A Look at the Privatization of Medicare Part A and B Coverage and the MSP Act

Medicare has been in the news lately with the Speaker of the House, Paul Ryan, renewing a push to change the nature of the traditional, fee-for-service Medicare system. To understand the potential impact of a change a review of the background of Medicare is appropriate.

Medicare is a Federal health insurance program that was enacted by the United States in 1965. Generally, an individual may become entitled to Medicare benefits if they have appropriately paid into the program and are age 65 or older, entitled to Social Security Disability benefits for 30 months or longer, or those with End Stage Renal Disease. There are four parts to Medicare: Part A (hospital insurance), Part B (medical insurance), Part C (Medicare Advantage Plans) and Part D (prescription drug coverage). Coverage under Parts A and B is considered “original Medicare.”

Concern about Medicare’s solvency has been longstanding. This concern drove the enactment of the Medicare Secondary Payer Act (MSP) in 1980. The Act specifically states that Medicare may not make a payment with respect to any item or service to the extent that “payment has been made or can reasonably be expected to be made under a workers compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance.” The exception to this is when a non-group health plan (NGHP) has not made or cannot reasonably be expected to make payment with respect to an item or service. The MSP provisions also make Medicare a secondary payer in certain situations involving group health plans.

To prevent the depletion of the Medicare trust fund, any payment made by Medicare is conditioned upon the reimbursement of the payment to the Medicare trust fund. CMS’ Coordination of Benefits and Recovery Contractor (COBC), oversees the conditional payment recovery efforts of the Benefits Coordination and Recovery Center (BCRC) and the Commercial Repayment Center (CRC). According to CMS’ December 5, 2011 Memo, Medicare Part C and D plans have the same right to recover as Medicare Part A and B plans. Emerging case law in various circuits also provides Part C plans with a private cause of action under the MSP in order to enforce their reimbursement right. Although Part D prescription plans are also secondary payers, their reimbursement efforts to date have been negligible. This may however be impacted by legislation that was recently introduced to the House of Representatives in September of 2016. The Secondary Payer Advancement, Rationalization and Clarification Act (SPARC Act) seeks to improve and simplify the coordination of benefits between Medicare’s Part D drug plans and primary payers under the MSP statute.

Parties settling a workers’ compensation or liability claim may include a future medical allocation or Medicare Set-Aside (MSA) in their settlement in order to prevent a cost shift of these future injury related medical expenses to Medicare. This allocation reduces the probability of Medicare making future conditional payments in the claim. The MSA includes projections for treatment that is covered by Medicare Parts A and B and prescriptions covered by Part D. Injury related treatment that may be covered by Part C may be allocated in a separate non Medicare covered treatment fund associated with the settlement.

Parties to a settlement have the option of seeking review of the MSA proposal from CMS if CMS’ internal workload review threshold is met. The review process is a voluntary process. To date, Medicare Advantage Plans have not actively pursued reimbursement for post settlement injury related payments made in a claim. CMS’ ongoing commitment to the voluntary review of the MSA proposals is reflected in their most recent November 23, 2016 Draft Request for Proposal for the Workers Compensation Review Contractor. The contract will cover a 12-month base period with four one-year options. CMS expects the award date to occur during the Third Quarter of FY2017. The current Statement of Work also seeks a contractor that shall be ready to implement a process similar to what currently exists in the WCMSA process to evaluate MSAs for “other applicable NGHP insurances.”

Enforcement of the MSP provisions has resulted in significant savings to Medicare. According to CMS, approximately $8.5 billion dollars were saved in Fiscal Year 2015. These savings were facilitated by the various databases that collect MSP beneficiary information for the BCRC.

Despite these savings, the Social Security and Medicare Boards of Trustees 2016 Report Summary indicates that the Medicare Hospital Insurance Trust Fund (HI) that covers Medicare Part A is projected to be depleted in 2028. The Supplementary Medical Insurance Trust Fund (SMI) that consists of Medicare Part B and Part D, however, is expected to remain adequately financed into the indefinite future due to its financing from general revenues and beneficiary premiums. The projected costs for the SMI are expected to grow due to the aging population and increasing health care costs. The Trustees continue to urge for action to remedy this expected deficit.

