For Medicaid in the community, or for long term care or HCBS benefits, all of a married couple’s resources are considered in determining Medicaid eligibility for either spouse, regardless of how those resources may be titled.  For Medicaid in the community, the resources of a non-eligible child who lives with the beneficiary will also be deemed to be available under SSI regulations.

 

Spousal Impoverishment Protections

 

          Federal law provides for special rules applicable to married couples, where only one spouse will be receiving Medicaid long term care or HCBS benefits.  These rules are designed to prevent the impoverishment of the non-beneficiary spouse.  Under the spousal impoverishment rules, the spouse receiving Medicaid long term care or HCBS is called the "institutionalized spouse."  The non-beneficiary spouse is called the "community spouse."  Spousal impoverishment protections do not apply to SSI or Medicaid in the community.

 

          The spousal impoverishment rules provide both resource protection and income protection for the community spouse.  The resource protection provisions permit the community spouse to retain resources in addition to the $2,000 in non-exempt resources that can be owned by the beneficiary.  The income protection provisions allow the community spouse to maintain minimum monthly income levels, which may include contributions of monthly income from the institutionalized spouse.

 

Resource Protection: The Community Spouse Resource Allowance (CSRA)

 

          In the case of a married couple, the community spouse can retain a certain amount of countable resources without affecting the institutionalized spouse’s Medicaid eligibility.  The amount retained is called the Community Spouse Resource Allowance (CSRA).  The CSRA is in addition to both the $2,000 the institutionalized spouse is entitled to retain and the exempt resources discussed above. 

 

          The minimum and maximum CSRA amounts are typically adjusted annually on the first of the year.  The CSRA is equal to of one-half of the couple’s non-exempt resources, or a minimum of $19,202, whichever is greater.  The maximum CSRA is $95,100.  In some states, the maximum CSRA of $95,100 is always permitted, regardless of the total amount of the couple’s assets.  The institutionalized spouse will be eligible for Medicaid when the couple’s total countable resources are equal to or less than the CSRA plus the $2,000 the institutionalized spouse is entitled to retain.

 

Income Protection: The Minimum Monthly Maintenance Needs Allowance (MMMNA) and the Monthly Income Allowance (MIA):

 

          The MMMNA is the amount of monthly income the community spouse needs to pay for his or her basic needs within the community.  Medicaid sets limits on this amount, which are adjusted on January 1 each year, although states have the option of delaying implementation of the adjustment until July 1.  The current MMMNA amount limits are:

 

                  Basic Allowance                                            $1,561.25

                             (This amount will increase

                             to $1,604 on July 1, 2005)

                    Plus Excess Shelter Allowance                                                          

                             House Payment/Rent plus Maintenance Fee

                             plus Insurance plus Taxes plus Utilities

                             (actual or $209, whichever is larger),

                             minus $468.38 equals Excess Shelter Allowance

                     Equals the MMMNA                                                                        

                   (But the MMMNA cannot exceed $2,377.50)

 

          The MIA is the amount of the institutionalized spouse’s income that is contributed to the community spouse if his or her income does not equal the MMMNA (MMMNA – the community spouse’s income = MIA).

 

          Sometimes, the community spouse's income is less than the MMMNA.  In these cases, the community spouse may request a Medicaid fair hearing to obtain an increase in the CSRA amount to provide the community spouse with additional resources with which to generate additional income necessary to meet his or her MMMNA.  In states using the "income first" rule, an increase in the CSRA is only available if the institutionalized spouse's income is insufficient to provide an MIA payment that will increase the community spouse's income to the MMMNA amount.

 

          Medicaid must also provide a family allowance for each dependent child, sibling or parent of the beneficiary who lives in the community spouse’s household.  The family allowance for each dependent is equal to the MMMNA, minus the dependent’s income, divided by three.

 

What is Medicare?

 

          The Medicare program was created in 1965 under Title XVIII of the Social Security Act as America’s first national health insurance plan for the elderly and disabled.  Medicare is fully a federally funded program and is governed solely by federal law.  Administration of the Medicare program is under the jurisdiction of the Centers for Medicare and Medicaid Services (CMS), a sub-agency of the United States Department of Health and Human Services.

 

          Medicare eligibility does not depend upon financial need.  Traditional Medicare is modeled after traditional fee-for-service health insurance plans.  Medicare covered services are limited and defined; and beneficiaries are responsible for paying deductible and coinsurance amounts.

 

          Traditional Medicare is divided into two separate insurance plans.  Medicare Part A, called “Hospital Insurance Benefits for the Aged and Disabled,” covers in-patient hospital stays, hospice, and some skilled home health care for home-bound beneficiaries.  Medicare Part A also provides limited benefits for patients receiving skilled nursing care in a skilled nursing facility (SNF).

 

          Medicare Part B is called “Supplementary Medical Insurance for the Aged and Disabled.”  Part B covers other medical costs, such as physician visits and services, outpatient care, clinical laboratory services, durable medical equipment, physical and occupational therapy, and some skilled home health care. 

 

          Individuals age 65 or older who also qualify for Social Security or Railroad Retirement benefits will qualify for Medicare Part A without having to pay a premium.  Individuals age 65 or older who do not qualify for Social Security or Railroad Retirement benefits may still obtain Medicare Part A coverage by paying a premium, the amount of which will depend on the number of their “qualifying quarters” of work.

