Medicare Set Aside Bulletin Coordination of Benefits, the ESRD Exception and Reasonably Considering Medicare's Interests

Issue #2 February 18, 2005

(Revised February 21, 2005)

COORDINATION OF BENEFITS, THE ESRD EXCEPTION AND REASONABLY CONSIDERING MEDICARE'S INTERESTS

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

Introduction

Many worker's compensation and third party liability settlements involve claimants or plaintiffs who have access to more than one source for payment of their injury related medical expenses. The claimant or plaintiff in a particular case may be eligible for Medicare benefits or may become eligible for Medicare soon after settlement. In addition, the claimant or plaintiff may have access to coverage under a spouse's group health plan (GHP); or to continued coverage by the claimant's or plaintiff's own GHP. In such cases, it is important to consider the coordination of these various available medical benefits to ensure that the settlement adequately provides for the claimant's or plaintiff's future needs.

A full discussion of the laws governing coordination of benefits is beyond the scope of this article. Rather, this article will concentrate on the issue of coordination of benefits in the case of a Medicare beneficiary who is eligible for Medicare due to end stage renal disease (ESRD).

Coordination of Benefits and the ESRD Exception

Federal laws governing the coordination of medical benefits provided under coexisting benefit packages, such as Medicare, group health insurance and worker's compensation, are extremely complex. This is because the law of "coordination of benefits" involves the interaction of federal statutes enacted under three distinct pieces of legislation: the Omnibus Budget Reconciliation Act of 1993 (OBRA '93); the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA); and the Health Insurance Portability and Accountability Act (HIPAA). Each of these groups of federal statutes deals with a separate component of the coordination of benefits concept, making it difficult at times to understand just how they all work together.

The OBRA '93 revisions to the Medicare Secondary Payer statute define circumstances in which Medicare is a primary or secondary payer with regard to group health plans, or liability, no-fault or worker's compensation plans. COBRA's amendments to the Employee Retirement Income Security Act (ERISA) are primarily concerned with providing a means to extend coverage under group health plans upon termination of employment status. HIPAA sets forth the law applicable to people who change from one type of health coverage to another. It is particularly important in the context of a worker's compensation or third party liability settlement to understand how payment of the claimant's or plaintiff's medical benefits available from various entities coordinate with benefits available under Medicare.

Federal law provides that Medicare is always the secondary payer (except in specific circumstances) when a payment has been made or can reasonably be expected to be made for an item covered under a group health plan, a worker's compensation law or plan, a liability policy or plan, or under no-fault insurance. 42 U.S.C. §1395y(b)(2)(A). The only exceptions to this general rule have to do with Medicare's relationship to group health plan (GHP) coverage. Where the third party payer is a workers' compensation law or plan, a liability policy or plan, or no-fault insurance, Medicare will always be secondary.

One exception to the general rule that Medicare is always the secondary payer involves persons entitled to Medicare benefits because of ESRD. If the ESRD beneficiary is covered under any GHP, Medicare will be secondary with regard to the GHP for the first 30 months of Medicare eligibility only. 42 U.S.C. §1395y(1)(A)(iv), (1)(B)(ii) & (1)(C). After that, Medicare becomes the primary payer with regard to the GHP. Id.

The provisions in the statute that set forth the exception for ESRD patients state that the ESRD exception "shall apply . . . to an item or service furnished in a month to an individual if for the month the individual is entitled to [Medicare] benefits" because of ESRD. 42 U.S.C. §1395y(1)(A)(iv), (1)(B)(ii). The Medicare secondary payer regulations also provide that, except for certain persons with dual eligibility for Medicare effective before August 9, 1993, the ESRD exception applies, "without regard to the number of individuals employed and irrespective of employment status". 42 C.F.R. §§411.100(a)(1)(ii) & 411.163. As a result, the ESRD exception affects even small GHP's and GHP's providing extended coverage under COBRA.

This exception regarding ESRD patients is perhaps the least understood and the least discussed by Medicare Set Aside practitioners. However, the ESRD exception deserves discussion, since ESRD can occur as the result of a work related injury or a non-work related injury for which a third party may be liable.

The ESRD exception to Medicare as secondary payer only applies to GHP's. This is precisely because the liability of a GHP is contractual only. An employer's or carrier's liability under a worker's compensation plan, or a third party tortfeasor's liability or that of the tortfeasor's liability insurance or no-fault insurance carrier, is based on statute or common law. These laws evolved under the theory that the employer or third party tortfeasor is responsible for having caused the injury that resulted in the claimant's or plaintiff's need for medical care. The employer, third party tortfeasor, liability insurance carrier, workers' compensation carrier or no-fault insurance carrier will always be primary to Medicare for so long as these third party payers have the legal obligation to cover the medical damages of the claimant or plaintiff.

