Medicare Showing Interest in Catastrophic Tort Recoveries

Concern over the future viability of the Medicare program has led to the stepped-up enforcement of Medicare’s right to recover payments for services that should have been made by a “primary plan.” Currently, only workers’ compensation settlements are being targeted, but settlements of catastrophic injury tort cases are not far behind, according to Tim Nay of Portland, Oregon, who is part of a nationwide network of disability and special needs lawyers. The authority is already there. Only additional funding for enforcement of tort recoveries is needed.

The Medicare Secondary Payer (MSP) statute, 42 U.S.C. § 1395y(b)(2), enacted in 1981, provides that “Medicare will not pay for items and services for which a Medicare beneficiary has received payment or can reasonably expect payment from a ‘primary plan.’” Under this law, Medicare can recover from, but is not necessarily limited to, liability insurance, no-fault insurance, automobile insurance, self-insurance, workers’ compensation awards, judgments, settlements and compromises. Initially, only Medicare liens for past services were being recovered.

In 1999, the Government Accountability Office reported that Medicare erroneously paid $43 billion of medical costs between 1991 and 1998 when it was secondary to a primary plan. This GAO report resulted in the funding of a campaign to enforce the MSP statute, particularly regarding future injury-related payments by Medicare and other federal government programs covered by the statute.

This enforcement program included the creation of Medicare Set-Aside (MSA) arrangements. An MSA arrangement is a settlement between the Center for Medicare and Medicaid Services (CMS) and all parties in interest to the settlement regarding how much of the proceeds must be spent down on post-settlement, injury related Medicare covered services. After the claimant is on Medicare, the set-aside amount is spent only on Medicare services until it is exhausted, at which time Medicare will take over payment for future services.

A primary payer settling future medical benefits for a Class I or Class II qualified individual must set aside future injury-related Medicare allowable expenses and obtain pre-approval from CMS of the amount. Class I individuals are already a Medicare beneficiary. Class II individuals are not, but must consider an MSA if the total amount of the settlement is over $250,000 (subject to change) and there is reasonable expectation of Medicare enrollment within 30 months.

The two funding options for an approved MSA allocation are lump sum and structured settlement annuities. Attorney Patrick J. Hindert of Terrace Park, Ohio, co-author of Structured Settlements and Periodic Payment Judgments (Law Journal Press), points out that CMS values structured settlement annuities based upon projected payout, as opposed to cost, for purposes of the $250,000 threshold. Even if an MSA is funded with periodic payments, CMS will require additionally one to two years of anticipated medical costs.

According to Nay, most MSA amounts are between $10,000 and $75,000, with only a few exceeding $100,000 and only in cases of catastrophic injuries. “Such an allocation should never be self-administered,” he says.

A trustee of a trust, custodian or the claimant can administer MSAs, unless the claimant is a minor, is incapacitated or has an appointed Social Security representative payee. Nay cautions that administration is complicated, best handled by specialists. He estimates that 90 percent of all MSAs are self-administered, but less than one percent of those are in compliance. “This means Medicare will never pay for future injury related medicals, even if the MSA is properly spent down.”