 

          Medicare Part A is also available to disabled individuals who have qualified for Social Security Disability Insurance (SSDI) benefits for at least 24 consecutive months (the 24 month waiting period does not apply to individuals disabled with amyotrophic lateral sclerosis).  Finally, individuals of any age who are diagnosed with end stage renal disease may qualify for Medicare Part A in the third month after they begin receiving dialysis treatments.

 

          Anyone who is eligible for Medicare Part A (including those who could purchase Part A coverage for a premium, but choose not to do so) may enroll in Medicare Part B by paying a premium.  The basic premium amount in 2005 is $78.20 per month.  This amount is adjusted each year for inflation.  Beginning in 2007, the Part B premium will depend on the beneficiary’s income.

 

          For those who do not enroll in Medicare Part B during their initial enrollment periods, the monthly premium amount will be permanently increased.  The initial enrollment period begins 3 months before eligibility for Medicare Part A and extends for 6 months after Part A eligibility.

 

          There are many limitations on what Medicare covers.  Most significantly, Medicare Parts A and B do not cover skilled nursing in a SNF after the 100^th day; unskilled nursing; attendant or custodial care; and, with very few exceptions, outpatient prescription medications.

 

          The first significant change to the Medicare program came in 1997 with the advent of Medicare Part C, called “Medicare+Choice.”  Medicare Part C introduced the concept of managed care to the delivery of Medicare covered services.  The most prevalent types of Medicare+Choice plans were health maintenance organizations (HMO’s) and preferred provider organizations (PPO’s). 

 

          Under Part C, an HMO is required to provide coverage for all services covered under Medicare Part A and Part B which are available in the area serviced by the particular HMO.  Most Medicare HMO’s are “risk based,” meaning that the HMO is paid a set amount for each enrollee and must limit the costs of providing care to each enrollee to make a profit.  Enrollees are “locked in,” and may only use plan approved providers and facilities, except in certain emergency or urgent care situations.  If an enrollee uses a non-approved provider or facility, neither the HMO nor Medicare will pay. 

 

          A PPO will pay for services from a non-preferred provider or facility, but at a reduced rate.  The enrollee will be responsible for the remaining amount, subject to Medicare approved rates.

 

          Both HMO’s and PPO’s participating under Medicare Part C are required to offer services in addition to those covered under Part A and Part B.  These additional services might consist of a waiver or reduction of typical Part A and Part B coinsurance or deductibles; or they might consist of additional coverage for items not normally covered by Medicare.  HMO’s and PPO’s are also permitted to offer additional services beyond what is required, and to charge an additional premium for those added services. 

 

          One of the most common additional services offered by Medicare HMO’s and PPO’s is coverage for prescription medications.  Due to the high costs of these medications, Medicare beneficiaries often choose to enroll in a Medicare HMO or PPO offering a prescription drug plan, rather than purchasing a Medigap policy with prescription drug coverage.

 

Medicare Secondary Payer Requirements

 

          WC and TPL settlements for seriously disabled individuals require compliance with the federal Medicare Secondary Payer (MSP) statute and regulations (42 U.S.C. §1395y; and 42 C.F.R. §§411.20-.37 and 411.40-47).  Failure to comply will result in carriers, plaintiffs, claimants, and their attorneys remaining exposed, even after settlement, to significant potential liability; and the possible denial of the plaintiff's or claimant's future Medicare benefits.

 

          The 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 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).

 

          Any payments Medicare may have made for the plaintiff's or claimant’s injury related medical expenses prior to settlement, even if the payment was made by mistake, will result in a Medicare Secondary Payer (MSP) claim which must be satisfied as part of the settlement.  If not, CMS can bring suit against the claimant or plaintiff, his or her attorney, the insurance carrier, or the self-insured employer or defendant for payment of the claim.  In a suit against an insurance carrier or a self-insured employer or defendant to recover its MSP claim, CMS can seek double damages.  A similar private right to sue for double damages is also granted under federal law to the plaintiff or claimant who is eligible for Medicare benefits.

 

          Further, the MSP regulations 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.

(c) Lump-sum compromise settlement:  Effect on services furnished before the date of settlement.   Medicare pays for medical expenses incurred before the lump-sum compromise settlement only to the extent specified in § 411.47.

(d) Lump-sum compromise settlement:  Effect on payment for services furnished after the date of settlement.—

(1) Basic rule.   Except as specified in paragraph (d)(2) of this section, if a lump-sum compromise settlement forecloses the possibility of future payment of workers' compensation benefits, medical expenses incurred after the date of the settlement are payable under Medicare.

(2) Exception.   If the settlement agreement allocates certain amounts for specific future medical services, Medicare does not pay for those services until medical expenses related to the injury or disease equal the amount of the lump-sum settlement allocated to future medical expenses.