Generally, this is not true for a GHP. A GHP is not required by law to cover a beneficiary's medical expenses for the rest of the beneficiary's lifetime; until the beneficiary reaches age 65; or until a settlement is reached or a jury returns a verdict. A GHP may terminate benefits for a variety of reasons, such as non-payment of premiums, termination of the beneficiary's group eligibility after leaving employment, or the expiration of the beneficiary's subsequent COBRA extension period.

In the case of an ESRD patient, the cost of dialysis over the life of the patient will be tremendous. Under both Medicare and GHP plans, ESRD benefits are among the most expensive. As a result, a GHP will not continue such costly coverage for a beneficiary any longer than the law requires. Similarly, Medicare has an interest in delaying coverage for so long as a GHP is required to provide it.

In many cases where the claimant or plaintiff has GHP coverage for ESRD costs, that coverage is provided under a COBRA extension. COBRA's usual extension period is 18 months following the termination of the beneficiary's GHP eligibility.

However, COBRA provides a longer extension period of 30 months for persons who become disabled and apply for SSDI within the first 60 days of the COBRA extension period. Therefore, for ESRD patients who can no longer work due to their disabilities, it is important to file for SSDI benefits as soon as possible to extend the COBRA period, even though they may already be eligible for Medicare due to ESRD.

During the COBRA extension period, the GHP must continue to provide the same coverage to the beneficiary, as long as the beneficiary pays his or her premiums. However, once the COBRA extension period expires, the GHP can and will terminate the beneficiary's medical coverage altogether. Unless the beneficiary then has access to coverage under a spouse's GHP, that beneficiary will be virtually uninsurable.

To reduce costs to Medicare, while accommodating the ESRD beneficiary's continuing need for medical coverage, the law has created an exception to Medicare's status as secondary payer for ESRD beneficiaries. Thus, if a Medicare beneficiary with ESRD has coverage under a GHP, Medicare retains its status as secondary payer for the first 30 months. After that, Medicare becomes primary payer. However, this exception applies only to GHP's, the only third party payers not legally liable to provide coverage beyond contractual or COBRA requirements.

Even during the period in which the GHP is primary to Medicare, the GHP will not generally be required to cover medical expenses that are covered under worker’s compensation (WC). If the beneficiary is receiving medical benefits under a WC plan, the GHP can, and usually will, deny coverage.

Any payment that the GHP might make for injury related medical expenses in this situation will be subject to the GHP’s right of subrogation or indemnity, giving it the right to assert a lien against the proceeds of any later WC settlement or award. Similarly, if a GHP is paying for injury related medical care that is the subject of a beneficiary’s third party liability (TPL) claim against a third party torfeasor, GHP payments will generate a subrogation claim or lien against any eventual judgment or settlement of the TPL claim.

However, once the WC or TPL claim has been resolved by a judgment, settlement or award, the WC or TPL carrier will have no further responsibility to pay for the beneficiary’s injury related medical care. Payments by the GHP for injury related medical expenses after the judgment, settlement or award is final will no longer result in a subrogation claim or lien.

Reasonably Considering Medicare's Interests

Whenever a worker's compensation settlement involves a plaintiff or claimant who is eligible for Medicare, or who is reasonably expected to become eligible for Medicare within 30 months of a settlement worth more than $250,000, the Centers for Medicare and Medicaid Services (CMS) requires that the settlement and a Medicare Set Aside Arrangement be submitted for review. The settlement and the proposed Medicare Set Aside Arrangement must both reasonably consider Medicare's interest as secondary payer regarding future injury related medical expenses. Otherwise, Medicare will deny coverage of future injury related medical expenses until the entire settlement has been expended on the claimant's injury related medical care.

In a TPL settlement, CMS does not require submission or review of a formal Medicare Set Aside Arrangement. However, CMS does require that the portion of any TPL settlement allocated to compensate the plaintiff for future medical expenses must be spent on future injury related medical expenses before Medicare will resume payment for those services. Although a formal Medicare Set Aside Arrangement is not required, CMS must be notified of the settlement and its terms.

