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Medicare Set Aside Myths

By Steve Chapman and
Gregg Chapman, Esq.

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Steve Chapman and Gregg Chapman, Esq. specialize in structured settlements of workers’ compensation cases. In this article they dispel misconceptions Applicants’ Attorneys have about settling future medical treatment when clients are on Medicare

For more information on structured settlements and the structure broker’s role, see:

Understanding the Basics so you can deal with the Unique Or How to Effectuate Structured Settlements
Presented by Steven F. Chapman at CAAA Winter Convention 2007

Getting Your Cases Settled and Your Cash Flowing
Presented by Steven F. Chapman at CAAA Winter Convention 2007

Structured Settlements: Tips from a Structure Specialist

Structured Settlements: More Tips from a Structure Specialist

Structured Settlements: Why a Structure Specialist Reviews
Subpoenaed Record


Structured Settlements: The Whole Truth about the "Doughnut Hole"
 
 
Myth #1: Medicare Set-Asides are complicated and a barrier to settling workers’ compensation claims

Reality: MSAs are a useful tool that provide protection and valuable future medical cost information to all parties


Medicare Set-Asides (MSAs) are the method recommended by the Centers for Medicare & Medicaid Services (CMS) for protecting the Medicare trust fund in certain situations. The Medicare Secondary Payer (MSP) statute requires that primary payers such as workers’ compensation insurers pay for medical expenses related to an industrial injury so that this burden is not shifted onto Medicare. Incorporating the MSA into a Compromise and Release is both a safe and beneficial practice that allows claims to settle while protecting all parties.

The legitimacy of MSAs was a hotly debated topic when CMS first adopted their use in 2001. However, in the last nine years they have become commonplace and generally accepted as a necessary tool for settling claims involving an applicant who is already or will soon become a Medicare beneficiary. The MSA provides a set dollar amount agreed to by CMS (via their approval letter when applicable) that adequately considers Medicare’s interests, thus limiting a reimbursement claim the federal government may seek for future medical expenses. Without a MSA, the entire settlement amount is considered reimbursable. Thus, the MSA provides a safe limit to the applicant and protection to the applicant’s attorney.

The use of the MSA and corresponding approval from CMS gives the applicant and their counsel the assurance that medical care will be provided to the applicant. CMS approval outlines the cost of future medical care that the applicant will be responsible for, as it relates to items that Medicare covers. Applicant and their counsel along with qualified advisors can calculate the non-Medicare medical components, such as prescription co-pays and the donut hole, home care, transportation and any home modifications. The use of the MSA allows the applicant to, in essence, buy their freedom from the workers’ comp carrier and direct their own future medical care with the knowledge that they will not be bankrupted if the medical care they face in the future exceeds what is anticipated in the snapshot known as the MSA.
 
Helpful Links:
Workers’ Comp Agency Services:
This website provides information on the Coordination of Benefits (COB) program and assists with meeting your responsibilities and obligations under the Medicare Secondary Payer laws in regard to Workers' Compensation issues.

Medicare & You 2010 Handbook:
It contains important information about what is new, health plans, prescription drug plans, and rights and protections to help people with Medicare review their coverage options and prepare to enroll in a new plan if they choose. It is available in both English and Spanish.

CMS Regional Office Contact List for Workers’ Compensation Agency Services

CMS Sample Submission/Checklist for a Workers’ Compensation Medicare Set-aside Arrangement (“WCMSA”) Proposal

Medicare Secondary Payer Recovery Contractor:

The Centers for Medicare & Medicaid Services (CMS) has consolidated all of the functions and workloads related to Medicare Secondary Payer (MSP) post-payment recoveries into one MSP recovery contract.

National Alliance of Medicare Set-Aside Professionals (NAMSAP):
It is the only non-profit association exclusively addressing the issues and challenges of the Medicare Secondary Payer statute and its impact on workers’ compensation and liability settlements.
 
Myth #2: A MSA is not valid if it does not include every possible procedure and medication that the applicant might need some day

Reality: A valid MSA is a reasonable estimation of the future medical/drug needs based on the current documentation available when prepared

The MSA is not invalid if the allocation does not include every potential procedure or every prescription medication that you think the applicant might need some day. CMS expects the MSA to be a reasonable estimation of the Medicare related future medical/drug expenses related to the industrial injury. The MSA amount is calculated based upon medical records for the last two years of treatment and payment histories from all carriers, TPAs and prescription drug suppliers.

MSA determination is not a science since there are many variables including the fact that you are projecting medical treatment that might be needed in the future (which in some cases might be 30 or more years from the date of settlement). Using an experienced MSA vendor that has submitted thousands of allocations to CMS can be helpful. This vendor knows from experience what CMS expects and what is not necessary, thus eliminating many of the unknowns and providing an accurate MSA the first time around. It is important to note that CMS is constantly changing their approach to pricing many of the items involved in a MSA. Most recently we have seen the affects of their prescription drug pricing with substantially higher set-aside approval figures.

Ultimately, it is important to keep in mind that for those MSAs submitted to CMS for approval, the same medical reports and payment histories that the MSA vendor used to calculate the allocation are sent to CMS for review with the completed MSA. So regardless of whether you or the MSA vendor think a specific procedure or medication should be included in the allocation, Medicare will make the final determination and that is the only opinion that matters.
 
The MSA amount is calculated based upon medical records for the last two years of treatment and payment histories from all carriers, TPAs and prescription drug suppliers.
 
