1 MEDICARE SET-ASIDES Understanding MSA Compliance Special Needs Planners (San Diego, CA) Presented By: Mark Popolizio, J.D. Vice President of Customer Relations (786) Copyright, All Rights Reserved.

2 Presentation Overview Section I: The MSA in WC Cases Section II: MSA Nuts & Bolts Section III: Special Considerations: Liability Cases & Medicaid

3 Section I: The MSA in WC Cases

4 The Consideration Is Two-Fold: 1. Future Medical Costs (MSA) Future injury related medical costs that would otherwise be paid by Medicare if the primary payer did not exist. 2. Reimbursing Medicare (Conditional Payments) Past injury related Medicare payments made prior to the settlement date, conditioned on reimbursementfrom primary payers. Considering Medicare’s Interests

5 Considering Medicare’s “Future” Interests MSA – Legal Origins 42 U.S.C. § 1395y 42 C.F.R § 411, et.seq. CMS Policy Memoranda

6 42 C.F.R 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. Considering Medicare’s “Future” Interests in WC Cases

7 42 C.F.R Lump Sum Payments (b) Lump-sum compromise settlement. (1) A lump-sum compromise settlement is deemed to be a workers’ compensation payment for Medicare purposes, even if the settlement agreement stipulates that there is no liability under the workers’ compensation law or plan. (2) If a settlement appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for treatment of a work-related condition, the settlement will not be recognized. For example, if the parties to a settlement attempt to maximize the amount of disability benefits paid under workers’ compensation by releasing the workers’ compensation carrier from liability for medical expenses for a particular condition even though the facts show that the condition is work-related, Medicare will not pay for the treatment of that condition. Considering Medicare’s “Future” Interests in WC Cases

8 The CMS Approved Medicare Set-Aside (MSA) Arrangement First introduced as a compliance mechanism in a 2001 CMS memorandum CMS’ recommended method of considering Medicare’s interests If the settlement meets CMS’ established “review thresholds,” the adequacy of the MSA must be approved by CMS in order for the parties to rely on the arrangement Considering Medicare’s “Future” Interests in WC Cases

9 CMS’ MEMO 7/23/01 Commutation v. Compromise Settlements Set aside arrangements apply to WC cases possessing a commutation aspect “WC commutation cases are settlement awards intended to compensate individuals for future medical expenses required because of a work-related injury or disease. In contrast, WC compromise cases are settlement awards for an individual’s current or past medical expenses that were incurred because of a work-related injury or disease. Therefore, settlement awards or agreements that intend to compensate an individual for any medical expenses after the date of settlement (i.e., future medical expenses) are commutation cases.” A WC settlement can contain both aspects. An admission of liability by the WC carrier is not the sole determining factor of whether or not a case is considered a compromise or commutation. Considering Medicare’s “Future” Interests in WC Cases

10 Considering Medicare’s “Future” Interests in WC Cases Medicare Set-Aside - Defined The MSA can be defined as the amount of settlement dollars from the settlement agreement to be “set-aside” allocated to be used specifically for future injury related medical costs that would otherwise be covered by Medicare post-settlement.

11 CMS’ Current WC “Review Thresholds” for MSAs For Medicare Beneficiaries The individual is a Medicare beneficiary at the time of settlement and the total settlement amount is greater than $25,000. For Non-Medicare Beneficiaries The individual is not a Medicare beneficiary at the time of settlement but the total settlement is greater than $250,000 AND there is a reasonable expectation of Medicare entitlement within 30 months of the settlement date. Considering Medicare’s “Future” Interests in WC Cases

12 Total Settlement includes but is not limited to: Wages, attorney fees, all future medical expenses Any previously settled portion of the claim If an annuity is used to fund any of the above, the total payout should be used, not the cost or present value of the annuity. Repayment of any Medicare conditional payments Considering Medicare’s “Future” Interests in WC Cases

13 Considering Medicare’s “Future” Interests in WC Cases Reasonable Expectation of Medicare enrollment for any reason include but are not limited to the following situations: Applied for Social Security Disability (SSD) Benefits Denied SSD benefits but anticipates appealing that decision In the process of appealing and/or re-filing for SSD benefits Age 62 years and 6 months old (or greater) End Stage Renal Disease (ESRD) condition but does not yet qualify for Medicare based on ESRD

14 Red Flags for CMS Threshold Potential if Verification of Entitlement not Possible  Off work for 6 months or longer (SSD)  Off work for 30 months or longer (Medicare)  Catastrophic injury  Settlement value over $250,000  Age 62.5 or older  Age 65 or older Considering Medicare’s “Future” Interests in WC Cases

15 Considering Medicare’s “Future” Interests in WC Cases What if your case does not meet CMS’ review thresholds? Are CMS’ review thresholds “safe harbors?” Do you still need to consider Medicare’s interests? Could a MSA still be appropriate? Enter: Considering Medicare’s interests in “non-threshold” cases

16 Considering Medicare’s “Future” Interests in WC Cases CMS’ July 11, 2005 Memo Q/A#1 Q.1. Clarification of WCMSA Review Thresholds – Should I establish a Workers’ Compensation Medicare Set-aside Arrangement (WCMSA) even if I am not yet a Medicare beneficiary and/or even if I do not meet the CMS thresholds for review of a WCMSA proposal?

