The value of any WC settlement for purposes of these exemptions will now be based upon present value.  This will include any lump sum payments and any amounts representing the purchase cost of any annuities (rather than the projected annuity payout amounts).  It will also include any payments previously made pursuant to the settlement.  Further, the value of the settlement will no longer include payments to satisfy previously unpaid medical expenses; payments to satisfy third party government claims or liens, such as MSP claims, Medicaid liens, VA claims and ERISA liens; and attorneys fees and procurement costs.

 

          The MSPWCSA also revises the current definitions of “compromise agreement” and “commutation agreement” currently employed by CMS.  A “compromise agreement” under the proposed legislation means a WC settlement involving a claim that is entirely or partially contested or denied if the settlement is less than the full amount of WC benefits being sought by the claimant.  A “commutation agreement” means a WC settlement of all or a portion of a WC claim in which past and future benefits are undisputed and the agreement provides for payment of future WC benefits payable after the settlement date.

 

QUALIFIED MEDICARE SET-ASIDES

 

          The MSPWCSA states that a Qualified MSA satisfies any obligation of the parties regarding future medical expenses under the MSP statute.  However, there is no requirement to submit any MSA to CMS for approval.  Seeking CMS approval is purely optional.

 

          Even though the MSPWCSA does not require submission of MSAs to  CMS for prior approval, submission would still be advisable in many cases to ensure that the MSA indeed meets the statute’s criteria for a Qualified MSA.  The set-aside amount still must reasonably consider the WC carrier’s or employer’s obligation under the MSP statute regarding future work injury-related medical expenses of the type normally covered by Medicare.

 

          The reasonableness of the MSA amount will be measured by the following criteria:

 

1.     The nature of the claimant’s illness or injuries;

2.     The claimant’s age and life expectancy;

3.     The reasonableness and need for future injury-related medical expenses; and

4.     The duration of and limitation on benefits that may be payable under the applicable WC law or plan.

 

The MSA amount must generally be based upon applicable WC fee schedules; and providers are forbidden to charge MSAs at higher rates. Further, the MSA amount is reduced by the costs incurred in establishing, administering or securing CMS approval for any MSA; and by a proportional share of the costs to the claimant or payer in entering into the WC settlement agreement. 

 

The MSPWCSA provides an alternative method for calculating MSA amounts in WC settlements that are considered “deep discount compromise agreements.”  A deep discount compromise settlement is one in which the present value of the amount representing settlement of a contested or denied portion of the WC claim is greater than 20% and less than 90% of the amount that would have been payable under the applicable WC law or plan, had that portion not been contested or denied.

 

In deep discount compromise settlements, the discount percentage applied to the contested or denied portion of the claim is multiplied by the unadjusted MSA amount for that portion of the claim.  The result is deducted from the unadjusted MSA amount to arrive at the deep discounted amount.  This amount need not comply with the WC fee schedule requirement.  If the resulting, reduced MSA amount is low enough, the deep discount compromise settlement may fall within the MSPWCSA “safe harbor” provision.

 

The MSPWCSA provides a safe harbor for any WC settlement in which the MSA amount is no more than the greater of 10% of the present value of the entire settlement, or 15% of the portion of the settlement representing all medical expenses, including those not covered by Medicare.  For WC settlements falling within the safe harbor provision, the MSA will be deemed to be a Qualified MSA, even if it is not approved by CMS. 

 

MSA ADMINISTRATION – DIRECT PAYMENT OPTION

 

One of the most radical changes to current policy created by the MSPWCSA involves administration of the MSA after settlement.  This provision permits the parties to agree that the MSA amount be paid directly to CMS; and requires that CMS then administer the MSA account.  If the parties elect the direct payment option, all future liability under the MSP statute will be deemed satisfied; and CMS will have no further recourse.

 

This “direct payment” option creates a myriad of troubling questions and issues.  First, CMS currently has no procedures, experience, expertise or facilities to take on the task of fiduciary administration of MSA accounts.  Thus, CMS is certain to require significant, additional fiscal resources to hire and train additional personnel; create enabling rules and regulations; and administer and pay claims from providers directed to individual MSA accounts.

 

Is CMS even an appropriate agency to be vested with the duties and powers required for fiduciary administration of MSA accounts?  Should CMS be subjected to the same types of fiduciary and trust laws that apply to banks and trust companies?  What standards regarding investment of MSA funds will apply?  If CMS attempts to delegate fiduciary MSA administration to contractors, will those contractors be exempt from federal and state banking, trust and fiduciary laws; or will those contractors have to comply with the same requirements as do federal banks and trust companies?

