Issue #17      July 18, 2005
 

CMS RELEASES NEW ANSWERS TO FREQUENTLY ASKED QUESTIONS REGARDING MEDICARE SET ASIDE ARRANGEMENTS

 

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

 

          On July 11, 2005, the Centers for Medicare and Medicaid Services (CMS) released its sixth and latest policy memorandum with answers to frequently asked questions (FAQ’s) on Workers’ Compensation Medicare Set-Aside Arrangements (WCMSA’s).  The fifteen new FAQ’s clarify two existing policies; amend or replace three previously published FAQ’s; and introduce ten new CMS policy statements.

 

          The new FAQ’s provide clarification of CMS’ review criteria for WCMSA’s and add new review criteria for low-dollar settlements.  The new memorandum stresses that the review criteria are “workload review thresholds” only and do not represent a safe harbor.  All WC settlements of future medical expenses must still reasonably consider Medicare’s interests.  This clarification suggests, but does not affirmatively state, that some sort of WCMSA should be established in any WC settlement in which Medicare’s interests are implicated.

 

          Existing CMS review criteria provide that a WCMSA need not be submitted to CMS for review unless the WC settlement of future medical expenses involves a claimant who is already eligible for Medicare; or the claimant is reasonably expected to become eligible for Medicare within 30 months of the settlement and the entire, uncommuted value of the settlement exceeds $250,000.  The new memorandum now exempts WC settlements, submitted after July 11, 2005 for existing Medicare beneficiaries, from CMS’ review requirement if the total uncommuted value of the beneficiary’s settlement is less than $10,000.

 

          CMS also stresses that the review criteria are subject to change at any time by the agency.  Claimants and professionals are urged to monitor CMS’ web site regularly for any changes in the workload review thresholds.

 

          The new FAQ memorandum provides additional clarification regarding the contents of a WCMSA submission.  This clarification consists of a statement directing the reader to the sample WCMSA proposal that was posted on CMS’ web site in May, 2005.  CMS invites comments or suggestions regarding this sample submission by e-mail to:  mspcentral@cms.hhs.gov.

 

          CMS has also amended its existing policy regarding use of WCMSA funds before the claimant qualifies for Medicare benefits.  Previously, CMS’ position was that no funds in the WCMSA may be   used for the claimant’s work injury-related medical expenses of the type normally covered by Medicare prior to the claimant’s Medicare eligibility.  The new memorandum provides that WCMSA funds may now be used for such expenses prior to Medicare eligibility, since the WCMSA funding amount would have been calculated from the date of settlement, rather than the date of eligibility.

 

          In a new and related statement of policy, CMS also will allow the WCMSA to continue paying for the claimant’s work injury-related, Medicare-type expenses if the claimant loses Medicare eligibility following CMS approval of the WCMSA.  The rationale is that the amount CMS would have approved for funding of the WCMSA would have been based upon projected expenses over the claimant’s lifetime, without regard for possible periods of ineligibility.

 

           In its April 21, 2003 memorandum, CMS indicated that it might consider reduction of a WCMSA where the claimant’s medical needs may not be as great as anticipated at the time of settlement.  The new memorandum amends this policy by stressing the point that a WCMSA administrator may not simply distribute any funds deemed in excess of the claimant’s needs without CMS approval; and by providing some specific guidelines on how to obtain CMS approval of such a reduction in WCMSA funds. 

 

          To obtain CMS approval for a reduction in a WCMSA, the claimant’s treating physician must have reached the conclusion that the claimant’s medical condition has substantially improved.  The claimant must then submit a new WCMSA proposal through the Coordination of Benefits Contractor (COBC).  The new submission must justify a reduction of at least 25% of the outstanding WCMSA funds or no reduction will be allowed.  Finally, CMS will not consider any such proposal unless at least five years have elapsed since CMS’ previous WCMSA approval letter.  CMS’ decision on any such submission, as with an initial WCMSA submission, is not subject to administrative appeal.

 

          While there are no appeal rights from an unfavorable determination regarding any WCMSA submission, CMS’ new memorandum discusses options for dealing with such an unfavorable determination.  The claimant may contact the CMS Regional Office (RO) that issued the initial determination to obtain a clarification; or to correct any obvious errors or mistakes (e.g., mathematical errors, failure to recognize contents of medical records already submitted, etc.). 

         

          If the claimant disagrees with CMS’ interpretation of the evidence or if additional evidence would warrant a change in CMS’ initial determination, the claimant may resubmit the case with the additional evidence and request a re-evaluation.  The claimant must clearly designate the resubmission as a request for re-evaluation; and must direct the resubmission through the COBC.  The resubmission will be treated as a new submission and will be processed in order of receipt.

