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The uncertain future of Medicare set-asides: Medicare set-aside requirements, which lay dormant for two decades, have recently been revived in the workers' comp arena. Personal injury cases are next, but plaintiff lawyers needn't panic. The law is on their side.

Article Excerpt
Since passage of the Medicare Secondary Payer Act (MSP) in 1980, Medicare has had a right to reimbursement of monies it paid for medical care rendered to an injury victim and to have any recovery for the victim's future medical expenses used first before Medicare secondary coverage applies. (1)

Until recently, plaintiff attorneys paid little attention to this right because the agency that runs Medicare, the Center for Medicare and Medicaid Services (CMS)--part of the Department of Health and Human Services--did almost nothing to enforce it. But for years, Medicare has been hemorrhaging red ink, and Uncle Sam is now looking closely at the MSP to help stanch the flow.

Although enforcement efforts began nearly a decade ago, personal injury claimants have, until recently, been spared because CMS focused its attention on workers' compensation claims. Workers' comp practitioners, faced with the allegedly dire consequences of failing to follow the law's confusing dictates, often erred on the side of caution and did more than the law requires. And this behavior was reinforced by the sometimes misguided counsel of a growing number of businesses (MSP vendors) claiming to offer specialized knowledge of the law's requirements.

The government's enforcement regime, which could be imported into personal injury cases from the workers' comp system, is often unfair and burdensome, and at the same time ineffective. If properly applied, the MSP is sensible and reasonable in its aim of saving Medicare dollars and preventing double recoveries. But if the law is not upheld and government overreaching is allowed, then the result will be an expensive, unreasonable burden for all parties, especially injured people.

Essentially, the obligations of parties in tort litigation under the MSP fall into two spheres: protection of Medicare program interests with respect to benefits it has already paid at the time a personal injury case is resolved, and protection of Medicare interests with respect to post-resolution medical expenses. The obligations in the first sphere are similar to those involved in health insurance subrogation claims, which most plaintiff attorneys understand and have had some experience with.

Those in the second sphere are far more complicated. They derive from a provision in the MSP that provides that to the extent that the injured party recovers from the tortfeasor for future medical expenses that are within Medicare coverage categories (for example, hospitals, doctors, and diagnostics), the recovery must be used to pay the post-settlement accident-related medical expenses of the plaintiff until it is exhausted, and only then will Medicare coverage be available. (2) Here the law is largely undeveloped, and the amount of money involved is far greater.

According to CMS, the amount allocated to future medical expenses must be placed in a Medicare Set-Aside account (MSA). If the settling parties fail to indicate what amount represents future injury-related medical expenses, CMS insists that it will not only demand repayment of past medical expenses covered by Medicare but also treat the remainder of the settlement as money allocated to pay the plaintiff's future medical expenses. Consequently, the plaintiff will have to exhaust the entire settlement before Medicare coverage will be available.

This may be unwelcome news for plaintiff lawyers, but the MSP clearly requires an allocation for future medical expenses. This enables all concerned, CMS included, to know how much of the settlement must be spent on post-settlement medical expenses before Medicare's "secondary" (that is, excess) health coverage becomes operative. However, the law does not require a submission of the allocation to CMS for its approval.

On December 29, 2007, President Bush signed the Medicare, Medicaid, and SCHIP Extension Act of 2007 (2007 Extension Act), which will go into effect on July 1, 2009. It will require that Medicare be notified of all claims/settlements involving a Medicare beneficiary where the payer is a workers' compensation or a liability insurer, or a no-fault or self-insurance program. A failure to make a timely report can result in penalties, including a fine of $1,000 for each day of noncompliance for each individual for which the information should have been submitted.

To better understand the effect the MSP would have on personal injury litigation, consider how the law might work in hypothetical settlements.

Jasmine

Jasmine was 65 and retired when she flew...

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