Save Your Client\'s Money With MSA

Medicare Set Asides

THE RULES SAVE YOUR CLIENT’S MONEY
PRESENTED BY

WILLIAM FAZIO

COPYRIGHT 2009 WILLIAM B. FAZIO ©

wbfazio@aol.com 07/08/09

What is it?

THE RECOMMENDED METHOD TO PROTECT
MEDICARE’S INTERESTS IN A SETTLEMENT IS A
MEDICARE SET-ASIDE ARRANGEMENT (MSA).

THIS ALLOCATES A PORTION OF THE SETTLEMENT
FOR FUTURE MEDICAL EXPENSES THAT WOULD
NORMALLY HAVE BEEN COVERED BY MEDICARE.


Why do I need a Medicare Set
Aside?

MEDICARE IS PRECLUDED FROM PAYING FOR A MEDICARE
BENEFICIARY’S MEDICAL EXPENSES WHEN PAYMENT:

HAS BEEN MADE OR CAN REASONABLY BE EXPECTED TO
BE MADE UNDER A WORKERS’ COMPENSATION PLAN,
SELF-INSURANCE OR LIABILITY INSURANCE POLICY.


Why are they precluded ?

PURSUANT TO 42 U.S.C. §1395Y(B)(2) AND § 1862(B)(2)(A)
(II) OF THE SOCIAL SECURITY ACT, MEDICARE IS
PRECLUDED FROM PAYING FOR A BENEFICIARY’S
MEDICAL EXPENSES WHEN PAYMENT “HAS BEEN MADE
OR CAN REASONABLY BE EXPECTED TO BE MADE UNDER
A WORKERS’ COMPENSATION PLAN, AN AUTOMOBILE OR
LIABILITY INSURANCE POLICY OR PLAN (INCLUDING A
SELF-INSURED PLAN), OR UNDER NO-FAULT
INSURANCE.”


Why should we care?

FEDERAL LAW (42 U.S.C. § 1395Y(B)) NOT
ONLY ESTABLISHES THAT MEDICARE IS A
SECONDARY PAYER, BUT ALSO THAT
MEDICARE HAS A PRIORITY RIGHT OF
RECOVERY OVER ANY OTHER ENTITY TO THE
PROCEEDS OF ANY SETTLEMENT.


This isn’t just for Workers
Compensation?

IN DECEMBER OF 2007 CONGRESS VOTED TO
ENACT THE MEDICARE, MEDICAID AND SCHIP
EXTENSION ACT OF 2007 (THE 2007 ACT). PART
OF THIS BILL ADDS “TEETH” TO THE CENTER FOR
MEDICARE AND MEDICAID SERVICES’ (CMS)
ABILITY TO ENFORCE THE MEDICARE
SECONDARY PAYER (MSP) STATUTE.


The impact on you and “them”

THE MEDICARE, MEDICAID AND SCHIP EXTENSION ACT
OF 2007 BROADENS CMS’ REACH BEYOND WORKERS’
COMPENSATION TO OTHER PLANS SUCH AS LIABILITY
INSURANCE, INCLUDING SELF-INSURANCE AND NO-
FAULT INSURANCE.

THE 2007 ACT REQUIRES ADDITIONAL INFORMATION
TO BE REPORTED AND ADDS PENALTIES FOR NON-
COMPLIANCE.


Your interests. Their interests.

IT IS IN THE BEST INTEREST OF THE CLAIMANT,
THE DEFENDANT AND THEIR RESPECTIVE
COUNSEL TO PROTECT MEDICARE AS
SECONDARY PAYER AT THE TIME OF
SETTLEMENT.


Mandatory Insurer Reporting

THE MEDICARE, MEDICAID, AND SCHIP EXTENSION ACT OF 2007
IMPACTS THE HANDLING OF WORKERS' COMPENSATION,
LIABILITY, AUTO NO-FAULT, AND SELF-INSURERS CLAIMS,
DEFINED BY CMS AS NON-GROUP HEALTH PLANS (NGHP).

INSURERS WILL BE REQUIRED TO REPORT SUBSTANTIAL DATA
TO CMS ALSO KNOWN AS MANDATORY INSURER REPORTING
(MIR).


Why are they reporting?