 

42 C.F.R. §411.46.

 

          These provisions in the MSP WC regulations clearly allow Medicare to retain its status as secondary payer, even after a WC settlement.  Further, these regulatory provisions authorize CMS to review the "reasonableness" of an allocation for future medical expenses in a WC settlement.  If CMS determines that the allocation to future medical expenses is unreasonably low, it is empowered under 42 C.F.R. §411.47 to require that the entire settlement be spent on future work-related medical expenses before Medicare will cover those services.  Finally, CMS will disregard a WC settlement completely if it appears to be an attempt to shift responsibility for future medical expenses to Medicare.

 

          To ensure that its interests are reasonably considered in WC settlements, CMS requires submission and review of the settlement agreement and a Medicare Set Aside Arrangement whenever the WC settlement meets the following review criteria: 1) the claimant is currently eligible for Medicare; or 2) the claimant is reasonably expected to become eligible for Medicare within 30 months of a WC settlement valued at more than $250.000, including indemnity. 

 

          CMS now takes the position that Medicare retains its secondary payer status after settlement of TPL claims, as well as WC claims.  Until recently, CMS only actively asserted its post-settlement status as secondary payer following settlement of WC claims.  In TPL cases, Medicare had only been requiring that its interests as secondary payer be considered with regard to any Medicare payments that might have been made prior to settlement. 

 

          CMS' current position regarding TPL settlements is based on its interpretation of the MSP statute.  According to CMS, a TPL settlement that closes out future medical expenses represents a situation in which "payment has been made . . . under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance” for an item or service otherwise 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.  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 allocate the entire settlement to future medical expenses if the allocation in the WC settlement agreement is deemed to be unreasonable.  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.

 

          CMS has not yet published official policy on this issue.  Representatives from the agency have indicated that they are preparing new "Answers to Frequently Asked Questions" (FAQ's) that will hopefully provide guidance on what the agency expects or requires. Those FAQ's are to be published on CMS' web site, but CMS has not stated when this will be.

 

          Certain CMS officials have stated that the agency currently has no official procedure for review of MSA's in TPL settlements and likely would neither review, approve or deny any MSA that a settling TPL plaintiff might choose to submit.  However, CMS does require that the parties "reasonably consider Medicare's interests" in TPL settlements.  Further, it is necessary to notify CMS of any TPL settlement in which future medical expenses is a consideration or in which there is a specific provision for past or future medical expenses.  Medicare will require that any funds which are allocated to future medical expenses in the settlement be spent on injury related medical expenses before any claims are submitted to Medicare.

 

          This leaves the parties to a TPL settlement in much the same situation as settling WC claimants found themselves, at least as recently as 1995.  Then, as now, the settling WC claimant was expected to apply the portion of his or her WC settlement allocated to future medical expenses solely to payment of work related future medical expenses before Medicare would cover those items.  However, there was no formal vehicle or process in place at that time to accomplish this.  WC claimants were left completely on their own.

 

          Most claimants did not have the experience or sophistication to keep the meticulous records needed to verify proper application of funds in a large settlement, especially where those funds might take several years to exhaust.  Further, most claimants were not equipped to determine which of their medical expenses were of the type normally covered by Medicare or what the proper payment amounts should be.  The risk that claimants would make errors in the application of funds from their future medical expense allocations or that they would not keep proper accounting records and receipts was colossal.  It was a situation fraught with potentially disastrous consequences for every settling WC claimant, as well as the settling employer and its WC insurance carrier.

 

          This situation gave rise to the invention and use of the first Medicare Set Aside Trust in 1995.  The original purpose of the Medicare Set Aside Trust was to provide a structured and safe means for the settling WC claimant to reasonably consider Medicare's interest with the "blessing" of CMS.  This continues to be the primary purpose behind today's MSA's.

 

          Before the publication of CMS' policy memorandum on July 23, 2001, "Workers' Compensation: Commutation of Future Benefits", there was little guidance from the government regarding its official position on the use of MSA's.  Since that time, CMS has published four additional memoranda defining and refining CMS policies and procedures for the use, submission, approval and administration of MSA's.  All of CMS' memoranda have been published as FAQ's on CMS' website:  http://www.cms.hhs.gov

 

          Until CMS publishes similar policy regarding future medical benefits in TPL settlements, each plaintiff settling a TPL claim will have to determine a safe means to ensure that his or her future injury related medical expenses will be covered by Medicare.  Thus, it is currently advisable in TPL settlements to create and fund some type of private arrangement to ensure payment of future medical expenses as part of the terms of settlement.  This will be extremely important in the event the plaintiff later receives a denial of benefits from Medicare for future injury related care.  The amount with which to fund such an arrangement and the type of arrangement used will depend on the facts of each individual case.

 

          It will also be important for the plaintiff's attorney to ensure that language is included in the settlement documents allocating a specific amount to future medical expenses; and to properly document the plaintiff's file with a life care plan or some similar expert projection of future medical expenses.  This should allow the plaintiff to later demonstrate that Medicare's interests were reasonably considered.

 

          The current position of CMS appears to recognize that the agency's powers are more limited in TPL settlements than in WC settlements.  However, what little has been said by agency representatives at this point indicates that CMS has not altogether foreclosed the possibility of requiring submission and review of MSA's in TPL settlements in the future.  Unless and until a federal appeals court may determine limits on CMS's powers regarding future medical expenses in TPL settlements, failure to take some precautions to ensure compliance with CMS's current policy in this area could result in a denial of Medicare benefits for future injury-related medical expenses for the settling plaintiff.

