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SET-ASIDE ARRANGEMENTS

Set-Aside Arrangements To Protect Medicare from Future Medical Payments

Although the Medicare secondary payer statute requires that all workers’ compensation settlements adequately consider Medicare’s interests, neither the MSP nor the regulations mandate what particular type of administrative mechanism should be used to protect Medicare’s interests. Medicare requires that funds be set aside to pay for future medical bills incurred because of a work-related condition. These funds are referred to by the CMS as “set-aside
arrangements.” Set-aside arrangements are used in commutation cases, in which an injured individual is disabled by the event for which workers’ compensation is making payment but the individual will not become entitled to Medicare until some time after the workers’ compensations settlement is made. The CMS has stated specifically that set-aside arrangements are used only in commutation settlements, not settlements that are solely compromise cases.
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Medicare contemplates that set-aside arrangements will be either in the form of a lump sum or a structured annuity. The set-aside should be an amount sufficient to pay for reasonably expected, causally-related medical bills for the life expectancy of the petitioner. Set-aside arrangements are most often used in those cases in which the injured worker is relatively young and has an impairment that seriously restricts his or her daily living. The set-aside is usually not created until the injured worker has stabilized so that it can be determined, based on past experience, what the future medical expenses are expected to be.. Medical expenses are to be based on either the workers’ compensation fee schedule (for states that have such schedules) or the full actual charges. The CMS does not require that a MSA be indexed for inflation nor may a MSA be discounted to present value.
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The CMS does not compromise or reduce future medical expenses. It asserts that the language in 42 C.F.R. 411.47 relates only to conditional (past) payments and not future medical expenses related to a workers’ compensation injury. This position presumably applies to compromise settlements submitted for approval without a MSA.

Initially the CMS stated that Medicare set-aside funds are not to be used to pay medical bills until the claimant actually becomes eligible for Medicare. Bills incurred prior to Medicare eligibility must be paid from another source. This policy changed in its memo of July 11, 2005. The CMS position is that funds from an approved MSA may be used prior to the claimant becoming a Medicare beneficiary because the amount of the MSA was priced based on the date of the expected settlement. However, the use of MSA funds is limited to expenses that are related to the workers’ compensation claim and that would be covered by Medicare if he were a Medicare beneficiary. The same set-aside administration and reporting requirements apply to this use of the funds as if the claimant was a Medicare beneficiary.

A MSA must be kept in an interest bearing account. Tax on this interest may be paid from the MSA as a cost that is directly related to the account. Adequate documentation of the tax is required. If a claimant looses his entitlement to Medicare after a MSA has been approved and funded, the CMS will not release the MSA funds but will allow the funds to be used for medical expenses related to the work injury that would be Medicare-covered if the claimant was a Medicare beneficiary. The same set-aside administration and reporting requirements apply to this use of the funds as if the claimant was a Medicare beneficiary.

If the treating physician concludes that the beneficiary’s medical condition has substantially improved, then the beneficiary may submit a new MSA proposal covering future expected medical expenses. Such proposals must justify at least a 25% reduction in the outstanding MSA funds. In addition, such proposals may not be submitted until at least five years after a previous CMS approval.

Beginning January 1, 2006, Medicare will begin its Part D prescription drug coverage due to the passage of the Medicare Modernization Act of 2003. As set forth in its memo of December 30, 2005, beginning January 1, 2006, all workers’ compensation settlements must consider and protect Medicare’s interest when future treatment includes prescription drugs along with future
medical services that would otherwise be reimbursable by Medicare.

Medicare set aside arrangements submitted to the CMS after should include separate allocations for: (1) future medical treatment and (2) future drug prescription treatment. The cover letter should include an explanation as to how the amount allocated to future prescriptions was calculated. If the cover letter does not include an amount for future prescription drug treatment, and the treatment records show that the claimant has been prescribed drugs and/or may need drugs related to the work injury in the future, then the CMS will conclude that the parties to the settlement have not adequately considered Medicare’s interests. If there is no indication in the
records that the claimant will need future treatment with prescription drugs, then the CMS will accept that Medicare’s interests have been adequately protected. CMS Memo (December 30, 2005).

Beginning January 1, 2007, the CMS will begin to independently price for future prescription drug treatment for set aside arrangements it receives after January 1, 2007. Set aside arrangements submitted after that date must include separate allocations for future medical treatment and future drug prescription treatment as described above. In addition, the submission
must include a payment history of payments made by the workers’ compensation carrier for prescription drugs. If the injury occurred less than 2 years prior to the date of the submission, the history should include payments from the date of the injury to the date of the submission. If the injury occurred more than 2 years prior to the date of the submission, the history should include the last two years of payments. .

Set aside arrangements that have already been approved by or submitted to the CMS prior to January 1, 2006, do not have to be resubmitted due to Part D coverage. CMS Memo (December 30, 2005).