THE PRIMARY GOAL OF MIR IS TO IDENTIFY AND
ENFORCE MEDICARE'S SECONDARY PAYER (MSP) RIGHTS
THROUGH RECOVERY OF CONDITIONAL PAYMENTS AND
ENSURE THAT SETTLEMENTS, JUDGMENTS, AND AWARDS
ADEQUATELY PROTECT MEDICARE'S INTERESTS.

FAILURE TO REPORT IN THE TIME AND MANNER AS
SPECIFIED BY CMS CARRIES A $1000 PER DAY PER CLAIM
CIVIL PENALTY.


The Plaintiff Attorney

UNITED STATES OF AMERICA V. PAUL J. HARRIS, UNITED
STATES DISTRICT COURT, NORTHERN DISTRICT OF WEST
VIRGINIA, CIVIL ACTION NO. 5:08CV102

THE UNITED STATES OF AMERICA FILED A COMPLAINT AGAINST
AN ATTORNEY REPRESENTING A CLIENT IN A LIABILITY
ACTION, TO RECOVER MONEY DAMAGES OWED TO CMS FOR
CONDITIONAL PAYMENTS MADE ON BEHALF OF THE CLIENT
FOR MEDICAL SERVICES.


Motion to Dismiss

THE ATTORNEY FILED A MOTION TO DISMISS AND ARGUED THAT A
LAWYER, IN REPRESENTING A CLIENT, CANNOT BE HELD
INDIVIDUALLY LIABLE UNDER 42 U.S.C. § 1395Y(B)(2) WHEN THEY
DISTRIBUTE SETTLEMENT FUNDS TO THE CLIENT. THE COURT
DISAGREED, AND ON NOVEMBER 13, 2008, ISSUED AN ORDER DENYING
THE DEFENDANT'S MOTION TO DISMISS.

IT SHOULD BE NOTED THAT THE FAILURE TO ADEQUATELY CONSIDER
AND PROTECT MEDICARE'S FUTURE INTERESTS MAY RESULT IN
LIABILITY FOR THE ATTORNEY.


Summary Judgment
SUMMARY JUDGMENT WAS GRANTED ON MARCH 26, 2009.

THE COURT ADDRESSED SEVERAL ISSUES, INCLUDING A
DETERMINATION THAT “THE GOVERNMENT CAN NOW RECEIVE
REIMBURSEMENT FOR THE MEDICAL SERVICES PAID FOR BY
MEDICARE…AND HOLDS THAT MR. HARRIS IS INDIVIDUALLY LIABLE
FOR REIMBURSING MEDICARE.

THE GOVERNMENT CAN RECOVER ‘FROM ANY ENTITY THAT HAS
RECEIVED PAYMENT FROM A PRIMARY PLAN,’ INCLUDING AN
ATTORNEY.”


Be aware

ALL PARTIES HAVE SIGNIFICANT
RESPONSIBILITIES UNDER THE MEDICARE
SECONDARY PAYER (MSP) LAWS TO PROTECT
MEDICARE'S INTERESTS WHEN RESOLVING
CASES THAT INCLUDE FUTURE MEDICAL
EXPENSES


What do we need to know?

THE CLAIMANT IS CURRENTLY A MEDICARE BENEFICIARY AND
THE TOTAL SETTLEMENT AMOUNT IS GREATER THAN $25,000; OR

THE CLAIMANT HAS A “REASONABLE EXPECTATION” OF MEDICARE
ENROLLMENT WITHIN 30 MONTHS OF THE SETTLEMENT DATE
AND THE ANTICIPATED TOTAL SETTLEMENT AMOUNT FOR FUTURE
MEDICAL EXPENSES AND DISABILITY/LOST WAGES OVER THE LIFE
OR DURATION OF THE SETTLEMENT AGREEMENT IS EXPECTED TO
BE GREATER THAN $250,000


WHAT DOES “REASONABLE EXPECTATION OF
MEDICARE ENROLLMENT” MEAN?

