By Jennifer C. Jordan, Esq., General Counsel, MEDVAL LLC
Now that those involved in personal injury settlements, whether workers’ compensation or liability insurance based, have finally come to understand the Medicare Secondary Payer Act (“MSP”) to some extent, it appears that they have also begun to realize that the act of establishing a Medicare set-aside arrangement (“MSA”) may have detrimental results if consideration of anything other than Medicare’s interests are not taken. One such consideration should be Medicaid eligibility.
There are lots of statistics floating around these days about the number of baby-boomers becoming eligible for Medicare over the next ten years. Other statistics talk about the underperformance of 401Ks and the inability of most baby-boomers to retire when they expected. Put those two facts together and we have a growing aging work-force with limited assets who will be entitled to Medicare at age 65 regardless of their work status. If these individuals become injured on the job, they will forever lose Medicare coverage for treatment for that injury pursuant to the MSP and require an MSA if and when their workers’ compensation cases settle, and that MSA will be a disqualifying asset for Medicaid purposes if not handled properly.
While consideration of Medicare’s interest in the settlement of workers’ compensation cases has become a standard practice, not many people have really taken the time to understand what an MSA will do to qualification for Medicaid if those claimants find themselves in need of long-term care and do not have insurance for it, as many do not. An MSA is not in any category of protected asset and will count against a Medicaid applicant. If spent down improperly for purposes of Medicaid qualification, that individual would be excluded from Medicare coverage of treatment of the work-injury until it could be demonstrated that the amount set-aside was properly exhausted only on treatment related to the work-injury that would have otherwise been entitled to Medicare coverage. Unless you understand the interplay between Medicare and Medicaid, you might not think twice about this possibility at the time of the workers’ compensation settlement, and for an attorney, that is tantamount to malpractice.
When an individual is dually eligible for both Medicare and Medicaid, Medicaid actually serves as a supplement to the Medicare program. It provides for services that are not provided by Medicare, such as long term care and home health, and pays for Medicare premiums, deductibles and co-insurance at levels dependent on income. Furthermore, since the Medicare Modernization Act of 2003, all Medicaid beneficiaries enroll in Medicare Part D for prescriptions as well, so it is extremely likely that Medicare will have recoverable payments for a dually eligible beneficiary in an MSP situation. The assumption that many have when the issue comes up in workers’ compensation settlements is that losing Medicare is not an issue because they can just get treatment from Medicaid, which is not simply true and could be extremely detrimental to the claimant if not addressed.
Understand that CMS is aware of the potential for this situation occurring. Question 13 of its July 11, 2005 Frequently Asked Questions memorandum with regard to its voluntary WCMSA review program addressed it briefly, saying only that MSA funds are not subject to any special treatment and that a special needs trust (“SNT”) could possibly avoid disqualification. That’s not much comforting reassurance if you are facing potential malpractice if a client loses access to vital medical care.
42 U.S.C. § 1396p(d)(4) provides statutory exclusions for trusts that meet certain criteria where funds may be placed for the benefit of a disabled person in order to supplement their standard of living without otherwise disqualifying them from public benefits. Basically the trust pays for anything other than food, clothing or shelter, and if any funds remain upon death, the trust may be required to reimburse the state for the associated medical care that was provided. While the purpose of the SNT is to preserve access to state-provided medical care, payment for medical care from the trust would not be improper, just redundant, unless of course an individual is dually eligible for Medicare. The MSP gives Medicare a statutory right to priority recovery from insurance proceeds, and location inside the SNT cannot protect the funds from that right of recovery, but rather only from being counted as an asset. So not only would it be permissible to make MSA distributions from inside an SNT, it would be required if Medicare made conditional payments and sought recovery, thereby essentially having the same net effect.
While establishment of a 42 U.S.C. § 1396p(d)(4)(A) trust would be preferential to claimants as there is some potential for unused funds to revert to a designated beneficiary, the fact is that a (d)(4)(A) trust may not be financially practical in lower dollar settlements because of the administrative costs, or available where beneficiaries are over the age of 65 as contributions to a (d)(4)(A) trust would no longer be permissible. Pooled trusts, pursuant to 42 U.S.C. § 1396p(d)(4)(C), have lower costs associated with them as they are permitted to pool their assets for purposes of investment, and are permitted to take contributions without regard to age. However, funds remaining upon death remain with the trust or may potentially go towards repaying up to half of the remainder to the state, while typically nothing reverts to the estate. While it is difficult to be placed in a position of feeling like you cannot care for family upon death, this decision could be extremely costly to the family during one’s lifetime if handled improperly, access to long term care and/or medical care denied, and the expense of that flowing to the family instead.
Awareness that dual eligibility to Medicare and Medicaid is a potential problem in a personal injury settlement is only the first hurdle. With those of us currently involved in establishing those types of settlements without any precedent or guidance from the government, state or federal, there are still hurdles to overcome in sorting through the various conflicts of law between the MSP, Medicare policies, and each state’s individual Medicaid statutes and recovery rights. There is much to be developed in this area of law, but as was pointed out above, we should fully expect this to be a more frequent issue as the baby-boomer generation comes of age.
Click here to purchase The Complete Guide to Medicare Secondary Payer Compliance, Jennifer C. Jordan, Editor-in-Chief.
"The Complete Guide to Medicare Secondary Payer Compliance, by Jennifer C. Jordan, is an absolute gem of information and authority for anyone working in the MSP compliance industry, attorneys, carriers and judges. The range of topics included in the book and updates is a beacon of wisdom in the confusing MSP compliance field."
– Tim Nay, Esq. of the Law Offices of Nay & Friedenberg, Portland, Oregon, specializes in estate planning and elder law, and is a co-founder of the National Alliance of Medicare Set-Aside Professionals (NAMSAP).
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