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.