Cases & Points Blog

Selecting the Best Funding Method for the Medicare Set Aside

Medicare is a secondary payer when a primary payer is available in a claim. A primary payer’s responsibility for payment may be “demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver or release (whether or not there is a determination or admission of liability) of payment for items in a claim against the primary plan, or the primary plan’s insured, or by other means.” 42 U.S.C. Section 1395 y(b).

A Medicare Set Aside (MSA) arrangement is a settlement tool that enables parties to allocate a portion of their settlement funds for future injury related Medicare covered treatment.  The purpose behind the MSA is to avoid a cost shift of this future treatment to Medicare given Medicare’s status as a secondary payer.

At times, parties may seek a review of the workers’ compensation MSA proposal from the Centers for Medicare and Medicaid Services (CMS), provided the settlement meets CMS’ workload review threshold. The review process however is voluntary. If CMS review is sought, the submission has to identify if the MSA will be funded through a lump sum or a structured arrangement. The WCMSA Reference Guide, Version 2.5  notes that in a structured arrangement, the initial “seed money” deposit is followed by subsequent annual deposits, unless CMS agrees to a reduced schedule. The CMS determination sets out the recommended initial seed deposit, the annual amount for a specific number of years and the anniversary date.    If the CMS determination is finalized by funding the WCMSA recommendation and sending in a copy of the final executed settlement agreement that reflects this, CMS has indicated that it will become primary upon proper exhaustion of the MSA.

Since CMS review of an MSA is voluntary, parties may also elect to simply fund a reasonably projected MSA and forego CMS review. The non-submitted MSA may similarly be funded by a lump sum or with an annuity. The funding of the MSA may occur at the same time as the indemnity settlement or at a later date. The benefit associated with structured annuity funding is that it costs less than lump sum funding. Rated ages secured from the structured settlement brokers may also result in further cost savings.

It is important to consider the type of structured annuity that will be used in connection with the settlement and the non-submitted MSA payout. The structured annuity funding options that parties are most familiar with involve different payout periods.  A temp life annuity guarantees annual payments over a fixed period of time, while a whole life annuity guarantees annual payments for the beneficiary’s life.  Since a settlement should avoid a cost shift of injury related Medicare covered treatment to Medicare, the indemnity and MSA components of the settlement should be funded in the same manner.  Failure to do so, may result in the appearance of an attempt to cost shift expenses to Medicare. For example, the selection of a whole life annuity to fund the indemnity payments coupled with the selection of a temp life annuity to fund the MSA, may result in an exhausted MSA account while ongoing indemnity payments are being made. CMS’ practice of allowing temp life annuity funding in their determinations is irrelevant since the non-submitted MSA is governed by MSP laws and not CMS’ voluntary review process.

Structured settlements have many benefits. The type of payout selected however should always keep the bigger picture in mind.

CMS Development Letter Delays Update

Over the past six months or so, the MSP industry as a whole has experienced significant delays in securing CMS review of proposals. Most of the delays have been due to a surge in development letters seeking reserve information and different formatting of payment histories.  These issues were brought to the attention of CMS on several occasions. We are pleased to announce that in our recent call with CMS’ management, we were advised that the WCRC would no longer seek the reserve information nor the one page payment history summaries. Files that were pending review solely due to the improper reserve requests would be promptly reviewed. Files that were pending review based on other missing items would remain in development status until CMS received sufficient information to complete their review. CMS also agreed to have a more holistic review of the information provided, focusing on substantial compliance, as opposed to pure formatting issues. New uniform development letter options were also being drafted by CMS’ counsel in order to ensure a more uniform approach to the material sought in development letters.

CMS’ willingness to address the issue is a step in the right direction. We remain cautiously optimistic and will continue to monitor the situation closely. We will keep you advised.

The California WCAB Considers the Administration of a WCMSA in Muniz Villalpando Case

The administration of a Workers’ Compensation Medicare Set Aside (WCMSA) was considered in a recent California Workers’ Compensation Appeals Board (WCAB) decision.  In the Muniz Villalpando v Doherty Brothers; Martin Dusters; State Compensation Fund  case,  ( 2017 Cal. Wrk. Comp.P.D.Lexis ADJ599176, 2396484, 795039),  the applicant sought reconsideration of the workers’ compensation law judge’s (WCJ) denial of his request to change the administration of his WCMSA funds from a professionally administered account to one that was self-administered . The WCAB returned the matter to the trial level so that the WCJ may review the terms of the professional administration contract that address a change in administration.

