by Thomas D. Begley, Jr., CELA
For many years a debate has raged as to whether Medicare’s interests must be considered with respect to future medical payments in the context of a third party liability settlement (“TPLS”). The issue is simple. If a plaintiff in a TPLS receives money to pay for future medical care, is he free to pocket that money and send the bill for the future medical care to Medicare? Under the Medicare Secondary Payer Act (“MSPA”), Medicare is prohibited from making a payment for future medicals to the extent that such payment has been made under liability insurance. Therefore, if a liability insurance company or self-insured defendant pays money to a plaintiff for future medical care, the argument goes that Medicare cannot pay for that care.
In 2013, the Centers for Medicare and Medicaid Services (“CMS”) issued a Notice of Proposed Rulemaking (“NPRM”), but then voluntarily withdrew it in 2014. As a result, parties have been left to their own devices in determining how to address this issue. Some commentators believe that absent enforceable regulations that identify the standards by which future medicals are to be measured in the liability context, the federal government has no right to claim an interest in future medicals as part of the settlement. On the opposite end of the spectrum, commentators observe that CMS interprets the MSPA so that it is applicable to TPLS as well as Worker’s Compensation claims. The correct position may lie somewhere in between. The real answer may be to develop an analysis of how much of the TPLS was for future medicals and how much for other elements of damages and to set the future medical money aside, so that Medicare is not billed until that portion of the settlement is exhausted.
Once a Medicare Set-Aside Arrangement (“MSA”) has been considered, the next question is how much is necessary to fund it. If future medicals have been plead or claimed and future medicals are specifically released in a Release signed in connection with the third party liability (“TPL”) settlement, then it is likely that Medicare’s interests must be considered. That raises the question as to how to calculate the amount of the settlement intended for future medical care. It is unlikely that CMS would accept a figure agreed upon by the parties absent court testimony and a court finding.
It is important to remember that in a TPL case, the award seldom pays 100 cents on the dollar for future medicals. Issues in these cases, such as disputed liability or causation, policy limits, statutory caps and derivative claims, often mean that TPL cases are resolved for less than the full measure of damages sustained. The Garretson Resolution Group recommends a starting point for a maximum amount may be identified through review of a plaintiff’s life care plan and other evidence of the dollar assigned to particular damages other than future medicals. These would include procurement costs, liens, past medicals, pain and suffering, loss of future earning capacity, etc. Garretson outlines a four-step process:
By analyzing the settlement to figure out how much would be appropriate for future medicals and then determining the ratio of the plaintiff’s net proceeds to the total damages, a percentage for future medicals can be determined. This is the amount “compensated” for future medicals within the settlement or award. This would only be the amount necessary to set aside to satisfy CMS.
This approach is different from the traditional approach. The traditional approach to funding an MSA is to determine what the future medical costs to be paid by Medicare would be and set that money aside without regard to whether the plaintiff actually recovered that amount for future medicals. Under the Garretson approach, the only amount to be set aside would be the actual funds recovered by the plaintiff, which could be considerably less than the total future medicals.
Once the amount of the MSA has been determined, who shall administer those funds? One option is to use a professional custodian such as Medi-Vest. The advantage to the professional custodian is that they know the rules. They use the set-aside funds only to pay for medical care that Medicare would cover. The plaintiff may be receiving other medical care that would not be covered by Medicare and use of the MSA funds for payment of that care would be inappropriate. A professional custodian will also take advantage of the discounts offered to Medicare, rather than paying full retain prices. This makes the funds last longer. The other option is to turn over the MSA amount to the plaintiff to be self-administered. The advantage to this approach is that it avoids paying the professional custodian’s fees. There is usually a set-up fee and an annual maintenance fee. A disadvantage to a self-administered MSA is the plaintiff does not know the rules and often uses the funds for other purposes such as covering delinquent mortgage payments or payments on car loans. As a practical matter, if the Set-Aside is a $100,000 or more, it usually makes sense to engage the services of a professional custodian. If the settlement is less than $100,000, the cost of a professional custodian are not warranted and a self-administered MSA is more appropriate.
The next consideration for an MSA is whether or not a Structured Settlement should be considered. CMS requires that an MSA be funded with a lump sum sufficient to cover two year’s medicals plus the first surgery, but the rest can be funded with a Structured Settlement. Since most of the funds will not be needed right away, it often makes sense to use the Structured Settlement. Statistics show that where a Structured Settlement is used, the cost is only 52% of funding an MSA with a lump sum. This is because the Structure does not have to pay out for a period of time. The Structure can also take advantage of the plaintiff’s rated age.
