Issue #51     February 20, 2009
 

SOCIAL SECURITY, MEDICARE BENEFITS AND MEDICARE SET-ASIDE ARRANGEMENTS FOR MINOR CHILDREN

 

By, John J. Campbell, CELA, MSCC

INTRODUCTION

 

            Ever since the first Medicare Set-Aside Arrangement (MSA) was submitted and approved in a workers’ compensation (WC) settlement in 1995, MSA professionals have been aware that a seriously disabled worker may be able to qualify for Medicare before age 65.  However, this is only considered likely where the injured worker is over age 21 and has sufficient work credits to qualify for Social Security Disability Insurance Benefits (SSDIB).

 

            Now that the use of MSAs in liability settlements is becoming more common, MSA professionals are increasingly facing the scenario where the injured plaintiff is actually a minor child.  It is important in this context to understand that certain disabled children may be likely to become eligible for Medicare, even before reaching age 21, without ever having worked at all.  When a liability claim for such a child is settled, failure to reasonably consider Medicare’s interests as secondary payer following the settlement could have disastrous consequences.

 

            This article will discuss the eligibility requirements and basic workings of SSDIB and Social Security’s Childrens’ Disability Benefit (CDB) program; the relationship of CDB to Medicare; and when to consider a Medicare Set-Aside Arrangement in the context of a liability settlement involving a disabled child.

 

SSDIB

 

            The Social Security Disability Insurance Benefit (SSDIB) is an income benefit from Social Security available to blind or disabled persons under age 65 who have earned a sufficient number of work credits.

 

            Disability is determined according to the criteria in §1382c(a)(3) of the Social Security Act.  To be considered “disabled”, an individual must have a diagnosed medical condition (including mental illness) that has lasted or is expected to last at least 12 months or to result in death.  Further, the individual must be unable to engage in substantially gainful activity due to his or her medical condition.  Generally, a person is deemed to be engaging in substantially gainful activity if he or she is able to earn at least $980 per month in 2009 ($1,640 for a blind individual). 

 

            There is a 5-month waiting period from the date of eligibility before payment of SSDIB benefits begins.  The date of eligibility can be no earlier than the date of the onset of disability.  However, it can be later if the individual delays in filing an application for benefits.  While benefits can be awarded retroactively, the date of eligibility can be no earlier than 17 months prior to the application date, meaning that retroactive benefits may not begin earlier than 12 months prior to application, after the 5-month waiting period has expired. 

 

            To qualify, a disabled individual must also have sufficient work credits (formerly referred to as “qualifying quarters”) under the Social Security system.  An individual earns one work credit for each calendar quarter in which he or she earned sufficient income to qualify for the credit.  In 2009, one must earn $1,090 in any calendar quarter to earn a work credit for that quarter.    

 

            There are actually two tests for sufficient work credits.  First, the individual must be “fully insured” in the first month of the SSDIB waiting period, meaning that the individual must have at least one work credit for each year from the year after attaining age 21 until the date of disability.   

 

            Further, the individual must have sufficient work credits in the years immediately preceding the date of disability.  The number of qualifying quarters needed to qualify for SSDIB benefits depends upon the age of the person when he or she becomes disabled.  If the person is age 31 or older, he or she will need at least 20 qualifying quarters within the 10 year period immediately preceding his or her application for SSDIB.  Persons under age 24 will need only 6 qualifying quarters; and persons between the ages of 24 and 31 will need enough qualifying quarters to account for having worked half of the time between age 21 and their age at the onset of disability. 

 

            SSDIB does not pay for medical care.  However, after an individual has maintained SSDIB eligibility for at least 24 consecutive months, the individual will automatically become eligible for Medicare.  For SSDIB beneficiaries with amyotrophic lateral sclerosis (ALS), this 24 month waiting period is waived.

 

CDB

 

            The Chidrens’ Disability Benefit (CDB) program is similar to SSDIB, but is designed for those who are disabled in childhood and cannot attain sufficient work credits to qualify for SSDIB.  Qualification for CDB requires that the beneficiary be considered disabled under the Social Security Act, as with SSDIB.  Further, the beneficiary must be age 18 or older and he or she must have become disabled prior to age 22.

 

            CDB beneficiaries must qualify based upon the work credits of a parent.  That is, the child must have a parent who qualifies for Social Security Retirement Insurance Benefits (RIB) or SSDIB; or who is deceased and was either fully or currently insured as of the date of death.  Fully insured status requires that the deceased parent had at least one work credit for every year from the year after attaining age 21 until the year of death.  Currently insured status requires that the decease parent have at least 6 work credits during the 39-month period immediately preceding the date of death.

 

            Unlike SSDIB, there is no 5-month waiting period for CDB.  Once a disabled child reaches age 18 (or becomes disabled between age 18 and 22), he or she can begin receiving benefits immediately if an application is filed at that time.  If the application is delayed, benefits can be awarded retroactively for up to 6 months (where the child is qualifying on the work record of a decease parent or a parent on RIB) or up to 12 months (where the child is qualifying on the work record of a parent on SSDIB).