 

The New Visitor: Medicare Part D

 

          In December of 2003, Congress passed the Medicare Prescription Drug, Modernization and Improvement Act (MMA).  The MMA is a broad and massive piece of legislation that adds an “optional” prescription drug benefit to Medicare.  The MMA also affects Medicare Part C (renamed “Medicare Advantage” under the act); Medicare supplemental (“Medigap”) insurance; and other Medicare related matters.

 

          The new Medicare prescription drug benefit created under Medicare Part D may be the most significant change to Medicare since its inception.  At the same time, the basic prescription drug benefit under Medicare Part D is both limited and confusing.

 

          The prescription drug benefit under Medicare Part D will not be directly administered by CMS.  Rather, it will be provided through prescription drug plans (PDP’s) from private companies which contract with CMS.  Prescription drug benefits under Medicare Part D will also be offered by Medicare HMO’s and PPO’s under Medicare Advantage prescription drug plans (MA-PD’s). 

 

          Like Medicare Part B, prescription drug benefits under Medicare Part D will only be available by paying a premium.  The average premium for the basic prescription drug benefit is expected to be approximately $37 per month.  However, this amount will vary from provider to provider.  Providers are also permitted to offer plans with additional prescription drug coverage, so long as they also offer the basic plan.  Premiums for these more comprehensive plans will be higher.

 

          Each provider is permitted to follow its own drug formulary.  Further, providers are permitted to use a tier cost-sharing system in their formularies, based on generic or preferred status, and upon cost.  If a beneficiary requires a medication that is not on the formulary or that is in a lower cost-sharing tier than a replacement drug approved by the provider, the beneficiary can request a formulary or cost-tier exception.  An exception requires a physician’s statement that the non-formulary or lower cost-sharing tier medication is medically necessary; and that medication either will not be as effective as any other formulary medications (or medications on the same or higher tier), or will actually cause harm to the patient.

 

          The refusal of a request for a formulary or tier exception is considered a coverage determination, as is the refusal to approve or pay for a medication on the basis of medical necessity.  Medicare Part D contains a 5 level appeal process, similar to the appeal process for Medicare Advantage Plans under Medicare Part C.  The steps to appeal an initial adverse coverage determination are, in the following order: a redetermination by the PDP or MA-PD; a reconsideration by the Independent Review Entity (IRE); an administrative law judge (ALJ) hearing; a review by the Medicare Appeals Council (MAC); and judicial review in the Federal District Court. 

 

          Any agency appeal above the IRE reconsideration level requires that the amount in controversy be at least $100.  The amount in controversy must also be sufficient to invoke Federal District Court jurisdiction before judicial review is possible.  A beneficiary can combine multiple claims to meet the amount in controversy requirements; and multiple beneficiaries can combine their claims into a single appeal, if the claims all involve the same medication.

 

          Initial Determinations must be completed and an answer provided within 72 hours; and redeterminations and reconsiderations generally must be completed and an answer provided within 7days. If a delay would seriously jeopardize the life or health of the beneficiary or the beneficiary’s ability to regain maximum function, an expedited appeal process applies. Under an expedited appeal, initial determinations must be completed and an answer provided within 24 hours; and redeterminations and reconsiderations must be completed and an answer provided within 72 hours. The failure of the PDP or MA-PD in either a “normal” or expedited situation to provide its decision at the initial determination or reconsideration levels within the applicable time periods constitutes an adverse determination; and the PDP or MA-PD must forward the matter directly to the IEP for review within 24 hours.

 

          The appeals process can be complicated and time consuming, especially if the matter in controversy is not resolved within the first 1-3 levels.  Any level of determination or appeal can be instituted by the beneficiary or the beneficiary’s representative.  A representative can be a representative payee, an agent or attorney-in-fact under a general or medical durable power of attorney, a court appointed guardian or conservator, the beneficiary’s physician, or any other person appointed as a representative by the beneficiary on a form provided by CMS.

 

          To remove a drug from its formulary or to raise a drug to a higher cost-sharing tier, the PDP or MA-PD must normally give at least 60 days advance notice, unless the action is due to the drug itself being deemed unsafe.  Alternatively, if the drug is removed without notice for reasons other than safety, the PDP or MA-PD must provide a 60 day supply of the medication to the beneficiary, subject to any normal deductible and cost-sharing amounts that may apply. 

 

         The basic Medicare Part D prescription plan will provide only limited prescription drug coverage.  The beneficiary must pay 100% of the Part D deductible amount of $250 before coverage begins.  For annual prescription costs from $251 through $2,250, Medicare will pay 75%.   For prescription costs after the beneficiary reaches the annual out of pocket amount ($3,600 per year in 2006, and subject to increase annually thereafter), Medicare will pay up to 95%.   

 

            All beneficiary payments will all count toward the annual out of pocket amount.  The annual out of pocket amount will not be reached until the beneficiary's total annual prescription drug costs equal $5,100 (in 2006).  There is no Medicare Part D coverage for annual prescription costs from $2,251 up to $5,100.  This huge gap in coverage is often referred to as the “donut hole.” 

