By Guest Author, Evelynn Passino, J.D. – Executive Director of Pooled Trust Services
Any attorney handling personal injury or workers’ compensation cases should understand how important it is to protect a client’s government benefits. Among these benefits is Medicare, the health insurance plan offered by the federal government for those who are age 65+ or disabled. When settling a case for a current Medicare beneficiary, you need to ask, “do they need a Medicare Set-Aside?” If the client will need treatment for their injuries post-settlement, the answer may be yes. An MSA can meet a clients obligations to consider Medicare’s interests (more on that can be found here), but administering a Medicare Set-Aside (MSA) for the rest of an individual’s life can be a challenge. Don’t make the mistake of failing to consider professional administration when establishing an MSA.
Overview of Medicare Set-Aside
In a nutshell, an MSA is Medicare’s way of making sure the client does not “double dip” after receiving future medical damages in a settlement. Medicare wants to avoid a situation where the client is compensated for their future medical costs at settlement then having Medicare pay for future injury related care. The concept of setting money aside is based upon Medicare’s interpretation of the Medicare Secondary Payer Act, which in their opinion requires that Medicare’s “future interests” be protected at settlement. Neither the Medicare Secondary Payer Act nor Medicare’s regulations explicitly require the creation of an MSA, but we do know that creating an MSA is Medicare’s preferred method for protecting its future interests.
The MSA functions as a substitute for Medicare coverage for any injury-related, Medicare-covered care for the rest of their life or until funds are exhausted. The MSA allocation includes a report that lists the ICD-9 or -10 codes and prescriptions associated with treating the injury. Every claim must be evaluated as if Medicare were covering it and paid at the appropriate rate. The only differences are where the medical provider sends the bill and where the money comes from.
Workers’ Compensation vs Liability
There are two kinds of MSA: workers’ compensation and liability. An MSA is technically not required in either instance, but workers’ compensation MSAs (WCMSAs) are usually submitted to Medicare for review if they meet certain thresholds. If the client is already receiving Medicare, then WCMSAs where the settlement is over $25,000 should be submitted. If the client expects to qualify for Medicare within 30 months of the settlement date, then the WCMSA should be submitted if the settlement is over $250,000. WCMSAs are monitored by Medicare and annual reporting is required. Liability MSAs, at the time this was written, do not require submission to Medicare or annual reporting, but the rules of administration are the same. We expect regulations on liability MSAs to be promulgated at some point in the near future.
One important decision to be made is whether the MSA will be funded with a lump sum or annuity. Something to keep in mind is that whenever the MSA is depleted, Medicare will resume coverage of all services. Annuity-funded MSAs often deplete mid-year, triggering Medicare to resume coverage until the next annuity payment is deposited in the MSA. This may be difficult for the client to manage or remember, but it can benefit the client in that Medicare may end up picking up part of the tab every year. Lump sum funding requires the client to spend down the entire balance before Medicare will pay for injury-related care again.
Finally, the decision must be made as to how to administer the MSA. There are several options depending on the client’s abilities and budget.
To self-administer an MSA, all the client needs to do is open an interest-bearing bank account and deposit the funds there. The client then alerts their provider regarding the existence of the MSA and pays for Medicare-covered, injury-related care out of the account they created. The client is solely responsible for payment of the bills at the correct rate, record keeping, and all reporting to Medicare. If the client is organized, capable of understanding and following the rules, and is not on needs-based benefits such as Supplemental Security Income (SSI) or Medicaid, then self-administration may be feasible. A guide to administering WCMSAs can be found here.
Self-Administration with Assistance
Some products have emerged which allow clients to hold the money in their own bank account but get advice regarding the billing and reporting aspects of administration. These programs can also offer a cost savings for using in-network providers, but there is a cost associated with using this type of service.
Such options can be paired with a trust to provide additional protection of the funds. Some clients like the idea of having the funds overseen by a trustee but without the constraints of professional administration. Using a trust ensures the funds are protected long-term and the trust’s record-keeping processes can be helpful as the client needs to gather documents for reporting. Pooled Trust Services offers the Medical Management National Pooled Trust (MMNPT) for this exact purpose.
The reality is that Medicare does not monitor MSAs closely. Some clients realize after a few years that their MSA is more of a chore than it is worth and are tempted to use their MSA funds on something else. Clearly there is risk in choosing to do this as Medicare could at any time deny coverage of injury-related care, but to some it is worth the risk. MMNPT’s primary restriction is that is it may only be used for medical services and prescriptions, as well as costs associated with seeking such services; however, the expenditures need not be Medicare-covered or injury-related. This trust also includes a provision allowing conversion to a less-restrictive trust if certain conditions are met, which allows the client flexibility to change their mind about MSA administration. However, such a trust would not meet the requirements of a professionally administered MSA and could be potentially used in such a way to cause future ineligibility.
Professional Administration – Custodial Account
If the client wants to do as little work as possible and be completely protected, a professionally administered custodial account is a good option. The funds are deposited with the company administering the MSA. The administrator handles all adjudication, payment, and reporting so all the client needs to do is make sure their doctors are aware of their MSA. Companies that provide this service will often reach out to physicians on behalf of the client to make sure payment and billing procedures are understood and may offer savings to the client when a client seeks care in-network. This type of account typically includes a one-time fee to set up the account and have an annual fee depending on their policies.
Professional Admin – Trust
Professional administration with a trust functions similarly to administration through a custodial account. Both are basically turnkey solutions which require the client to do very little besides get the care they need. In addition to costs to set up the MSA account, creating a trust will require paying a trustee and may require the assistance of an attorney so it is not the right solution for every MSA. There are two situations in which it makes sense to utilize a trust as opposed to a standard custodial account.
The first is when the client has needs-based benefits such as SSI, Medicaid, food stamps, etc. Clients with needs-based benefits generally must keep their resources to a minimum so they need to be aware that an MSA, whether it’s a self-administered bank account or a professionally administered custodial account, will be a countable resource likely causing them to be ineligible for those benefits. The solution for this is to place the MSA within a special needs trust because the trust will provide protection for needs-based benefits while offering all the benefits of professional administration. To save on costs, your client might explore pooled trust options such as the Settlement Solutions National Pooled Medicare Set-Aside Special Needs Trust.
The second situation where you might consider using a trust is with larger MSAs, particularly if the expectation is that it will need to last decades. There are some fantastic companies offering MSA custodial account services, but there is no guarantee where those companies will be 30, 40, or 50 years from now. The same goes for a trustee, even a corporate trustee. However, the provisions of a properly drafted trust will provide a succession plan and protection in the event something does happen to the trustee.
The decisions surrounding administration are just as important as the decisions about whether to create an MSA in the first place. Not taking this seriously will create headaches for your client later, but you can help them make MSA administration as painless for them as possible. Every client will have different needs and capabilities, so it is critical to understand these options or consult with someone who does.
Jason D. Lazarus is the managing partner and founder of the Special Needs Law Firm; a Florida law firm that provides legal services related to public benefit preservation, liens and Medicare Secondary Payer compliance. He is also a founding Principal and Chief Executive Officer of Synergy Settlement Services, which offers healthcare lien resolution, Medicare secondary payer compliance services, pooled trust services, settlement asset management services and structured settlements.