By way of background, applicant Muniz Villalpando settled his claims in August of 2011. The settlement terms included the funding of the CMS determined WCMSA and the parties’ agreement that the WCMSA be professionally administered through Bridge Pointe. In December of 2016, Muniz Villalpando filed a pro se Petition for Reconsideration before WCJ Ortega. The issues addressed in the hearing involved the appropriateness of the administration, the WCAB’s jurisdiction to set aside the MSA and the appropriateness of self-administration of the WCMSA.

During the hearing, the defense presented testimony from a Bridgepointe /NuQuest witness regarding the types of payments that may be properly made from a WCMSA fund. Since the payments may only be for injury related and Medicare covered services and drugs, services that did not meet this two prong test may not be paid from the WCMSA account.  In denying Muniz Villalpando’s Petition for Reconsideration, WCJ Ortega noted that Bridge Pointe/NuQuest did not inappropriately manage their custodial obligations within the Compromise and Release settlement agreement.  In light of this, no further issues were addressed by WCJ Ortega.

The WCJ Ortega recommendation highlights the challenges that some claimants may face when attempting to administer their own WCMSA accounts. Not every treatment is Medicare covered or related to the workers’ compensation claim. CMS’ specific guidelines that address the proper administration of a Medicare Set Aside (MSA) account must also be followed. We will keep you advised of further developments in this case.

The Social Security Number Removal Initiative (SSNRI) is coming to a Claim near You:

Medicare has generally used a beneficiary’s social security number as a part of the beneficiary’s Health Insurance Claim Number (HICN). The HICN is used to match medical bills and records with a particular beneficiary and is located on a beneficiary’s Medicare card. In light of the privacy and security issues this creates, the Centers for Medicare and Medicaid Services (CMS) will be phasing out its use of a Medicare beneficiary’s social security number/HICN in its outgoing correspondences and transition to a randomly generated Medicare Beneficiary Identifier (MBI). This process is expected to be completed by CMS by December 21, 2019. Beginning in July 2017, Medicare will be replacing the term “HICN” with “Medicare ID” in its correspondence.

In January of 2018, Medicare states it will begin to assign a randomly generated MBI to Medicare beneficiaries nationwide.  From April 2018 to April 2019, CMS will mail an updated Medicare card with the MBI to beneficiaries. This means that a MBI may be used by Medicare in its correspondence related to conditional payment recovery, section 111 reporting and WCMSA determinations beginning April 2018.

With respect to Section 111 reporting, the SSNRI continues to allow Responsible Reporting Entities (RRE) to report their Non-Group Health Plan claims using partial social security number, full social security number, HICN number or Railroad Retirement Board Number.  After January 2020, however, the Section 111 reporter will also be able to provide a MBI as a means to identify a particular beneficiary.  Further, employers will still be able to use the Social Security Number to obtain the most current Medicare identifier. If an RRE updates its section 111 reporting and updates the HICN to the MBI, all future recovery correspondence from CMS will reflect the MBI.

However, correspondence related to a WCMSA proposal will reflect whatever beneficiary identifier was submitted in the WCMSA and a social security number will still be useable with the Medicare web portals of MSPRP, CRCP, WCMSAP if the MBI or HICN/RRB is not available. Additionally, U.S. Treasury Department correspondence will no longer contain HICN or MBI and use a recovery case ID. The changes with the U.S. Treasury correspondences are expected to occur before the end of 2017.

The change from using HICN to MBI is an enormous undertaking and will require CMS to assign 150 million MBIs.  CMS has issued some benchmark dates:

  • January 2018 – Activate MBI and Translation Services
  • April 2018 – April 2019 – Issue new Medicare cards to beneficiaries
  • April 2018 – December 2019 – CMS will accept and process both HICN and MBI
  • January 2020 – HICNs will no longer be exchanged (except in limited circumstances)

This change will require the MBI to be used by medical providers, group health carriers and many other stakeholders by January /2020.  Although RREs may not need to obtain an MBI in order to report a Non-Group Health Plan claim, stakeholders in Medicare and the Medicare compliance community will need to adapt their systems to accept this additional identifier by April 2018 and also recognize that soon a U.S. Treasury collection correspondence will no longer have the claimant’s HICN or MBI listed. This likely will require extra training, oversight and analysis by the employer, beneficiary or insurer when such correspondence is received.

We will keep you updated as this historic change by CMS unfolds.