Protecting the Benefits of Dual-Eligible Clients

By Guest Author, Evelynn Passino, J.D. – Executive Director of Settlement Solutions National Pooled Trust

A person who has both Medicare and Medicaid is commonly referred to as being “dual-eligible.” If you have a client who is dual-eligible, there are special planning considerations which may need to be addressed to preserve all of their benefits post-settlement.

Medicare

Medicare is a benefit administered by the Centers for Medicare and Medicaid Services (CMS) to provide health insurance for those over 64, and people with a disability who are under 65 and meet certain criteria. If a person is receiving Social Security Disability (SSDI), then they will be eligible for Medicare 24 months after they became eligible for SSDI. For this reason, if your client receives SSDI, then it is advisable to plan as if they have Medicare because they will likely have it soon. Medicare is not income or asset sensitive, but there are steps that it is advisable to take to protect future eligibility.

In short, the Medicare Secondary Payor Act (MSP) says that Medicare shouldn’t pay claims which another person or entity has the ultimate responsibility to pay for. When a liability or workers’ compensation case is initiated, Medicare must be notified through the Medicare Secondary Payor Recovery Portal or Benefits Coordination & Recovery Center. Medicare will make a conditional payment so that the Medicare beneficiary does not have to pay out of pocket, but Medicare will need to be reimbursed when there is a settlement. When ongoing post-settlement treatment will be needed, the MSP, according to Medicare’s interpretation of the Act, also requires that the Medicare beneficiary take Medicare’s “future interests” into account. To do this, Medicare’s “preferred method” is for the client to set aside some of the funds from their settlement to pay for future injury-related care instead of billing Medicare for it. This is a called a Medicare Set-Aside (MSA). Both current Medicare beneficiaries and those with a “reasonable expectation of Medicare enrollment within 30 months” should consider whether an MSA is appropriate in their case. A client who fails to establish an MSA can run the risk that Medicare will later deny coverage of injury-related services.

To comply with this part of the MSP, an MSA Allocation, which details what treatments and medications are Medicare-covered and injury-related, is recommended. As of this writing, for liability settlements, it is not currently required that MSA Allocations be submitted to Medicare for approval.  However, it is recommended for Medicare beneficiaries who have a workers’ compensation claim when the settlement amount is more than $25,000, and for those in the “reasonable expectation” category when the settlement is over $250,000. The benefit to review is that Medicare cannot later say a properly administered WCMSA funded according to the approved amount was not adequate.

Once the money has been set aside, the account must be administered. One option is self-administration which means the money is placed into a separate account opened by the client and spent on Medicare-covered, injury-related care. It is the client’s responsibility to keep records, complete annual filings, and administer the account properly. CMS provides a self-administration toolkit online and there are companies which provide support products to help clients to self-administer their MSA. The other option is professional administration. This is when a company takes custody of the MSA funds and provides the client with instructions to give to their doctors’ offices and pharmacies so that bills can be directed to the Administrator and be paid out of the MSA. The Administrator then adjudicates the claims and pays them at the proper rate (assuming they are payable). The MSA acts like a deductible in that once the MSA exhausted, Medicare resumes coverage of injury-related services. If the MSA is funded with an annuity and is exhausted mid-year, then Medicare resumes coverage until the next annuity payment arrives.

Medicaid

Medicaid is a benefit administered by states, typically by the health department, which provides health insurance for people with limited income and resources. Each state has different qualifications, but generally there must be both a financial need and a medical need, although having a disability is not always necessary. While both Medicare and Medicaid provide health insurance, they do not cover the exact same services. Further, Medicare does not cover 100% of costs, so qualifying for Medicaid can bridge the gap for those who cannot afford out-of-pocket costs.