 (a) The individual has applied for Social Security Disability benefits;

 (b) The individual has been denied Social Security Disability benefits
but anticipates appealing that decision;

 (c) The individual is in the process of appealing and/or re-filing for
Social Security Disability benefits

 (d) The individual is 62 years and 6 months old (i.e. may be eligible for
Medicare based upon his/her age within 30 months;

 (e) The individual has a End Stage Renal Disease (ESRD) condition but
does not yet qualify for Medicare based upon ESRD


Be smart, use annuities

PAYMENTS OVER LIFE EXPECTANCY

MSA USES FUTURE PAYMENT VALUE NOT PRESENT VALUE

CREATES ADMINISTRATIVE MECHANISM FOR PAYMENTS


Annuity MSA Example
 STEP 1 - TOTAL ESTIMATED FUTURE MEDICAL SERVICES AND FUTURE
PRESCRIPTION DRUG EXPENSES COVERED BY MEDICARE $174,775.81

 STEP 2 - COST OF FIRST SURGERY PROCEDURE/REPLACEMENT $10,874.23

 STEP 3 - SUBTRACT STEP 2 FROM STEP 1 $163,901.58

 STEP 4 - DIVIDE ABOVE BY LIFE EXPECTANCY (35) TO GET ANNUAL
MEDICAL AND PRESCRIPTION DRUG COSTS AND MULTIPLY THE AMOUNT
BY TWO. ($163,901.58/35) - $4,682.90 X 2 = $9,365.80


Example Continued
 STEP 5 - SEED MONEY TO BE DEPOSITED UPON SETTLEMENT IS EQUAL TO
$20,240.03 THE SUM OF THE AMOUNTS CALCULATED IN STEPS 2 AND 4
ABOVE ($10,874.23 + $9,365.80)

 STEP 6 - SUBTRACT SEED MONEY FROM TOTAL WCMSA (STEP 1) DIVIDE
BY LIFE EXPECTANCY MINUS ONE (35 - 1) TO CALCULATE MINIMUM
ANNUAL DEPOSIT FOR THE BALANCE OF CLAIMANT’S LIFE $4,545.17

 DEPOSIT MUST BE MADE NO LATER THAN ONE (1) YEAR FROM DATE OF
SETTLEMENT


Example Continued

ANNUITY COST FOR ANNUAL MSA PAYMENT

$75,734

ILLUSTRATIVE PURPOSES ONLY


TOTAL MSA COST
ANNUITY VS. CASH
MSA CASH COST: $174,775.81 (FROM STEP 1)

------------------------------

ANNUITY COST: $ 75,734.00

SEED MONEY: + $ 20,240.03 (FROM STEPS 2 & 4)

TOTAL MSA COST: $ 95,974.03

USING THE ANNUITY SAVES 45%

I don’t get it.

MEDICARE REQUIRES THAT YOU SET ASIDE THE FUTURE VALUE OF
MEDICAL CARE. IN OUR EXAMPLE: $174,775.81

THEY ALSO ALLOW YOU TO FUND THE FUTURE MEDICAL OBLIGATION BY
USING AN ANNUITY. THIS IS KNOWN AS A “STRUCTURED MSA.”

THE ANNUITY ALLOWS YOU TO GUARANTEE THE FUTURE PAYMENTS AT A
DISCOUNT.

MEDICARE ONLY CONCERNED ABOUT FUTURE MEDICAL COSTS, NOT THE
ANNUITY’S PRESENT CASH VALUE.


The rules save your client’s
money, but only if you use them

MSA SUBMISSION CAN BE “DO IT YOURSELF” OR OUTSOURCED FOR A FEE

THE MSA WILL REQUIRE MEDICAL UNDERWRITING (RATED AGE). USE
ANNUITIES AND GET YOUR BROKER INVOLVED EARLY.

THE PROCESS IS TIME CONSUMING.


Tips
KNOW YOUR MSA THRESHOLDS. IS YOUR CLIENT A CURRENT MEDICARE
BENEFICIARY, DO THEY HAVE A REASONABLE EXPECTATION OF BECOMING ONE?

YOU WILL NEED MEDICAL UNDERWRITING. CONTACT YOUR BROKER EARLY.

COMPLETE THE MSA IN-HOUSE OR OUTSOURCE? YOUR BROKER SHOULD BE ABLE TO
HELP YOU WITH THIS.

MANAGE CLIENT EXPECTATIONS. STRUCTURED MSA SAVINGS WILL BE
SIGNIFICANT, BUT COMMUNICATE CASH COSTS UNTIL PROGRAM IS FINALIZED.


Questions?

WBFAZIO@AOL.COM


Save Your Client\'s Money With MSA

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