Speaker of the House, Ryan, proposed a new approach to Medicare, known as “premium support,” in 2011 when it was included in a budget blueprint. It will be considered again in 2017. As envisioned, a beneficiary would be allocated a fixed contribution by the government that may be used to buy health insurance from either a private insurer or from the traditional fee-for-service Medicare program. The introduction of competition is expected to result in savings for Medicare. Current increased beneficiary enrollment in Medicare’s Part C Medicare Advantage Plans is also cited as evidence of the popularity of these plans. Opponents, however, are concerned that the premium support program would privatize Medicare and essentially result in regular fee-for-service Medicare, with an open ended commitment to pay for medical services, only being available to the more affluent beneficiary. The proposed privatization is controversial and likely to result in prolonged political discussion. Whether this occurs during the administration’s move to reform the Affordable Care Act or afterwards remains to be seen.

In the event that a portion of Medicare Part A and B coverage will come from private insurers, private insurers would be expected to take a more proactive approach in asserting their secondary payer status. The MSP provisions, CMS’ December 5, 2011 Memo, case law and existing CMS’ Workers Compensation Review Contractor arrangement all provide the framework for the MAP insurers to expand their role in both recovering payments made in connection with settlements and in denying future payments for injury related care. Failure to do so would be the equivalent of “not looking a gift horse in the mouth.” As with any reform, our industry should remain flexible and open to new opportunities that will present themselves.

Phillips v. Kaiser Health Plan, Inc., et.al.

Phillips v. Kaiser Health Plan, Inc., et. al.
No. C 11 – 02326 CRB
2011 WL 3047475 (N.D.Cal.July 25, 2011)

This case involved a putative class action filed against Kaiser Health Plan, Inc. (Kaiser), a Medicare Advantage (MA) Plan, and other related MA entities. 

The plaintiff alleged that (a) Kaiser was improperly and “illegally” demanding reimbursement of its accident related medical expenditures in an amount greater than that which would have been recoverable under traditional Medicare, and (b) that certain marketing and business practices employed by Kaiser violated California’s Unfair Competition Law and Consumer Legal Remedies Act.

The plaintiff filed this case in California state court, which Kaiser removed to the United States District Court for the Northern District of California (hereinafter referred to as the “court”).   This case then came before the court on (a) the plaintiff’s motion to remand and (b) Kaiser’s motion to dismiss.  Continue reading “Phillips v. Kaiser Health Plan, Inc., et.al.”

Trezza v. Trezza

Trezza v. Trezza
No. 39553, 2011 WL 2640794
(N.Y. Sup. June 23, 2011)

In this case, the Supreme Court of New York, Kings County (the Supreme Court is actually the lower court in New York) ruled that the subject Medicare Advantage (MA) Plan in this action was not entitled to reimbursement for accident related medical expenses it provided. Continue reading “Trezza v. Trezza”

Humana Medical Plan, Inc. v. Mary Reale & Parra v. Pacificare of Arizona, Inc.

Humana Medical Plan, Inc. v. Mary Reale
No. 10-21493-Civ., 2011 WL 335341
Jan. 31, 2011
(D. S.D. Fla, January 31, 2011)


Parra v. Pacificare of Arizona, Inc.
No. CV 10–008–TUC–DCB,
2011 WL 1119736
(D. Arizona, March 28, 2011)

The main issue presented in these cases involved whether Medicare Advantage Plans could assert their recovery actions in the federal court (i.e. whether or not the federal courts had proper jurisdiction over these claims)

For the reasons more outlined in the case decisions, the courts basically ruled that the federal courts did not have proper subject matter jurisdiction to hear these cases. In reaching this decision, the courts essentially found that while the MSP provides Medicare Advantage Plans with recovery rights, these plans do not enjoy the same rights as the federal government in terms of recovery claims in federal court. It is important to note that the courts did not rule that Medicare Advantage Plans do not have recovery rights. Rather, the courts in these cases ruled that the federal courts did not have jurisdiction over recovery actions involving Medicare Advantage Plans. Continue reading “Humana Medical Plan, Inc. v. Mary Reale & Parra v. Pacificare of Arizona, Inc.”