Medicaid coverage is generally income and/or asset-sensitive, so special planning must often be undertaken to ensure the client continues to qualify for Medicaid. If the client’s settlement will push them over the resource threshold for their benefit, then they need to convert the settlement funds to exempt (not countable) resources. There are two main ways of doing this. First, if the client has immediate needs to satisfy, a spend-down plan could be created in which the funds are spent on exempt resources, such as a home, vehicle, household products, or burial planning. Second, if the client wants to preserve the recovery for years to come, then they should consider creating a special needs trust. This will allow the client to remain eligible for Medicaid (and other means-tested benefits) while the funds are used to supplement the client’s care and quality of life.

Dual Eligibility

Some injury victims will have both Medicare and Medicaid.  In that instance, Medicare becomes primary with Medicaid paying some or all of the co-pays, deductible and Part D expenses.  In situations such as this, there is frequently a need to preserve all of the benefits.  The problem that is created is that a Medicare Set-Aside isn’t an exempt asset which creates planning challenges to keep Medicaid eligibility in place.

In most states, a Medicare Set-Aside is a countable resource, so having a bank account in the client’s name or using a company which offers custodial accounts could cause the client to lose eligibility for as long as the MSA is funded. However, the solution to this problem is “putting” the MSA within a special needs trust wrapper. This allows the client to meet their obligations under the MSP and remain eligible for Medicaid because their MSA is not a countable resource. Before taking this route, however, it makes sense to double check whether the Medicaid coverage your client has will count an MSA as a resource. Some states explicitly exclude MSAs from being countable, such as Iowa, due to the limitations on what an MSA can be spent on.[1]

One potential snag is that because so many Medicare beneficiaries have qualified by virtue of age, you may have a dual-eligible client who is over 65. This can be problematic for several reasons. First, standalone special needs trusts (“(d)(4)(A) trusts”) are only available to those under age 65, so the only special needs trust option available is a pooled trust (“(d)(4)(C) trust”). This is a problem because people with Medicaid often have Supplemental Security Income (SSI). The SSI program has its own qualifications and imposes a transfer penalty for those over 65 funding a pooled special needs trust sub-account.[2] The transfer penalty is a calculation done using the funding amount to determine how long SSI benefits will be suspended. This is especially problematic if the client lives in a “1634 state” which is a state where a person can qualify for Medicaid by qualifying for SSI.[3] But the reverse is also true: if they lose SSI eligibility, they lose Medicaid eligibility, so preserving SSI eligibility may also be important. Second, in a growing number of states, Medicaid is imposing transfer penalties for people over 64 funding a pooled special needs trust. This area is in flux due to litigation and changing Medicaid regulations. In some states there has been success in getting transfer penalties reversed after showing that the transfer to the pooled trust was for fair market value.[4] Since an MSA is a measure of medical costs for the remainder of the client’s life, it should be relatively straightforward to make the “fair value” argument for a special needs trust funded with an MSA, but this has not been tested yet. Clients over 64 have limited options for saving funds and maintaining eligibility for means tested benefits. It is extremely important that a qualified elder law attorney be consulted to ensure the client can make an informed decision.

Conclusion

When a client is eligible for both Medicare and Medicaid, special care must be taken to ensure that the client meets their obligations under the Medicare Secondary Payor Act and that the client’s settlement does not become a countable resource, whether they need a Medicare Set-Aside or not. Making sure the client is in the best position at settlement can present a mine field to the trial lawyer, so it is critical to seek advice from those who can help you and your client understand what the options are.

[1] Iowa Department of Human Services, Medicaid Resources, Employees’ Manual, Title 8, Chapter D, Worker’s Compensation Medicare Set-Aside Arrangements, page 134; see also Williford v. North Carolina Department of Health and Human Services (holding that the “legal restraints” of an MSA prevent it from being a countable resource).

[2] POMS SI 1120.203(B)(2)(a).

[3] POMS SI 01715.010(3).

[4] Pfoser v. Harpstead, No. A19-0853 (Minn. Jan. 20, 2021), available at https://law.justia.com/cases/minnesota/supreme-court/2021/a19-0853.html; see also https://www.naela.org/Foundation/News/Colorado_Fund.aspx?WebsiteKey=170d2353-d2c9-4cab-8c93-622eb28967b0.