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William C. Altreuter
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Wednesday, January 13, 2010

In court the other day to update the judge on the status of a settlement. The hang-up is getting the proposed Medicare Set-aside agreement approved. This is a pretty new thing in personal injury work, although in the Comp realm they've been dealing with it for nearly ten years. If a plaintiff is Medicare-eligible, or about to be (in other words, old, about to be old, or on SSI Disability), a fund to provide for medical expenses going forward has to be set up so that Medicare isn't on the hook for expenses that ought to be paid by some other responsible party, like Comp, or a tortfeasor. (Actually, it's not all that clear that the MSA thing applies to tortfeasors, but it looks like it will soon.)

It is a complicated and time consuming process, and not many people are proficient at it yet, although it has been going on in Comp long enough for there to be consultants who can handle most of it. The proposed MSA has to reflect the projected costs, and justify why some costs are included and others not, and then the Centers for Medicare and Medicaid Services (CMS) have to okay the plan. Typically the insurance company that is settling the claim buys some sort of annuity, but funds can be paid into a dedicated account and self-administered by the claimant.

There are a lot of questions about this set-up, and not a lot of answers. If, for example, someone doesn't spend all of the allotted money in a given year does it roll over into the next? (Probably yes, but why?) If CMS does not approve a proposed plan is there a review process? This is a big issue, since the process effectively gives somebody in Medicare approval authority over a settlement agreement that the parties themselves don't even have.

As soon as I learned about this new wrinkle my first thought was that it could screw up a lot of otherwise good settlements because the time it takes to get approval is cooling off time for the plaintiff. It also seems to me that it will effectively drive up the cost of settlements, since a fairly strict accounting of expenses which had previously been spitballed is now required in more cases. In situations where a life-care plan was called for we've seen this sort of thing for some time, but now we're having to do it in cases that resolve in the low-to-mid six figures.

This work has never been as easy as it looks, and the MSA thing is making it even harder. That means more expensive, and more expensive means that practitioners have to be more risk-adverse, and that means, I think, that there are a lot of people who may have legitimate claims that aren't going to be worth taking. That bothers me.

| Comments:
"If, for example, someone doesn't spend all of the allotted money in a given year does it roll over into the next? (Probably yes, but why?)"

The purpose of a Medicare Set-aside Arrangement is to pay for all services related to the claimant's settlement related injury or disease, therefore, Medicare will not make any payments (as a primary, secondary or tertiary payer) for any services related to the injury or disease until nothing remains in the MSA. These arrangements are established in order to pay for all medical expenses resulting from settlement-related injuries or diseases; they are not designated to simply pay portions of medical expenses for related injuries or diseases. When MSAs are designated as lump sum commutations, Medicare would not make any payments for the claimant's medical expenses (for settlement-related injuries or diseases) until all the funds (including interest) within the MSA have been completely exhausted. These same basic principles also apply to structured settlements.

Generally, MSAs that are lump sums (i.e., the MSA is funded by the settlement all at once) present less of a problem to monitor than structured arrangements. Medicare would not make any payments for claimants that possess lump sum arrangements until all of the funds within the arrangement have been depleted. For example, if a set-aside arrangement were established for $90,000, Medicare would not make any payments until the entire $90,000 (plus interest, if applicable) were exhausted on the claimant's medical care (for Medicare covered services only). Medicare is relying upon the interest to cover any future increases in the cost of medical care as all treatment under an MSA is forecasted at today's current rates, whether it be a WC fee schedule reimbursement amount or usual & customary (U&C) rates.
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"If CMS does not approve a proposed plan is there a review process?"
Currently there is no formal review process under CMS allowing for the review of MSAs that are approved at a higher dollar amount than the submitted proposal (plan) however most MSA allocators/companies will resubmit these "counter-higher" approvals to CMS with justification supporting the originally proposed amount. Lacking a formal review process, the MSAs can and routinely have been appealed multiple times. Depending on which reviewer (within the WCRC sub-contractor responsible for this process) received the initial proposal and any subsequent appeal(s), it's possible to get back a more favorable decision on an appeal.
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I applaud your posting as I'm certain you're not the only one out there feeling this way and the upcoming kick-off of the Mandatory Insurer Reporting (SCHIP) program is going to open the floodgates in terms of the number of liability settlements being reported.

If you'd like an overview of the current process (such as it is) for WC claims, you can review the various pages and documents posted on the CMS webpage established for this: http://www.cms.hhs.gov/WorkersCompAgencyServices/01_overview.asp#TopOfPage
 
Thank you for the substantive comment Kim. You might have mentioned that you are in the biz, but I suppose the link accomplishes that.

My issue with MSAs really comes down to two concerns: the tort system as it exists in the US at present is an inefficient method of spreading risk which compromises our economy's global competitiveness. Manditory Insurer Reporting shifts more risk away from the federal safety net, which seems likely to drive up tort costs. In addition, it will, I think, make some tort claims to expensive to prosecute cost effectively. There is a solution, but it does not seem likely to me that companies like yours will let the system evolve into a neo-liberal Euro style welfare state any time soon.
 

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