Insurance carriers have an obligation, under the Medicare Secondary Payer Statute, to make sure to address Medicare liens prior to settlement. Typically, this process can take a few months from the time the amount is requested from Medicare until the amount is resolved. Unfortunately, as a result, it can delay the settlement. That’s how the current system works, but these delays can cause problems.
In Wilson v. State Farm, the plaintiff, an auto accident victim, refused to give State Farm permission to discuss the lien with Medicare and asked them to deposit the agreed upon $50,000 policy limit into an escrow account from which the Medicare lien would be paid. As an alternative, State Farm offered to include Medicare as a payee on the check. The plaintiff rejected this offer. So State Farm decided to await Medicare’s determination of the value of its lien and then issue separate checks to Medicare and the Plaintiff.
Shortly thereafter, the plaintiff filed a lawsuit claiming that State Farm acted in bad faith by delaying the $50,000 settlement payment. Two months later State Farm learned the amount of the Medicare lien and issued payments to both Medicare and the plaintiff the following day.
The U.S. District Court held that State Farm did not act in bad faith stating, “for State Farm to consider these obligations seems responsible”. The court further concluded that “to comply with federal law and to protect its own legitimate interest against overpayment is reasonable and certainly is not in bad faith”…”especially when Plaintiff apparently refused to cooperate with Defendant’s attempts to pay the claim more quickly”.
While this decision seems innocuous because it doesn’t change current practices, it does point out the precarious position carriers are in with the current system of having to settle a claim before the conditional payment amount can be determined.
This is one reason why there is so much support for H.R. 1063, the Strengthening Medicare and Repaying Taxpayers Act (SMART Act), which was recently introduced in Congress. It contains provisions that would allow parties to obtain conditional payment amounts prior to settlement.