 

            As with SSDIB, a CDB beneficiary will become eligible for Medicare after 24 months of continuing eligibility (but no earlier than age 20), unless the beneficiary is diagnosed with ALS, in which case the beneficiary will qualify for Medicare at the same time as he or she qualifies for CDB.  Medicare eligibility includes eligibility for Medicare Part A (hospital insurance), and for enrollment in Medicare Part B (medical insurance) and Medicare Part D (prescription drug coverage).  Thus, an individual qualifying for Medicare as the result of CDB eligibility will have the same coverage, co-pays and deductibles as an adult age 65 or an adult qualifying through SSDIB.

 

MEDICARE SET-ASIDES FOR MINOR PLAINTIFFS

 

            Since 1980, the Medicare Secondary Payer (MSP) Statute (42 U.S.C. §1395y) has provided that Medicare will not pay for items or services that have been paid or can reasonably be expected to be paid by a WC plan or by automobile, liability or no-fault insurance (including self-insured plans).  There is no difference in treatment under the statute between WC and liability plans. 

 

The Centers for Medicare & Medicaid Services, the federal agency which administers Medicare, has encouraged the use of MSAs in WC settlements for more than 12 years, although CMS’ first policy memorandum on this issue was not published until July, 2001.  To date, CMS still has not published policies or procedures for the use of MSAs in liability settlements, but representatives from CMS have indicated that Medicare’s interests as secondary payer must always be reasonably considered.  Further, several of the CMS Regional Offices have been reviewing MSA proposals in liability settlements on a discretionary basis since at least 2007 (which would not be the case unless CMS’ Central Office in Baltimore granted the Regional Offices authority to do so).

 

With CMS increasing its ability to enforce its powers and protect its interests under the MSP Statute through mandatory insurer reporting, there can be little doubt that policies and procedures for the use of MSAs in liability settlements are being developed and that these policies and procedures, representing CMS’ official position on the issue, will be published in the foreseeable future.  In the mean time, cautious practitioners, plaintiffs, insurance carriers and their counsel have begun to recognize that they are in the same situation as existed in the WC industry immediately prior to July, 2001:  the MSP statute’s provisions apply whenever there is a payment, such as a settlement of a claim, and they have done so for over 20 years, but CMS has not yet spoken officially on how it expects its interests to be considered in liability settlements.

 

In this situation, these entities have been increasingly looking to MSA professionals to assist them in ensuring that their liability settlements are completed properly so as to prevent future liability and loss of benefits under the MSP provisions.  As with the WC situation pre-2001, the most effective way to ensure an MSP-compliant settlement is through the funding of an MSA.

 

As MSA professionals have found themselves dealing with more liability settlements, they have also found themselves dealing with issues that rarely, if ever, arise in the context of a WC settlement.  One of these issues involves the phenomenon of dealing with large settlements of catastrophic liability cases for severely disabled children.  In these cases, MSA professionals must be able to recognize the signs of impending Medicare eligibility as well as they have learned to recognize these signs as they pertain to disabled, working adult WC claimants and liability plaintiffs.

 

Where a liability settlement involves a disabled minor child, MSA professionals will need to consider whether either of the child’s parents may currently qualify for RIB or SSDIB through Social Security.  They should also consider whether either parent may have severe disability or health issues that may result in a premature death.  Finally, they should consider whether amount of the settlement reasonably allocated to the plaintiff’s future injury-related medical care and prescription drugs of the type normally covered by Medicare will be significant enough that the settlement may not be completely exhausted on these expenses before the child reaches the age where he or she may qualify for Medicare through CDB eligibility.

 

All of these factors weigh in the decision to recommend for or against the creation and funding of an MSA in the context of the settlement.  It will be more likely that an MSA will be advisable where: the settlement is large; the child is closer to age 18; or one of the child’s parents has died or qualifies for RIB or SSDIB benefits or is likely to in the foreseeable future.  The weight to be give to each of these factors will depend upon the overall circumstances of each individual case.  Therefore, the MSA practitioner will need to develop the ability to effectively and thoughtfully analyze these issues independently and in context each time.    

 

When dealing with disabled children under age 18, it is also more likely than that the MSA practitioner will encounter eligibility issues regarding Supplemental Security Income (SSI) or Medicaid, simply because the rules governing these programs tend to make it easier for children to qualify than it does for adults.  Both SSI and Medicaid are means tested benefit programs, so the receipt of a large liability settlement without proper planning could result in a loss of benefits.  In such cases, it may be necessary for the MSA to be in the form of a Medicare Set-Aside Special Needs Trust to properly preserve all of the benefits to which the minor plaintiff may be entitled.

 

CONCLUSION

 

As the MSA industry expands into the area of liability settlements, MSA professionals will find that they will encounter many new issues due to differences between WC and tort law, as well as differences in the demographics of the plaintiffs involved.  How to properly deal with the unique public benefit issues arising in settlements involving disabled minors, as well as other issues unique to the liability area, such as comparative fault, tort damage caps and insurance policy limits, will be of vital importance.

 

The professionals who learn to understand and recognize these issues will be the leaders in the MSA field.  They, in turn, will be the ones most instrumental in influencing CMS’ development of policies and procedures governing the use of MSAs in liability settlements; and will likely be the ones that the settling parties turn to first to ensure that Medicare’s interests, as well as those of the settling parties, are reasonably considered and properly protected.  These will be the professionals who, when CMS finally does release official memoranda on policies and procedures for liability MSA’s, will be able to say:  “That’s what I have been advising my clients to do all along.”