 

          CMS correctly points out that a claimant does have appeal rights in the event Medicare denies a specific claim for payment of a Medicare-covered item or service.  If CMS denies a claim on the basis that WCMSA funds have not been completely exhausted, that decision may be appealed through Medicare’s administrative appeal process.

 

          The new CMS memorandum amends the policy stated in the original July 23, 2001 memorandum regarding a mechanism for transfer of additional funds to the WCMSA for items or services that may later become covered by Medicare.  The new memorandum provides that items or services not covered at the time of the initial WCMSA approval, but which later become covered by Medicare, will continue to be the responsibility of claimant.  CMS will treat funds allocated to such payments in the original WC settlement as being part of the WCMSA, although those funds need not actually be transferred to the WCMSA or included in annual WCMSA accountings.  Presumably, when the WCMSA is exhausted, Medicare will begin coverage of work injury-related medical expenses, including items or services that may not have been covered by Medicare at the time the original WCMSA was created and approved.

 

          CMS also addresses new policy regarding situations in which the parties to a WC claim may wish to settle the indemnity portion of the claim while awaiting CMS approval of a WCMSA; or in which the parties may wish to proceed with complete settlement of the indemnity and future medical portions of the claim prior to CMS approval of a proposed WCMSA.  CMS allows the parties to proceed with settlement under either scenario.  However, all portions of the settlement must be considered in arriving at the settlement’s uncommuted value for purposes of the workload review thresholds, even if the settlement is accomplished in piecemeal fashion.  Further, if the amount initially proposed is not approved by CMS, proof must be supplied that the WCMSA has been funded with the CMS approved set aside amount, or CMS may deny future payments until the entire settlement has been expended on future medical expenses.

 

          CMS has never specifically prohibited payment from WCMSA’s for taxes that may be due from the beneficiary on interest income earned by the WCMSA.  The new policy memorandum now affirmatively states that such tax payments are permissible as a “cost that is directly related to the account.”  Adequate documentation of the portion of the claimant’s income tax liability resulting from WCMSA income will be required as part of the annual accounting.

 

          The new memorandum from CMS also provides a new policy statement regarding the need for WCMSA’s where the claimant has other health insurance coverage through a Group Health Plan (GHP), a managed care plan or V.A. health benefits.  This new policy clarifies that a WCMSA is still appropriate, since these other health benefits are all primary to Medicare and could be canceled or reduced in the future.  The claimant could also elect not to take advantage of these benefits. 

 

          The new policy statement does not appear to address situations in which federal laws may require GHP coverage for a set period of time; the coverage is considered primary to Medicare during that period; the policy covers all needed items or services that would otherwise be covered by Medicare; and the coverage can be guaranteed during that period by arranging for prepayment of any necessary premiums as part of the settlement.  (E.g, where the claimant becomes eligible for Medicare due to end stage renal disease before electing to continue GHP coverage under COBRA for up to 30 months after termination of employment and COBRA premiums are guaranteed by a separate annuity or lump sum payment from the settlement.)

 

          CMS’ new FAQ’s also state the policy that CMS will not compromise the amount projected for future medical expenses.  CMS’ position is that the “compromise” language in 42 C.F.R. §411.47 only applies to overpayment of past medical expenses.  However, in a separate FAQ, CMS also states that it will consider the effect of state law on the employer’s or WC carrier’s underlying liability as a primary payer on a case-by-case basis.  Such restrictions on liability could justify a reduced set-aside amount.  A copy of the particular statute must be included with the WCMSA submission.  Presumably, CMS would also consider the effect of federal law on the employer’s or carrier’s liability under any WC plan “of the United States,” such as the Longshoremen’s and Harbor Workers’ Compensation Act.

 

          Finally, CMS’s new policy memorandum addresses the issue of the treatment of WCMSA’s as available resources to claimants who may also wish to maintain eligibility for SSI or Medicaid, in addition to Medicare.  The new FAQ’s acknowledge that the funds in many WCMSA’s may be considered available resources under SSI or Medicaid statutes and regulations unless the WCMSA is in the form of an exempt “special needs trust” under Section 17 of the Social Security Act (42 U.S.C. §1396P(D)(4)(a)).

 

          The new FAQ’s can be viewed on CMS’ web site at:  http://www.cms.hhs.gov; and the entire memorandum can be viewed at: http://www.jjcelderlaw.com/July-11-2005Memo.pdf .