17 Considering Medicare’s “Future” Interests in WC Cases CMS’ July 11, 2005 Memo Q/A#1 A. 1. The thresholds for review of a WCMSA proposal are only CMS workload review thresholds, not substantive dollar or “safe harbor” thresholds for complying with the Medicare Secondary Payer law. Under the Medicare 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. (Emphasis by CMS).

18 Considering Medicare’s “Future” Interests in WC Cases CMS’ April 25, 2006 Memo The purpose of this memorandum is to replace Q/A#2 of the July 11, 2005 Memorandum with regard to the Centers for Medicare & Medicaid Services’ (CMS’) low dollar WCMSA thresholds for Medicare beneficiaries. Effective with the issuance of this memorandum, CMS will only review new WCMSA proposals for Medicare beneficiaries where the total settlement amount is greater than $25, The CMS wishes to stress that this is a CMS workload review threshold and not a substantive dollar or “safe harbor” threshold. Medicare beneficiaries must still consider Medicare’s interests in all WC cases and ensure that Medicare is secondary to WC in such cases. (Emphasis by CMS).

19 Considering Medicare’s “Future” Interests in WC Cases Non-Threshold Cases 1. CMS is on record of stating that it’s review thresholds are not “safe harbors.” CMS has not provided any specific guidance in this area. 2. Thus, it is incumbent upon industry to develop internal policy and procedure as to how to consider Medicare’s interests regarding settlements that fall outside of CMS’ review thresholds.

20 Considering Medicare’s “Future” Interests in WC Cases Non-Threshold Cases 3. Factors for consideration include: – Proximity of Medicare entitlement – SSD status – Total Settlement Amount – Others

21 Considering Medicare’s “Future” Interests in WC Cases Non-Threshold Cases 4. What are possible options? a) Non-CMS Approved MSA b) Projection & Apportionment of all injury related future medical costs (both Medicare allowable and non-Medicare allowable) Note: These options are not intended to provide legal advice on MSP compliance but rather to provide examples of some of the methods currently being used by some primary payers in dealing with non-threshold cases. Primary payers are encouraged to consult specialized counsel when developing internal compliance protocols.

22 19) Does CMS require that a Medicare set-aside arrangement be established in situations that involve both a WC claim and a third party liability claim? Answer: Third party liability insurance proceeds are also primary to Medicare. To the extent that a liability settlement is made that relieves a WC carrier from any future medical expenses, a CMS approved Medicare set-aside arrangement is appropriate. This set-aside would need sufficient funds to cover future medical expenses incurred once the total third party liability settlement is exhausted. The only exception to establishing a Medicare set-aside arrangement would be if it can be documented that the beneficiary does not require any further WC claim related medical services. A Medicare set-aside arrangement is also unnecessary if the medical portion of the WC claim remains open, and WC continues to be responsible for related services once the liability settlement is exhausted. CMS’ 4/22/03 Memo (FAQ 19) Addresses MSA Applicability in Situations Involving Both a WC and Third Party Claim

23 Section II “Nuts and Bolts” of the MSA Arrangement

24 Consists of 3 Primary Components: MSA Allocation Amount Method of MSA Funding Method of MSA Administration The Medicare Set-Aside Arrangement

25 The MSA Allocation Amount Allocation projections are based on: Review of medical records Review of medical claim & pharmacy payment history Physician recommendations Standards of care Manufacturer replacement recommendations

26 The MSA Allocation Amount The MSA allocation: Is calculated at the WC reimbursement rate Can be limited by State WC law **Must utilize the CMS cost projection formula **Can be reduced by a rated age life expectancy Must follow CMS guidelines for calculating initial and annual payments if a structure is used Must contain CMS required components

27 Funding the MSA Account

28 Funding the MSA Account The MSA account can be funded in two ways: Lump Sum Funding Structured Funding

29 Funding the MSA Account Lump Sum Funding The entire amount of the MSA allocation is paid into the account at the time of settlement Medicare will not pay for injury related care until the entire lump sum amount is properly exhausted and Medicare receives proof of this

