Counsel for Paul, a 35-year-old steelworker injured in an auto accident, tentatively settles his personal injury claim for $700,000. Paul's union insurance has paid his medical bills. But even so, the defendant's insurance carrier - who is funding the settlement - demands that Paul establish a Medicare set-aside (MSA) before it will cut a check. Is this a reasonable request, or a deal breaker? And will the answer change if the plaintiff were Jean, a 70-year-old Medicare recipient?
Medicare as Secondary Payer
In personal injury cases, Medicare is entitled to reimbursement for medical expenditures "conditionally" paid on behalf of the injured person (that is, sums paid out in cases in which there is proof that no primary medical coverage exists, or if it does, that it has been exhausted). The reimbursement is commonly paid from the recovery in the case. Insurance carriers and injured parties both bear the repayment obligation, which has existed since 1980. (See 42 U.S.C. § 1395y(b)(2)(B)(ii).)
Recent amendments provide that the reimbursement amount due must be posted on Medicare's website in a timely fashion. (See the Medicare IVIG Access and Strengthening Medicare and Repaying Taxpayers Act of 2012 (HR 1845), commonly referred to as the Smart Act.) Even more recently, Medicare has focused on assuring that it bears only secondary-payer status as to a claimant's future accident-related expenses as well.
When an injury claim is resolved, the rules require insurers to transmit identifying information about Medicare recipients (such as 70-year-old Jean) to the Department of Health and Human Services (DHHS), so that Medicare is aware of the settlement. (See 42 U.S.C. § 1395y(b)(8)(A).)
But these laws could impact Paul too because if he obtains Social Security Disability Insurance (SSDI) payments in the future, he would be entitled to Medicare after 24 months. (See 42 U.S.C. § 426(b)(2)(A).) Given that possibility, Paul's adversary may be concerned about possible Medicare-reimbursement obligations, particularly given the DHHS's published notice about potential rule making in this area (discussed below).
Using Medicare Set-Asides
MSAs are one means of assuring that Medicare remains only a "secondary payer" of future accident-related medical expenses. To create an MSA, the injured person's estimated future treatment expenses are deposited, or otherwise set aside from claim proceeds, into a separate fund from which the injured person pays future treatment costs until the fund is exhausted, instead of billing Medicare.
First recognized by Medicare in 2001 in workers compensation cases, MSAs are now required in those cases if the settlement exceeds $25,000 for Medicare recipients, or $250,000 for non-recipients with a "reasonable expectation" of Medicare eligibility within 30 months.
MSAs in Personal Injury Cases
MSAs have occasionally been utilized by stipulation in personal injury cases. (See Smith v. Marine Terminals of Arkansas
, 2011 WL 3489806 (E.D. Ark. 2011).) But they are not required in those cases. (See Sipler v. Trans Am Trucking, Inc.
, 881 F. Supp. 2d 635, 638 (D.N.J. 2012).) Nor is there even any mechanism for Medicare to approve an MSA's sufficiency in personal injury cases. (See Schexnayder v. Scottsdale Ins. Co.
, 2011 WL 3273547 (W.D. La. 2011).)
Contemplating potential use of MSAs in personal injury cases, DHHS solicited public comment two years ago. (See 77 Fed. Reg. 35917-02 (June 15, 2012).) However, thus far no regulations have been issued.
As noted above, liability insurance carriers bear a reporting obligation when paying claims of existing Medicare recipients. Equally important, they must also assure that Medicare is duly reimbursed for expenses incurred to date. (See 42 U.S.C. § 1395y(b)(2)(B); 42 C.F.R. § 411.22.) However, under existing regulations and case law, insurance carriers bear no responsibility to assure that either Paul or Jean establishes an MSA.
How, then, should a lawyer advise Paul or Jean to deal with a defense demand for an MSA? Some might cautiously counsel both to agree to follow the workers compensation guidelines for MSAs. Others might advise them to refuse, asserting that they bear no such obligation in a personal injury case. And still others might offer a counterproposal: a release term stipulating that the plaintiff will comply with the law, including preserving Medicare's status as a secondary payer, as appropriate.
Without an MSA, how should plaintiffs handle future medical bills? There is no clear answer. Some attorneys might counsel plaintiffs to self-pay bills, thus avoiding potential Medicare-reimbursement claims. Others might recommend billing Medicare, as there is no prohibiting regulation. But a caveat to this latter option: The client may wish to maintain a segregated savings account sufficient to reimburse Medicare, if future regulations require it.
Differing approaches on this subject will likely remain the norm until the federal government issues definitive regulations.
James P. Larsen, a partner at Gillin, Jacobson, Ellis, Larsen & Lucey in Orinda, specializes in personal injury cases.