Understanding Structured Settlements and Medicare Set-Asides

By Guest Author Samantha Webster – Director of Case Management for Synergy Settlement Services

Settlement – What to Consider for a Medicare Set-Aside (MSA)

When settling a case involving a current Medicare beneficiary and before finalizing, it is important to understand what actions need to be taken to consider Medicare’s interest. What does this all mean and what are the three most important things to consider?

1. Medicare Set-Aside Decision

The threshold question is whether an MSA needs to be considered or not.  That turns on Medicare eligibility.  If they are eligible, then the next question is whether future medicals are funded.  If the answer to both questions is yes, then a set-aside allocation should be considered.  After determining that the injury victim is a current Medicare beneficiary (or even has a reasonable expectation of becoming Medicare eligible within 30 months) and that future medical treatment is needed for their injuries, the question is what is the cost of future injury related Medicare covered care. To determine the amount, either the defense or plaintiff need to request preparation of a Medicare Set-Aside allocation report identifying all future injury-related care and expected costs.

Once the decision is made on the amount necessary to cover future injury-related care, the final things to consider are what, if anything will be set aside in a formal MSA; how will the MSA account be funded and how will the MSA be managed?

2. How is the MSA Account Funded?

Once the MSA allocation is complete and a decision is made to set money aside for future Medicare covered services, the injury victim has two options to fund the MSA account. The first is a lump sum. From the settlement proceeds, the full specified sum according to the allocation report or the CMS approval, is placed into the Medicare Set-Aside account by the injury victim. The full amount of the allocation is placed into the account and available to pay for injury-related care. The benefit of this funding option is all the funds are placed into the MSA account at once. The downside is that the settlement proceeds directly to the injury victim are reduced by the full amount of the allocation, and the funds may sit in the MSA account untouched for years or until appropriate injury-related care is needed. If and when the account is fully exhausted (the balance is taken to zero), Medicare resumes paying for the injury-related care.  The biggest downside is that there is fully exhaustion of the entire set-aside amount before Medicare will pay for any future injury related care instead of annual temporary exhaustion using a structured settlement.

The second option is to fund the MSA with a structured settlement. The allocation report or the CMS approval generally will provide specific structured settlement annuity parameters. The parameters include an initial cash deposit made to establish the account (seed) followed by a series of annual payments over time. Periodic payments from a structured settlement annuity replenish the account annually. The duration of the periodic payments is specified in the allocation report or CMS approval and is based on the life expectancy of the injury victim.  The benefit of using a structured settlement to fund a Medicare Set-Aside is the cost savings for the injury victim. The savings can result in additional cash from the settlement in the pocket of the injury victim that is available for other uses. There really is no downside to using a structured settlement annuity to fund an MSA. It is all upside since  a structured settlement with a rated age means less has to go into the set aside for a shorter duration.  Additionally, temporary exhaustion on an annual basis is possible which means Medicare will resume paying for the injury-related care each year after the annual amount is exhausted until the account is replenished with the next structured settlement payment.

3. How is the MSA Account Managed?

Once the decision is made about how the MSA will be funded, the last critical item to be decided during settlement is how the set-aside will be administered. There are very specific requirements for administration of a Medicare Set-Aside as outlined by the The two options available are self-administration and professional administration. With self-administration, the injury victim maintains control of the MSA account but is also responsible for paying all bills, at the correct rate, from their providers for injury-related care, tracking all payments from the MSA account, annual attestations (as required), and reporting depletion or exhaustion of the account. While CMS provides a helpful resource in the form of a Self-Administration Toolkit, the administration of the MSA may be a daunting task for many injury victims.[1] For injury victims who want to maintain control over their MSA account but are uncertain about meeting the requirements for self-administration, there are neutral, third-party companies who can offer some relief in the form of self-administration assistance.

For those injury victims concerned about the many requirements of administration and prefer help, there are numerous companies offering professional administration services. The professional administrator vendor employs a team of professionals to manage the custodial account created on behalf of the injury victim. The vendor has a clear understanding of the requirements for administration of the MSA account including the need to maintain records of every transaction, adequately reporting depletion or exhaustion, and other requirements. Additional benefits provided by the professional administration vendors may include helping injury victims find care, knowing the appropriate Medicare-approved rates for care, and receiving potential discounts on treatment and prescriptions. In certain cases, professional administration using a Medicare Set-Aside trust might be a preferred solution due to the longevity of a trust arrangement and additional legal protections of having a fiduciary.  For those injury victims who may be dual eligible (Medicare and Medicaid eligible), it is necessary to have professional administration through a Special Needs Trust since the MSA needs to be wrapped in an SNT in this situation.  The benefit of a trust arrangement for someone on Medicaid and Medicare is keeping both benefits and having the fiduciary duty of the Trustee along with an MSA administrator.

Piecing it All Together

When settling cases involving someone who is a Medicare beneficiary or someone who might be in the near future, it is important to determine whether there is a need to consider Medicare’s interest.  If you determine there is a need, then doing an analysis of the future Medicare covered injury related care (an allocation) is a recognized method of doing.  Once you do an allocation, the next question is whether to fund a formal MSA.  If you do, then consideration should be given as to whether it is done with a lump sum versus a structured settlement annuity.  Most times, the benefit of funding via a structured settlement will make it the overwhelmingly logical choice.  Once funding decisions have been made, then the last question is how the set-aside will be administered.  Typically, these are really good reasons to professionally administer an MSA due to the complexities of doing self-administration.

That probably sounds complicated but having an expert on your side makes it a whole lot easier.  Synergy’s team of experts can provide guidance on these difficult issues making it a simple decision for your client to make.  Synergy can consult with the client about these issues, prepare a Medicare set-aside allocation report, provide funding options and assist with professional administration options.  It is part of our MSP 360 suite of services and a way for law firms to have an end-to-end solution for MSP compliance.

[1] Helpful information regarding self-administration and a link to the Self-Administration Toolkit can be found here: https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Workers-Compensation-Medicare-Set-Aside-Arrangements/WCMSA-Self-Administration