 

            Medicare Part D basic coverage and relative out of pocket payments for the Beneficiary and Medicare are illustrated in the following table:

 

Total Annual Rx Cost Range	Cost-sharing Percentage	What the Beneficiary Pays	Plan Payment Percentage	What Medicare Pays
$0 - $250	100%	$250	0%	$0
$251 - $2,250	25%	$500	75%	$1,500
$2,251 - $5,100	100%	$2,850	0%	$0
Over $5,100	5%		95%

 

          For the first time since Medicare’s birth in 1965, the MMA introduced a financial needs based test to the Medicare program for certain individuals.  This test applies to the Low-Income Benefit under Part D.  To be considered a “subsidy eligible individual,” the individual must meet an income test and a resource test. 

 

          To qualify as a “full subsidy eligible individual,” the individual’s monthly income may not exceed 135% of the Federal Poverty Line applicable to that individual’s family size.  In 2005, that figure is $1,077 per month for individuals and $1,444 for married couples.  Further, the individual may not have resources greater than 3 times the resource limit for SSI ($6,000 in 2005), including resources of the individual’s spouse.  Beginning in 2007, resource limits will increase, based on inflation.

 

          The following individuals are automatically considered to be full subsidy eligible individuals: individuals receiving SSI benefits; individuals eligible for Medicaid under the Qualified Medicare Beneficiary (QMB), Specified Low Income Medicare Beneficiary (SLMB) and Qualified Individual (QI) guidelines; and “full-benefit dual eligible individuals.”

 

          A “full-benefit dual eligible individual” is an individual who is eligible for Medicare and for full Medicaid benefits under any state eligibility category or who is eligible for Medicaid benefits through a Medicaid demonstration waiver under to §1115 of the Social Security Act.  (HCBS waiver programs in all states except Arizona are not §1115 demonstration waivers.)  In many income cap states, some recipients of Medicaid long term care or HCBS benefits may not fit this definition, depending on whether “full Medicaid benefits” is to be interpreted literally; whether it refers only to full benefits for prescription drug coverage; or whether it refers to Medicaid benefits available under the particular category in which the beneficiary qualifies.  The regulations are not entirely clear on this point.

 

           Individuals who qualify for Medicaid long term care or HCBS benefits are usually eligible for full Medicaid benefits, including prescription drug coverage.  However, in many income cap states, benefits available to individuals with excess income who qualify using a “Miller Trust” are limited to long term care or HCBS related benefits only; and do not include full Medicaid benefits for hospital stays, services in outpatient facilities, doctor’s office visits or other “Medicaid in the community” type services.  It is possible that these individuals would not be considered “full-benefit dual eligible individuals” under the literal wording of the regulations.     

 

          Full subsidy eligible individuals receive a premium subsidy which will often cover the entire cost of the PDP or MA-PD premium for basic prescription drug coverage.  These individuals also do not have to pay the $250 annual deductible; and they receive continuing coverage once they are in the “donut hole.”  These individuals must pay a $2 co-pay for generic and preferred multiple source drugs; and a $5 co-pay for all other drugs.  Once the annual out of pocket limit of $3,600 is reached, there are no further co-pays.  For full subsidy eligible individuals whose monthly incomes are under 100% of the Federal Poverty Line ($798 for individuals and 1,070 for married couples in 2005), the co-pays are limited to $1 and $3, respectively.  For full-benefit dual eligible individuals residing in nursing homes, there are no co-pays.

 

          “Other subsidy eligible individuals” must also meet income and resource tests.  These individuals must have monthly income less than 150% of the Federal Poverty Line ($1,196 for individuals and $1,604 for married couples in 2005); and must have resources of less than $10,000 for individuals, or $20,000 for married couples (these are the 2006 figures contained in the regulations).  In subsequent years, resource amounts will be increased, based on inflation.

 

          These other subsidy eligible individuals will receive a premium subsidy, calculated on a sliding scale, which is expected to average $18 for individuals with incomes between 135% and 150% of the Federal Poverty Line.  The annual deductible amount is reduced from $250 to $50; and coverage extends into the “donut hole.”  These individuals will pay coinsurance of 15% and co-pays of $2 for generic and preferred drugs, and $5 for other covered drugs.  There are no co-pays or coinsurance once the annual out of pocket limit of $3,600 is reached.

 

          For most Medicare beneficiaries, enrollment in Medicare Part D is voluntary.  For existing Medicare beneficiaries, the initial enrollment period (IEP) for Medicare Part D runs from November 15, 2005 through May 15, 2006.  For those individuals who are not already eligible for Medicare part D, their IEP’s will begin 3 months before they become eligible for enrollment in Part D and will continue for 6 months after initial Part D eligibility (similar to the open enrollment period for Medicare Part B).  

 

          In subsequent years, there will be annual coordination election periods from November 15 through December 31 each year.  There will also be special enrollment periods for special circumstances.  Beneficiaries are guaranteed the ability enroll in a PDP or MA-PD, to switch from one plan to another, or to disenroll from Medicare Part D altogether at any time during their  IEP’s and during annual and special enrollment periods.  A beneficiary cannot be denied enrollment during any enrollment period on the basis of age or health.