In either a WC or a TPL settlement, CMS requires that its interests be reasonably considered. Even in a TPL settlement where submission and review are not required, creation and funding of a Medicare Set Aside Arrangement of some type is still the safest method to provide a means for the plaintiff to track his or her payments from settlement proceeds for future medical expenses. Without proper documentation that the future medical expense allocation from a TPL settlement has been properly applied and administered, there is an increased risk that Medicare will deny coverage of future injury related medical expenses until the entire TPL settlement has been expended on the plaintiff's injury related medical care.

Generally, a Medicare Set Aside Arrangement must be adequately funded to pay for the claimant's or plaintiff's future injury related medical expenses of the type normally covered by Medicare over the remainder of the claimant's or plaintiff's life expectancy. At the same time, the claimant or plaintiff will need to retain a sufficient portion of settlement proceeds for his or her other needs, such as attendant care, unskilled nursing or home modifications. When submitting a Medicare Set Aside Arrangement to CMS for approval on behalf of a settling WC claimant, or when recommending an allocation to future Medicare-type medical expenses in a TPL settlement, a Medicare Set Aside professional must strike a balance between these competing interests.

The applicability of the ESRD exception in cases where a settling plaintiff or worker's compensation claimant has access to GHP or COBRA coverage can have profound effects on the cost to fund a Medicare Set Aside Arrangement. For example, knowing that Medicare will remain secondary to a GHP for up to 30 months after settlement, the settlement terms could provide that a small annuity be funded to guaranty payment of GHP or COBRA premiums for first 30 months and that a lump sum or structure provide funding thereafter for future injury related medical expenses of the type normally covered by Medicare for the remainder of the claimant's or plaintiff's life expectancy.

So long as the GHP policy covers at least what Medicare would cover for the first 30 months, this arrangement would reasonably consider Medicare's interest in preventing a shifting of responsibility for future medical expenses from the carrier to Medicare. Plainly, the cost of providing GHP or COBRA premiums for the first 30 months would be significantly lower than the cost of fully funding the Medicare Set Aside Arrangement to cover all of the claimant's ESRD related medical expenses for that same period of time, even at worker's compensation schedule rates.

Conclusion

This complex area of the law provides quite a challenge to the Medicare Set Aside professional. It is difficult to grasp, understand and apply. However, it also opens up possibilities for reducing the cost of funding a Medicare Set Aside Arrangement as part of a settlement. The complexity of the law and the need to prevent overfunding of Medicare Set Aside Arrangements argue in favor of an interdisciplinary approach to Medicare Set Aside practice.

Most attorneys are not experts at projecting future medical costs; and most life care planners and allocators are not legal experts. A life care plan or Medicare Set Aside Allocation Report for an ESRD patient will virtually always project huge costs for future injury related medical treatment. If the Medicare Set Aside proposal is based on the life care plan or allocation alone, CMS would certainly require a similarly huge amount to fund the Medicare Set Aside Arrangement. This may not always represent a fair consideration of the interests of the claimant or plaintiff.

Nonetheless, a life care plan or Medicare Set Aside Allocation Report will be needed as part of a submission to obtain CMS review of any WC Medicare Set Aside Arrangement. Similarly, a life care plan or allocation will be an important part of the documentation that may be needed to demonstrate a reasonable consideration of Medicare's interests in a TPL settlement. A life care planner or allocator will have the expertise needed to prepare the life care plan or allocation, but may not have a thorough understanding of laws that could justify a smaller set-aside amount than that suggested by the life care plan or allocation.

An attorney who understands the coordination of benefits laws can advocate for a less costly Medicare Set Aside Arrangement. Armed with a thorough and credible life care plan or allocation, the attorney can propose a Medicare Set Aside Arrangement that will be acceptable to Medicare and will leave the plaintiff or claimant with sufficient funds to pay for non-Medicare covered needs.

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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BIG NEWS!

The "National Alliance of Medicare Set-Aside Professionals" Launches the First Non-Profit Organization Dedicated to Serving the Medicare Set Aside Industry!

On February 15, 2005, the National Alliance of Medicare Set-Aside Professionals (NAMSAP) announced its official launching. NAMSAP is the first non-profit organization in the country dedicated to serving professionals in Medicare Set Aside practice. For complete information about NAMSAP, visit their web site: www.namsap.org

Introducing the Medicare Set Aside Arrangements BBS! We have created a forum where lay persons, professionals or anyone else may post questions, comments and news about Medicare Set Aside issues. Please visit, register, log in and share your thoughts, questions and experience. The Medicare Set Aside Arrangements BBS is located at the following URL:

http://jjcelderlaw.netfirms.com/ElderLawForum/nfphpbb/

We look forward to hearing from you!

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