COVID-19 Resource Center

June 27, 2006

Medicare's Effect on a Compromise and Release

Historically, workers’ compensation settlements essentially allowed a claimant to double dip. The cost of a claimant’s future medical exposure was taken into consideration when negotiating the lump sum to be paid to the claimant in exchange for the compromise and release of his/her workers’ compensation entitlement. After settlement, Medicare-eligible claimants would have the government pay many, if not all, bills for their continuing treatment of their work injury. Claimants were essentially selling off their medical benefits and then shifting the medical liability to Medicare.

Medicare caught on to this trend and announced its intentions to protect its interests. Medicare has the ability to seek repayment of any bills it paid that were more properly the responsibility of another party. In instances in which liability has been shifted to Medicare without its approval, Medicare has the ability to seek remuneration from the claimant, claimant’s counsel, the employer, the insurance carrier and defense counsel. Not only can Medicare go after law firms that represented the parties, but also the lawyers as individuals.

The worrisome ramifications of shifting liability to Medicare can be avoided by obtaining Medicare’s approval of an arrangement that protects its interests. When necessary, Medicare’s interests are protected with the establishment of a Workers’ Compensation Medical Set-Aside Trust Account. Although there are numerous rules and regulations regarding WCMSAs, a WCMSA is essentially a savings account whose funds can only be used for the payment of treatment of the work injury that would otherwise be Medicare’s responsibility. If a properly administered fund becomes exhausted, Medicare will then provide coverage for the work injury.

The amount necessary for the establishment of a WCMSA is determined by Medicare. Medicare’s determinations are based upon their review of medical records, benefit payment histories and other documentation included in an application from an interested party. The application must be prepared in a specific form and generally include a proposed amount for the establishment of a WCMSA. Because of the confusing nature of the WCMSA application process and the unpredictability of Medicare, an outside firm (Gould & Lamb, Concentra, Health Advocates, etc.) is often retained at a cost of several thousand dollars to prepare the WCMSA application. These outside companies are often able to expedite the application process and, more importantly, boast of Medicare approving a WCMSA within ten percent of their proposal more than ninety percent of the time. This gives the parties a worthwhile estimate of the money involved in the settlement. Unfortunately, the Medicare approval process generally takes several months to a year (or even more) once the application is submitted.

How a WCMSA will be funded is determined by the parties as part of the compromise and release agreement. Although negotiated by the parties, the most common arrangement has the employer funding the WCMSA.

A primary issue is determining in which situations it is necessary to ask Medicare to approve a WCMSA. Although there is no definitive answer to that question, Medicare has established a framework to help answer that question in each case. Medicare says that it will not review cases in which the lump sum is less than $25,000. Medicare insists upon approving a WCMSA arrangement (or confirming that there is no need for the establishment of a WCMSA) in all cases with a lump sum of at least $250,000 if the Claimant has a reasonable expectation of being Medicare-eligible within 30 months of settlement. Thus, in settlements of at least a quarter-million dollar, CMS approval must be obtained if the Claimant is Medicare eligible at the time of settlement or if he is on Social Security Disability (and thus will likely be Medicare-eligible two years after initial eligibility for SSD) at the time of settlement. For settlements with a lump sum from $25,000-$249,999, Medicare will only review those cases in which the claimant is Medicare eligible as of the settlement date.

Unfortunately, that framework for when a WCMSA application needs to be submitted is just that: a framework. It is not definitive. At the same time that Medicare established that framework, it stated that its interests must be protected in all cases. Accordingly, there are some situations in which the claimant falls outside of the above framework where it nevertheless makes sense to protect Medicare’s interests. This is often done by submitting a proposal to Medicare. If Medicare refuses to consider the proposal because the case falls outside of the above parameters, the parties potentially liable to Medicare at least seem to have a defense to a subrogation claim from Medicare. For additional protection, language will be added to the compromise and release agreement wherein a portion of the lump sum is designated for future medical benefits, theoretically placing greater liability on the claimant than on any other potentially liable party in the event that Medicare seeks subrogation.

What It Means to You

How a Workers’ Compensation Medical Set-Aside Trust Account will be funded is determined by the parties as part of the compromise and release agreement. The already complex Medicare issues figure to become more complicated in the coming months and year. Cipriani & Werner attorneys can help guide your case through the settlement process.
 

Sources

Medicare Act