 

          Medicare beneficiaries who fail to enroll in Part D during their IEP’s are subject to a penalty in the form of an increase in premiums, unless they had creditable prescription drug coverage without a gap in coverage of more that 63 days.  Medicare beneficiaries will also be subject to the late enrollment penalty if they lose creditable prescription drug coverage after their IEP’s and do not enroll in Medicare Part D within 63 days.   

 

          Creditable prescription drug coverage includes prescription drug coverage that is “actuarially equivalent to Medicare Part D” under any of the following:

 

          1)       a PDP or MA-PD plan; group health plan (GHP); or private health insurance;

          2)       Medicaid;

          3)       a PACE program;

          4)       a military plan, including TRICARE;

          5)       health plans for federal and state employees;

          6)       State Pharmaceutical Assistance Programs (SPAP’s);

          7)       coverage for veterans, survivors and dependents;

          8)       a Medicare supplemental policy with prescription drug coverage; and

          9)       certain other types of coverage enumerated under the regulations. 

 

Liability insurance, worker’s compensation, no-fault insurance and disability insurance are notably among the types of policies or plans that are not creditable coverage under the MMA.  Further, even though Medigap H, I & J policies are Medicare supplemental insurance with prescription drug coverage, the prescription drug benefits under Medigap H, I & J policies are less valuable than Medicare Part D basic coverage; and will not be considered “actuarially equivalent to Medicare Part D.”  Therefore, these policies will not be considered “creditable coverage” under the MMA.    

  

          For purposes of Medicare Part D, a “preexisting condition” is one which is first diagnosed or for which the beneficiary has received treatment within 6 months before enrollment in a PDP or MA-PD.  PDP’s and MA-PD’s may not impose preexisting condition exclusions upon beneficiaries who have maintained at least 6 months of creditable coverage without a gap in coverage of more than 63 days.  If a beneficiary has not maintained creditable coverage for the full 6 month period prior to enrollment, preexisting condition exclusions may not be imposed for a period of time longer than the period during which the beneficiary was without creditable coverage for more than 63 days.

 

          Full-benefit dual eligible individuals may voluntarily enroll in Medicare Part D during their IEP’s or under a subsequent annual coordination election period, as can any other beneficiary.  In addition, full-benefit dual eligible individuals may enroll at any other time due to the special enrollment period applicable to these individuals under the regulations.  However, those full-benefit dual eligible individuals who do not voluntarily enroll in Medicare Part D during their IEP’s will be enrolled involuntarily by CMS.

 

          For existing Medicare beneficiaries who are considered full-benefit dual eligible individuals, CMS will begin the involuntary enrollment process in the fall of 2005, with the enrollment to be effective on January 1, 2006.  After January 1, 2006, new Medicare full-benefit dual eligible individuals will be automatically enrolled as soon as their eligibility for Medicare Part D is determined.  While the regulations also permit full-benefit dual eligible individuals to disenroll or to refuse enrollment at any time, doing so may have severe consequences. 

         

Bird or Devil?

Potential Problems and New Settlement Planning Strategies

 

          The most obvious problems for Medicare beneficiaries enrolling in Medicare Part D are the severe limitations on actual benefits; the premiums and cost-sharing applicable to individuals who do not qualify for Low-Income Benefits; and the complex procedures for exceptions and appeals.  

 

          Beneficiaries with chronic illnesses will often find that their total prescription costs will average more than $187.50 per month ($2,250 per year) for necessary medications, but will not be great enough to fall within Medicare Part D catastrophic prescription drug coverage.  In these cases, beneficiaries will find themselves in the “donut hole” at some point before the end of the year.  Without separate prescription drug coverage under a GHP or a Medigap policy, these beneficiaries will be required to pay for most of their medication expenses on their own.

 

          Whenever there is a change in the PDP’s or MA-PD’s drug formulary, the beneficiary needs a medication not on the formulary, or the PDP or MA-PD demands substitution of a different medication on a higher cost-sharing tier, the beneficiary will need to request a formulary or tier exception.  This will require a physician’s statement to verify the medical necessity of the medication being denied; and to verify that substitute medications on the PDP’s or MA-PD’s formulary are not appropriate. 

 

          Beneficiaries and their representatives will need to be aware of what to do upon receiving a written notice of an adverse coverage determination.  Whenever a beneficiary receives an adverse determination, it is extremely important that a reconsideration request be filed as soon as possible.  This means that the beneficiary or the beneficiary’s representative will need to file the request with the PDP or MA-PD; and contact the treating physician promptly to obtain any statements necessary for the appeal.  If an expedited appeal is needed, the physician’s statement will also need to show that the expedited appeal process is necessary to avoid jeopardizing the life or health of the beneficiary or the beneficiary’s ability to regain maximum function.  Finally, beneficiaries and their representatives must be prepared to pursue all available avenues of appeal until a favorable result can be obtained.

 

          For most individuals, Medicare Part D will not really do much to ensure immediate and necessary access to prescription medications.  When a PDP or MA-PD limits or denies coverage for prescription medications, beneficiaries may, at least on a temporary basis, be left with the sole option of paying for these medications out of pocket. 

 

          Studies conducted several years ago by the United States Government Accounting Office revealed that Medicare beneficiaries without prescription drug coverage often tended to skip dosages of important medications or to take a lower dosage than prescribed, due to the lack of funds to pay high prescription drug costs.  Medicare Part D does nothing to change this human behavioral trait.   