Myth #3: If a specific procedure or drug is not included in the MSA report then the applicant can’t pay for it out of their MSA account

Reality: As long as the treatment is related to the industrial injury, it can be paid for out of the MSA account

It is not true that an applicant won’t be able to pay for a specific procedure and/or medication out of their MSA account if it was not specifically included in the MSA allocation. Simple logic dictates that predictions of future needs will be less than perfect. For example, it would be impossible for a MSA that was created in 2010 to include a drug or procedure that didn’t currently exist. Thus, if a new drug that provides a cure for an applicant’s condition is released in 2015, the applicant would not be prevented for paying for it from their MSA account because it wasn’t included in the allocation that was produced before the drug existed. CMS takes the position that it will accept bona fide payments made from the MSA account.

Bona fide payments taken out of the MSA account that don’t exactly match the MSA report can also be made when situations change. For example, a MSA based on the last two years of medical reports and payment histories included psychiatric visits twice a month for 10 years. Then, two years after settlement, the applicant’s condition worsens and the treating physician now orders psychiatric visits twice a week. This increased expense for mental health care can be paid for out of the MSA account even though it is more than originally allocated. The important point to remember is that the MSA is a reasonable estimation of future Medicare related medical expenses based on medical reports currently available. Since predicting medical needs years in the future is not an exact science, the fact that a certain procedure, medication or quantity of same is not included in the MSA does not mean it cannot be paid for out of the MSA account when it is later determined that it is needed.
 
The important point to remember is that the MSA is a reasonable estimation of future Medicare related medical expenses based on medical reports currently available.
 
Myth #4: The MSA amount should not be considered when determining the attorney’s fee

Reality: The MSA amount is part of the future medical portion of the total settlement and thus included in the fee calculation

No rule exists stating that the MSA amount must not be considered when calculating attorney fees. This attorney fee misconception arose out of a memo CMS released on May 7, 2004. In that memo, CMS stated that attorney costs and administrative fees “…must come from some other payment source that is completely separate from the Medicare set-aside arrangement funds.” While it is clear that attorney fees cannot be paid out of the MSA funds, this is completely unrelated to the calculation of attorney fees which are based on the total settlement, which includes the MSA. For example, a $300,000 settlement that includes a $100,000 MSA should calculate the attorney fees based on the $300,000 total settlement amount and not on just $200,000 which is the total settlement minus the MSA amount. Your structured settlement broker can arrange the settlement so that the attorney will receive their entire fee while at the same time making sure the MSA amount is paid out to the applicant in its entirety.
 
While it is clear that attorney fees cannot be paid out of the MSA funds, this is completely unrelated to the calculation of attorney fees which are based on the total settlement, which includes the MSA
 
 
Myth #5: CMS takes so long to approve a MSA that it makes settlement nearly impossible

Reality: The majority of MSAs are approved by CMS within
1 to 2 months


CMS has substantially reduced their turnaround time for approving MSAs. The typical range currently runs from 3 weeks to 3 months from submission of the MSA to receiving the approval from CMS. This is a far cry from the 6 months to 1 year plus range that CMS was operating on just a few short years ago. Thus, with this improved process, there is little reason to avoid a C&R for fear of an extended delay by CMS. Everyone has heard the stories where supposedly Medicare took nine months to a year to approve a MSA. In researching many of these stories we have come to learn that the delay occurred due to the MSA vendor not submitting the information to CMS on a timely basis. In order to avoid this from occurring on your cases, it is essential to work with the defense attorney and/or examiner to obtain, in writing, the date the MSA was submitted to CMS. It is through this process all parties can learn of any missing documents or anything else that could result in an incomplete submission. Incomplete or non-submissions are the cause of extensive delays in obtaining CMS approval. Once CMS has received the information necessary for their approval process, the timeframe for approval is relatively short.
 
CMS has substantially reduced their turnaround time for approving MSAs.
 
 
Myth #6: The Compromise & Release is a required document that must be submitted with the MSA before CMS will begin its review

Reality: CMS will review a MSA as long as the settlement amount is provided in lieu of the C&R

A final signed or even a draft Compromise and Release is not required in order to submit a MSA to CMS. CMS is very clear on its website that the C&R and any WCAB documents are optional upon submission of the MSA. CMS only requires a copy of the final settlement agreement after the MSA is approved. Holding up submission of the MSA to CMS until the C&R is complete is a needless waste of time.
 
A final signed or even a draft Compromise and Release is not required in order to submit a MSA to CMS
 
Steve Chapman has been a structured settlement specialist for more than 24 years. For the past 17 years, he has specialized in workers’ compensation structured settlements. He has appeared at every Appeals Board throughout California .

During the past 5 years, he has participated in settlements totaling over $1 billion. Mr. Chapman strives to remain current on all issues affecting the settlement of the case, including Medicare set-aside allocations, life care plans, medical cost trends, Long Term Disability, and Social Security issues.

To contact Steve Chapman:
Steven F. Chapman
National Settlement Consultants
12039 Jefferson Blvd.
Culver City, CA 90230
Phone: 800-845-2969
Fax: 310-450-3132
Cell: 310-480-5742
Email: SettleMan@aol.com

 
 
Gregg Chapman has been a member of the State Bar of California for twenty years. Over the last eight years, he has worked for two of the largest national MSA vendors in various positions including General Counsel, National Sales Manager and Director of MSA Education. He has provided hundreds of presentations on all topics regarding Medicare Set-Asides to the insurance industry and attorney associations across the country.

To contact Gregg Chapman:
Gregg Chapman
National Settlement Consultants
12039 Jefferson Blvd.
Culver City, CA 90230
Phone: 800-845-2969
Fax: 310-450-3132
Cell: 310-480-5742
Email: greggchap@aol.com