA funds.  While CMS makes resources available to individuals intending to self-administer an MSA account including a WCMSA Reference Guide and a Self-Administration Tool Kit, but what percentage of injured claimants will read and follow the protocol of the 127-page WCMSA Reference Guide and the 31-page Self-Administration Tool Kit?

Self-administration is surely harder than filing a standard federal income tax return. Plenty of people find it helpful to use professional assistance or digital software to help them file their tax returns.[11]  A self-administering claimant needs to evaluate bills for medical items and expenses, including prescription drug expenses, to verify that they are both injury-related, Medicare allowable and otherwise reimbursable.  Once bills are reviewed, a decision still needs to be made as to how much should be paid.  Is the provider a Medicare-approved provider? Should the amount be the Medicare allowable rate, the provider’s bill rate or the usual and customary rate?  Is there a Group Health Insurance plan involved? Does it matter if the case stems from a liability case versus a workers’ compensation claim?  Does the Code of Federal Regulations say anything about these distinctions?  Does CMS provide guidance in this area via its website, its Medicare Learning Network, or WCMSA Reference Guide?  Have there been any cases evaluating these issues and was the claimant’s injury in a jurisdiction where case law might affect the amount of money to be set aside for those future medicals?  Will a claimant be able to keep records on their own sufficient to withstand CMS scrutiny to determine whether MSA account spending is MSP compliant?  Will the claimant remember to prepare and transmit required annual attestations of MSP accounting compliance?  Because the answer to these questions is only part of the MSP compliance puzzle, it is little surprise that CMS announced professional administration as recommended for MSA fund administration.  In addition to providing a full array of Professional Administration services, Medivest also offers a Self-Administration Kit/ service that provides customer service and claims support as well as discounts on durable medical equipment and prescription medication to help competent claimants take on self-administration.


[1] 42 U.S.C. § 1395y(b).

[2] The Rutter Group, “California Practice Guide:  Personal Injury” Chapter 4.

[3] Re: Section 130 Qualified Assignments, 2003 WL 22662008, at *3 (legislative history to the PPSA detailed that additions to the law helped provide certainty that periodic payments of personal injury damages are excluded from the gross income of the recipient. S. Rep. No. 97-646, 97th Cong., 2d Sess. 4 (1982)).

[4] Periodic Payment Settlement Act of 1982 (PL 97–473 (HR 5470), PL 97–473, January 14, 1983, 96 Stat 2605) (through tax benefits, the PPSA encourages use of structured settlements to resolve personal physical injury and physical sickness cases).

[5] Re: Section 130 Qualified Assignments, 2003 WL 22662008, at *18 (The public policy encouraging use of structured settlements by providing a tax subsidy was affirmed in JCX-15-99,  the Joint Committee on Taxation, Tax Treatment of Structured Settlement Arrangements from March 16, 1999 (pointing out perils of lump sum settlements when “. . . the individual may, by design or poor luck, mismanage his or her funds so that future medical expenses are not met.” JCX 15-99 accompanied H.R. 263, “The Structured Settlement Protection Act,” 106th Cong., 1st Sess. Section 5891 of the Code enacted by a subsequent version of that bill, H.R. 2884, on January 23, 2002).

[6] Under Section 104(a) of the Internal Revenue Code (I.R.C.), personal injury settlement proceeds are tax-free, but when paid in a lump sum, any investment earnings or interest paid on those funds as they grow over time is taxable.  Pursuant to Section 104(a)(2) of the I.R.C., each structured settlement payment over the entire period of payment of the annuity stream is tax-free to the victim.  The details of taxable consequences associated with interest gained after receipt of each annuity should be evaluated with a licensed tax professional in conjunction with a structured settlement advisor.

[7] Leslie Scism, Lawsuit Alleges MetLife Mistake Helped a Woman Keep Settlement Money From Her Daughter Insurer faces lawsuit over structured-settlement annuity related to old businessWALL STREET JOURNAL., February 21, 2018.

[8] Sally Stalcup, MSP Regional Coordinator, Region VI (May 25, 2011, Handout).

[9] In the Matter of Morris, 343 S.C. 651, 653-54, 541 S.E.2d 844, 845 (2001).

[10] In the Matter of: Charles Augustus Boyle, Attorney-Respondent, No. 268739, 2014 WL 10505032, at *2. (Attorney voluntarily relinquished his license to practice law after an investigation revealed among other misconduct, that he failed to pay his client’s medical bills from settlement proceeds in one case, failed to deposit settlement proceeds into a guardianship account established on behalf of a minor in another case, failed to notify Medicare that four other cases settled and failed to pay the Medicare conditional payment liens for those four cases).

[11] Excluding those individuals who responded “none of the above” to the question of how they file their taxes, gobankingrates.com reports from an internet poll that of just over 5,000 people, 36.8% said they use either an accountant (28.5%) or a brick and mortar tax company like H&R Block (8.3%) and  34.5% responded that they use tax filing software.

Maryland Recognizes Benefits of Professional Administration and Structured Settlement Annuities

Our good friends over at MEDVAL have reported that the State of Maryland passed a new law that encourages insurers to use structured settlements or professional administration on Medicare Set-Asides (MSA).  The new bill, signed by Governor Martin O’Malley on April 12, 2012, exempts the payer of certain workers compensation awards and settlements from paying, otherwise mandatory fees to the state.  These fees amount to 6.5% to the state’s Subsequent Injury Fund (SIF) and 1% to the Uninsured Employer’s Fund (UIF).  The new law exempts payment if the medical benefit is in excess of $50,000 and is paid out with an annuity or is professionally administered by a third party with no reversion to the claimant.

This is the first time that a government agency has recognized the value of professional administration and/or structured settlements of a MSA by offering financial incentives.  Professional administration protects the MSA from the dissipation that so often occurs when an injured person self-administers the MSA which helps to preserve the claimant’s Medicare benefits.  Structured settlement annuities also help to preserve the MSA funds by providing periodic payments to the claimant rather than one lump sum payment.

To view the MedVal blog post click here.
To view a copy of Maryland House bill 114 click here.