30 Funding the MSA Account Structured Funding Initial lump sum to seed the MSA account followed by annual payments Medicare will become the primary payer during any year in which the MSA account becomes temporarily depleted until such time as the next annual payment is made CMS has specific requirements regarding calculation of structured payments

31 Funding the MSA Account No matter what funding method is selected, the MSA must be placed in an interest bearing account. Interest earned on the funds in the Medicare Set-Aside account must be allowed to accrue in the account and must be used solely for MSA allowable expenses

32 Administering the MSA Account

33 Methods of Administering the MSA Account It must be determined at the time of settlement who will be responsible for complying with the CMS requirements for administering the MSA account. Methods of MSA administration include: Professional administration (Custodial Administration) Self administration (without assistance) Self administration (with assistance)

34 Required when: Claimant is mentally or physically incapable of managing payments or complying with CMS administration requirements Claimant has been declared legally incompetent by a Court or assigned a guardian or conservator Claimant has been assigned a representative payee by the Social Security Administration and the Representative payee elects not to serve as administrator of the MSA Source: CMS’ 10/15/04 Memo Professional MSA Administration

35 Should Be Considered When: Claimant has serious or complicated medical conditions Claimant has a lower educational level Claimant is unable to read or write English Claimant’s family or social dynamics place MSA funds at risk Claimant is unwilling to administer the funds Professional MSA Administration

36 Other Requirements & Issues RE: MSA Administration 1. Must abide by CMS requirements. 2. Temporary v. Permanent Depletion. 3. Remaining funds in MSA Account upon CL’s death. 4. Can the CL request release of MSA funds while living?

37 SECTION III: SPECIAL CONSIDERATIONS: Liability Cases & Medicaid

38 Liability Cases & Medicare’s Future Interests

39 As of this time, no official memo or directive from CMS directly on point regarding liability cases and MSAs No known case law on the issue Arguable whether statutory or regulatory basis exists Yet, there are still ample reasons why parties should address the issue of Medicare’s “future interests” in liability cases --- Why? Medicare’s “Future Interests” & Liability Cases

40 Reasons For Addressing Medicare’s “Future Interests” CMS and CMS’ Regional Offices have made oral statements indicating that the parties should consider and protect Medicare’s future interests in the liability setting. In certain quarters, primary payers and practitioners have started to include MSA arrangements as part of liability settlements. While CMS does not have an official “review/approval” process regarding liability cases, some parties have been submitting their liability MSAs to the applicable CMS RO for review and approval. The RO’s have agreed to review submitted MSA proposals in some circumstances Medicare “Future Interests” & Liability Cases

41 Addressing the Issue of Medicare’s “Future’s Interests” Step One: Practitioners need to arrive at their own interpretational understanding and comfort level with the MSP, balanced against an appreciation of Medicare’s increasing role in the claims context, CMS’ oral indications regarding liability cases, and CMS’ current practices in the area. Medicare “Future Interests” & Liability Cases

42 Addressing the Issue of Medicare’s “Future’s Interests” Step Two: If the decision is made to consider Medicare’s future interests, it must be determined exactly which settlements will be implicated. Where and how should the lines be drawn? Establishing internal protocols regarding when direct measures will be employed to protect Medicare’s future interests as part of the liability settlement Medicare “Future Interests” & Liability Cases

43 Addressing the Issue of Medicare’s “Future’s Interests” Step Three: Address certain necessary issues from a practical standpoint Deciding the exact method to be used to designate future medicals Assuring that the designated funds are used properly by the plaintiff Addressing issues of responsibility and liability in the event the plaintiff fails to utilize the funds as designated Medicare “Future Interests” & Liability Cases

44 OPTIONS FOR CONSIDERATION Option 1: Obtain an estimate of the plaintiff’s future anticipated medical needs. Option 2: Obtain a MSA allocation from a MSA vendor or other MSA professional. Must decide whether the MSA will be submitted to CMS for approval CMS does not have a formal review/approval process for liability MSA submission. However, some Regional Offices (RO) are electing to review liability MSAs. No guarantee that the RO will agree to review each submission. No guarantee that CMS will accept the above approaches or other approaches the parties may use. Medicare “Future Interests” & Liability Cases

45 SETTLEMENT AGREEMENT - CONSIDERATIONS Funds designated for future medical care should be clearly identified in the settlement agreement The plaintiff and his/counsel are placed on notice of the intended purpose of said funds The plaintiff should be instructed to maintain receipts and other documentation related to his/her treatment in the event CNS requests same at a later date Make sure all other Medicare issues are addressed Medicare conditional payments Provisions reflecting that the parties have considered Medicare’s interests in conjunction with the settlement and in compliance with the MSP Indemnification Medicare “Future Interests” & Liability Cases

46 Medicaid & MSA Issues Panel Discussion

47 Thank you for your time and attention!