Issue #1        February 14, 2005


By John J. Campbell, Esq., CELA, MSCC


            CMS has now announced officially that it will begin requiring Medicare Set-Aside Arrangements for future medical expenses in third party liability (TPL) settlements.  Until now, such arrangements have been required only in workers' compensation (WC) settlements where the claimant is currently eligible for Medicare; or where the claimant is reasonably expected to become eligible for Medicare within 30 months of the settlement and the entire value of the settlement, including indemnity, is greater than $250,000.  According to CMS, its newly announced position regarding TPL settlements is not new, but is based upon a statutory provision that has been in effect for over 20 years.  

The Medicare Secondary Payer (MSP) statute, at 42 U.S.C. §1395y(b)(2)(A) states:

Payment under this subchapter may not be made, except as provided in subparagraph (B), with respect to any item or service to the extent that. . .

(ii) payment has been made or can reasonably be expected to be made promptly (as determined in accordance with regulations) under a workmen's compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance.

          42 U.S.C. §1395y(b)(2)(A)(ii) (emphasis added).   CMS' position is based on its interpretation of the MSP statute as providing that a TPL settlement that closes out future medical expenses represents a situation in which "payment has been made" for an item or service otherwise covered by Medicare.   Thus, when a  TPL settlement closes out future medical expenses, CMS will require a Medicare Set-Aside arrangement funded with settlement proceeds to pay for future, injury-related medical expenses of the type normally covered by Medicare.

CMS' ability to be able to determine whether an allocation to future medical expenses in a settlement represents a reasonable consideration of Medicare's interests is based upon the MSP regulations that apply only to WC settlements.  In particular, those regulations, found only under the MSP regulatory provisions applicable to WC settlements, state:

§ 411.46 Lump-sum payments.

(a) Lump-sum commutation of future benefits. If a lump-sum compensation award stipulates that the amount paid is intended to compensate the individual for all future medical expenses required because of the work-related injury or disease, Medicare payments for such services are excluded until medical-expenses related to the injury or disease equal the amount of the lump-sum payment.

(b) Lump-sum compromise settlement.

(1) A lump-sum compromise settlement is deemed to be a workers' compensation payment for Medicare purposes, even if the settlement agreement stipulates that there is no liability under the workers' compensation law or plan.

(2) If a settlement appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for the treatment of a work-related condition, the settlement will not be recognized. For example, if the parties to a settlement attempt to maximize the amount of disability benefits paid under workers' compensation by releasing the workers' compensation carrier from liability for medical expenses for a particular condition even though the facts show that the condition is work-related, Medicare will not pay for treatment of that condition.

 42 C.F.R. §411.46.

These provisions in the MSP WC regulations provide the only authority for CMS to review the "reasonableness" of an allocation for future medical expenses or to disregard a settlement if it appears to be an attempt to shift responsibility for future medical expenses to Medicare.  Thus, CMS cannot legally make this determination in any settlement other than a WC settlement.  The same is true of the regulation that allows CMS to determine its own "reasonable allocation" of a settlement.  42 C.F.R. §411.47.  These regulations apply only to WC settlements.

CMS arguably appears to have the statutory authority, following a TPL settlement, to consider a portion of any TPL settlement allocated to future medical expenses as being a "payment that has been made" for an item or service covered by Medicare.  However, CMS does not appear to have any authority under statute or regulation to independently determine which portion of a TPL settlement represents payment for a future "item or service" absent an allocation in the settlement itself.  Further, CMS appears to have no authority in a TPL settlement to determine the reasonableness of the settlement's allocation to future medical expenses or to calculate its own allocation.

One option in dealing with CMS in a TPL settlement is not to make any allocation to future medical expenses.  It is possible that a failure to allocate may result in a denial of Medicare benefits to the plaintiff, leading to the necessity of appealing a denial of Medicare benefits for injury-related medical expenses.  Such an appeal may even lead to the necessity of filing an action in federal court to challenge CMS's decision.  

A more economical option may be to make a small allocation in your TPL settlement toward future medical expenses and submit a proposal to CMS to fund a small, self-administered, Medicare Set-Aside Arrangement with that nominal allocation amount.  Perhaps an allocation equaling the first year or two of projected Medicare-type expenses would be sufficient, even in a large TPL settlement.  Whatever the amount, CMS would arguably have no authority to question the amount or to determine whether it is "reasonable" in any given situation.



         John J. Campbell, the founder and principal attorney of the Law Offices of John J. Campbell, P.C., has practiced law for 19 years and has practiced in the area of Medicare Set-Asides since 1996.  Mr. Campbell is certified as an Elder Law Attorney by the National Elder Law Foundation;* and is a Medicare Set-Aside Consultant Certified (national certification through the Commission on Health Care Certification).*  Mr. Campbell is licensed to practice law in Colorado and is also licensed and on inactive status in Missouri.  He is a member of the Colorado Bar Association (Trust & Estate Section and Elder Law Section), the Arapahoe County Bar Association, the Missouri Bar Association, the National Academy of Elder Law Attorneys, The National Structured Settlements Trade Association and the National Alliance of Medicare Set-Aside Professionals.  His areas of concentration include elder law; estate, disability and long term care planning; probate; guardianship and conservatorship; Medicare, Medicaid, Medicare Set-Aside Arrangements, and the preservation of public benefits in catastrophic third party liability and worker’s compensation settlements.  Mr. Campbell has published numerous articles and has presented numerous seminars on issues relating to Medicare Set-Aside Arrangements across the country.


*The State of Colorado does not certify attorneys as experts in any field.



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