 

          Many seriously disabled individuals have multiple medical problems.  They may take as many as 6-10 different prescription medications, or more, every day.  Often, these individuals will have taken months or even years to reach the right combinations of drugs and dosages.  If these individuals are deprived of a vital prescription medication, or if they are forced to switch to a different medication, even for only a few days or weeks, they could be at risk of having to endure horrible suffering; or even death.

 

          Individuals who lack mental capacity will be at great risk without a legal representative to act on their behalf.  How will they protect themselves? Who will seek exceptions to the formulary or a tier cost-sharing designation to ensure that the correct medications continue to be prescribed? Who will exercise disenrollment rights for those who would be better off leaving Part D, and having an existing Medigap H, I or J policy or GHP cover their prescription drugs? Who will file for reconsiderations of adverse coverage determinations; and who will guide them through the complex appeals process if a reconsideration is unfavorable?

 

          Many of these individuals will not have appointed an agent or attorney-in-fact under a durable power of attorney.  Others may have appointed agents, but the governing durable power of attorney may not grant full powers for both financial and medical decisions.  For such individuals, settlement of their WC or TPL claims will require court approval; and may require the appointment of a guardian or conservator.  It will be vital to the settlement process and to post-settlement planning to ensure that these individuals have legal representatives in place with full authority to act in all matters.      

 

          Those beneficiaries who have access to GHP coverage would be well advised to continue that coverage for as long as possible and forego enrollment in Medicare Part D for so long as they have creditable prescription drug coverage under the GHP.  For those without GHP coverage, the best option may be to forego enrollment in Medicare Part D and rely on Medigap insurance for prescription drug coverage.  However, those wishing to rely on a Medigap policy with a prescription drug benefit must act quickly.

 

          Beginning January 1, 2006, the MMA prohibits the sale of new Medigap policies containing prescription drug coverage (Medigap H, I or J policies).  Only Medicare beneficiaries who already have a Medigap H, I or J policy as of January 1, 2006, but who do not sign up for a Medicare Part D prescription drug plan, will have the option of renewing their Medigap H, I or J policies with prescription drug coverage.  Beneficiaries who do elect to enroll in Medicare Part D may also keep their old Medigap H, I or J policies, but the prescription drug benefits under those policies will be eliminated. 

  

            Medicare beneficiaries who already have coverage under a Medigap H, I or J policy with prescription drug benefits should keep their policies in force after January 1, 2006.  Similarly, Medicare beneficiaries who are able to purchase or upgrade to a Medigap H, I or J policy by the end of 2005 may with to do so.  However, availability of these policies to beneficiaries who have been enrolled in Medicare Part B for more than 6 months may be limited; and the Medigap H, I or J policy will not be considered “creditable coverage.”  If a beneficiary later decides to enroll in Medicare Part D after his or her IEP, there will be a late enrollment penalty in the form of increased premiums.  Preexisting condition exclusions may also be applied.

 

          CMS does not allow premiums for Medigap policies to be paid from the funds allocated to an MSA.  Therefore, the beneficiary's settlement must provide for payment of these premiums from the portion of the settlement proceeds not allocated to the MSA.

 

          There is a potential trap for individuals who settle their WC or TPL claims prior to Medicare eligibility.  For these individuals, it is vital to understand that any coverage they may have had through WC or no-fault coverage is not considered "creditable coverage" under the MMA.  Any of these individuals who have access to GHP coverage should maintain that coverage for as long as possible.

 

          Individuals who are not eligible for Medicare at the time of settlement and who do not have the option of enrolling (or continuing enrollment) in a GHP must take special care.  If these individuals first become eligible for Medicare after January 1, 2006, they will not be able to purchase a Medigap policy with prescription drug coverage.  Thus, enrollment in Medicare Part D may provide the only opportunity to these individuals for coverage of post-settlement prescription drug costs. 

 

          However, since these individuals will almost certainly have had only WC, liability or no-fault coverage, they must enroll in Medicare Part D within their EIP's.  Because WC, liability and no-fault insurance are not considered creditable prescription drug coverage, delaying Part D enrollment will result in the imposition of preexisting condition exclusions for up to 6 months, as well as a permanent increase in Part D premiums.

 

          The less obvious, but far more critical problems with Medicare Part D are those which will primarily affect disabled individuals who would have depended on Medicaid to cover their prescription drug expenses.  Those in long term care facilities and on HCBS will be particularly vulnerable.

 

          The more serious problems arise as the result of: 

 

          1)       inconsistencies between eligibility criteria for SSI, Medicaid long term care and HCBS benefits, and Low-Income Benefits under Medicare Part D;

 

          2)       the bureaucratic complexities that will be involved in the “automatic” enrollment by CMS of full-benefit dual eligible individuals into Medicare Part D PDP’s;

 

          3)       the differences in drug formularies and cost-sharing tier structures that will exist among the various PDP’s and MA-PD’s; and

 

          3)       the severe physical and cognitive limitations suffered by many dually eligible individuals which give rise to the need for a nursing home level of care.