The post DO WE STILL NEED TO WORRY ABOUT MEDICARE SET-ASIDE ARRANGEMENTS? first appeared on SEONewsWire.net.]]>by Thomas D. Begley, Jr., CELA
Countable Asset for SSI and Medicaid
A question arises as to whether assets held in an MSA are countable for SSI and Medicaid purposes. This has been addressed by CMS in the WC context, but the same line of reasoning should apply to third party liability cases. CMS has stated that:[1]
Medicare Set-Aside Arrangements are not subject to any special treatment under Medicaid resource rules. These funds should be evaluated to determine whether they meet the legal definition of a resource for Supplement Security Income (SSI) and, therefore, Medicaid purposes, i.e., ‘cash or other assets that an individual owns and could convert to cash to be used for his or her support and maintenance.’ The funds must be in interest-bearing accounts. The funds may meet the SSI/Medicaid resource definitions.
There may be cases in which funds in a Medicare Set-Aside Arrangement are placed into trusts, possibly trusts that would satisfy the definition of “special needs trusts” under Section 1917 of the Social Security Act. In those cases, the funds might not be a countable resource, but that result would be solely on the basis of Medicaid, not Medicare, rules.
If the MSA funds are wrapped into a special needs trust, they would be considered inaccessible for SSI-related Medicaid and Food Stamp purposes. It is always good practice to have a professional trustee to administer a Self-Settled Special Needs Trust, because of the complexity of the issues involved. Most professional trustees will then retain the services of a professional custodian, such as MediVest Advisors, to administer the MSA subaccount. If the size of the MSA is significant, the cost can be sharply reduced by funding the MSA with a Structured Settlement. The average savings by utilizing a Structured Settlement, rather than a lump sum, is 46%.[2]
The Structured Settlement payment stream is paid directly to the special needs trust, and the trustee allocates the funds to the MSA subaccount.
[1] CMS Memorandum Questions and Answers, July 11, 2005, Q & A 13.
[2] Policy Clarifications—Food Stamp—Medicaid—SSI, PMS 13182340, PFS 13182540 (revised July 20, 2007).
The post MEDICARE SET-ASIDE ARRANGEMENTS IN SPECIAL NEEDS TRUSTS first appeared on SEONewsWire.net.]]>by Thomas D. Begley, Jr., Esquire, CELA
Advantages of Structured Settlements
There are a number of potential benefits to an injured plaintiff in utilizing a structured settlement:
Disadvantages of Structured Settlements
Three disadvantages of a structured settlement are:
What public benefits are means-tested?
If an individual is receiving means-tested public benefits, a Special Needs Trust is required.
Public Benefits That Are Not Means-Tested
Certain public benefits are not means-tested. These include:
If a person is receiving public benefits that are not means-tested, no special needs trust is required.
What is a Special Needs Trust and How Does it Operate?
A Special Needs Trust is a creature of statute. These trusts were authorized by Congress in 1993.[1] Essentially, there are seven requirements:
Trustee
A professional trustee should always be utilized. Family members often want to serve as trustee. The trustee must be familiar with SSI law, Medicaid law, tax law, have investment expertise, and be familiar with fiduciary standards. The trustee must also be able to say “no” to requests for inappropriate trust distributions. Many states require corporate trustees in all but the smallest of Special Needs Trusts. Most states require an individual trustee to be bonded, which is often difficult if not impossible. Where an individual serves as trustee it is inevitably a question of when, not if, the trust will blow up in everyone’s face. Family members can be appointed as Trust Protectors and given the right to remove and replace the corporate trustee with another corporate trustee. This gives the family members comfort.
Essentially, the trustee makes distributions to third parties who provide goods and services, rather than to the trust beneficiary. A distribution to the trust beneficiary would reduce the SSI payment dollar-for-dollar. Payment to third party providers for good and services are not considered income, unless they provide food or shelter, in which event the SSI payment is reduced by approximately one-third, but Medicaid continues.
Structured Settlement
If a structured settlement is paid to an individual plaintiff, that would cause a loss of means-tested public benefits. By having the same structure paid into a Self-Settled Special Needs Trust, benefits are preserved. Most states require that the beneficiary of the structure on death be the trust to ensure the Medicaid payback.
[1] 42 U.S.C. §1396p(d)(4)(A).