 

          Problems are likely to arise under a number of possible scenarios.  What follows are some of the more likely circumstances which could result in serious harm to dually eligible and full-benefit dual eligible beneficiaries; and some possible strategies to minimize the negative impact of Medicare Part D on these individuals.

 

          The state Medicaid agency may have difficulty identifying all full-benefit dual eligible individuals; may provide CMS with incorrect or misspelled names for certain beneficiaries; or may provide incorrect Medicaid household numbers, Medicare HIC numbers or Social Security numbers for certain beneficiaries.  CMS might not enter all of the correct names and identifying information for all beneficiaries into its computer system.  PDP’s or MA-PD’s may not receive complete or correct information on all new Part D beneficiaries in a timely fashion. 

 

          For these individuals who fall through the cracks, Medicaid will stop payment for prescription drugs upon the belief that the individual has been automatically enrolled in a Part D PDP.  However, CMS will not have enrolled these individuals in PDP's.  As a result, these individuals could find themselves without prescription drug coverage at all.  This is a real possibility for a great many Medicaid beneficiaries.

 

          The regulations provide that Medicare is always the primary payer versus Medicaid in situations involving beneficiaries who enroll or could enroll in Medicare Part D.  Medicaid is not permitted to pay for any prescription medications covered under Part D for dually eligible individuals.  As a consequence, individuals who are eligible to enroll in Medicare Part D will lose Medicaid benefits for their prescription medications as soon as their Part D eligibility is determined, whether they are actually enrolled in Part D or not.  

 

          Without Medicaid to pay for prescription medications, dually eligible individuals will soon find that the cost of their prescription medications under Medicare Part D will be prohibitive.  If these individuals are receiving Medicaid long term care or HCBS benefits in an income cap state, but require a Miller Trust to qualify, they may not be considered “full-benefit dual eligible individuals” under the federal regulations.  Therefore, they may not be deemed automatically eligible for full Low-Income Benefit premium and cost-sharing subsidies.  At the same time, these individuals will have too much income to qualify independently for Low-Income Benefits. 

 

          Further, since a great deal of these individuals’ incomes will already be required to cover their monthly patient contribution amounts to the nursing home or to HCBS, they will not have sufficient extra income to pay for Part D premiums, deductibles and cost-sharing amounts.  This will be especially true when the annual prescription drug costs for these individuals exceeds $2,250 and they find themselves in the “donut hole,” having to pay privately for all of their prescription drug costs.

 

          Medicaid spousal impoverishment protections that previously protected the community spouses of these dually eligible individuals receiving Medicaid long term care or HCBS benefits will not apply to the Low-Income Benefit criteria under Part D.  Thus, community spouses could be required to use their own incomes (including the monthly income amount and family allowance received from their institutionalized spouses) or to liquidate Community Spouse Resource Allowance assets, just to cover the institutionalized spouses’ prescription drug costs that were formerly covered by Medicaid.

 

          In the event a Medicaid long term care or HCBS beneficiary who does not receive full Medicaid benefits is unable to qualify for Low-Income Benefits under Medicare Part D, the beneficiary may be able to get some relief from Medicaid in a roundabout fashion.  In these cases, it will be extremely important to request that Medicaid pre-authorize additional Post Eligibility Treatment of Income (PETI) deductions for the beneficiary’s Part D premiums and additional prescription medication expenses.  This would allow the beneficiary to pay for these added expenses from monthly income before making his or her monthly patient contribution payment to the nursing home or HCBS.

 

          Dually eligible individuals who do qualify for Medicare Part D Low-Income Benefits can still encounter problems with access to necessary medications.  Individuals who are involuntarily enrolled in a PDP may find that the drug formulary for the PDP does not include medications they require.  Alternatively, these individuals may find that the drug formulary lists several "similar" drugs on a higher cost-sharing tier of the formulary and that the PDP insists on switching the individual to one of these "similar" drugs.   

 

          The regulations permit full-benefit dual eligible individuals, including individuals who are receiving Medicaid in the community through SSI, to switch to a different PDP or MA-PDP at any time.  Switching to a different PDP or MA-PD will often be a simple and effective solution if the beneficiary’s necessary medications are more favorably treated in the formulary of the new provider. 

 

          The regulations also permit dually eligible individuals to disenroll from Medicare Part D altogether.  However, disenrollment to avoid Medicare Part D premiums and cost-sharing amounts or to avoid unfavorable coverage determinations could have disastrous consequences for dually eligible individuals.  Once a Medicaid beneficiary is eligible for Medicare Part D, the regulations prohibit Medicaid payment for any Part D covered drugs.  Thus, if a Medicaid beneficiary who also qualifies for Medicare Part D benefits disenrolls from a Part D plan, the beneficiary’s prescription drug costs will no longer be covered by Medicare or Medicaid!

 

          In contrast, prompt action to decline Part D enrollment, or to disenroll following an involuntary enrollment during the IEP, could be a very effective planning strategy for dually eligible individuals fortunate enough to have existing prescription drug coverage under a GHP or Medigap policy.  Even if Medicaid cannot pay for prescription medications, the GHP or Medigap policy can. 

 

          Dually eligible individuals who might not meet the definition of “full-benefit dual eligible individuals” under the regulations should be particu