 

It is easy to see why CMS has historically declined to take on the role of administrator for MSAs in the past.  It is also easy to see that forcing CMS to take on this role now could prove a huge mistake. 

 

Imagine all of the combined, annual administrative expenses for all existing MSAs in the United States.  Now imagine the financial drain on Medicare that will occur by essentially requiring CMS to absorb all expenses associated with MSA accounts as part of the agency’s budget!  Further, imagine the additional cost to the Medicare trust fund as the result of inefficient or improper application of MSA funds by agency “fiduciaries” who lack the proper experience or expertise to manage those funds correctly.  The resulting financial impact on Medicare could be nothing short of a disaster.

 

DEADLINES AND APPEALS

 

          The MSPWCSA provides strict deadlines for CMS to provide information on conditional payments made prior to settlement; and for CMS to issue initial decisions on MSAs submitted for approval.  The MSPWCSA also provides for a rudimentary appeal process in the event that CMS determines that any particular MSA fails to meet the requirements for a Qualified MSA. 

 

          CMS must provide complete documentation of any overpayments within 60 days after receiving a request for overpayment information.  The information must be sufficient to allow the payer to determine which Medicare payments were for injury-related conditions.  Payers are permitted to rely upon this information and will be completely discharged of all MSP liability upon payment. 

 

However, since Medicare providers have as long as 27 months to bill Medicare, CMS will lose the ability to collect huge amounts of overpayments from WC settlements.  Further, if CMS does not provide the required documentation within the 60-day deadline, it loses all ability to collect any overpayments from the WC carrier, employer or claimant.

 

These restrictions on CMS’ ability to collect conditional payments effectively negate a great deal of CMS’ efforts over the past several years to recoup conditional payments from primary payers and claimants.  The negative fiscal impact on Medicare is likely to be in the billions of dollars over the next few years.

 

          Also troubling, is that this same restriction will only be applied in cases where CMS seeks recovery of an MSP overpayment claim from a WC settlement.  No such provisions are included regarding third party liability settlements for physical injuries.

 

          When a claimant or WC carrier does opt to submit an MSA to CMS for approval, CMS must render its decision within 60 days of receiving the request.  If CMS determines that the MSA is not a Qualified MSA, the decision must state precisely why.  If CMS fails to render a decision within 60 days, the request is deemed to be approved and the MSA is deemed to be a Qualified MSA.

 

          In the event of an adverse determination by CMS, the parties may request reconsideration of the decision by CMS within 60 days after notice of the determination.  CMS must render its decision on the reconsideration within 30 days.  If the reconsideration decision is adverse, or if CMS fails to render its reconsideration decision within 30 days, the parties are entitled to a hearing before an administrative law judge (ALJ).

 

          A request for an ALJ hearing must be filed within 30 days.  The ALJ must complete the hearing and issue a decision within 90 days of a request for hearing.  If the ALJ decision is adverse or is not rendered within 90 days, all administrative remedies will be deemed exhausted, and the parties may seek judicial review.

 

TERMINATION AND MODIFICATON OF MSAs

 

          Upon the death of a claimant, any entity entitled to distribution of any funds remaining in the MSA may request termination of the account, upon showing evidence of the claimant’s death and of payment of all claims.  In the event a claimant’s medical condition improves or the claimant’s circumstances change, the claimant may request modification or termination of the agreement if at least 5 years have elapsed since the creation of the MSA; and the change in circumstances or medical condition justifies a reduction in the MSA amount by at least 25%.

 

          In either situation, notices are required to all parties, including parties holding any “reversionary interest” in the MSA funds.  CMS must render a decision on a request for termination due to death, or a request for termination or modification due to change in medical condition or circumstances within 60 days of the notice.  If the decision is not issued within that time, the request is deemed to be granted.

 

CONCLUSION

 

          While the insurance industry claims that the MSPWCSA primarily protects the interests of WC claimants, the majority of the MSPWCSA’s provisions appear to primarily benefit the WC insurance industry, and at the expense of Medicare.  The 2006 annual report from the administrators of the Medicare Trust Fund estimated that the Medicare Trust Fund reserves will be completely exhausted in just 12 years.  “Social Security, Medicare Trust Funds Sink”, May 1, 2006, http://www.washingtonpost.com/wp-dyn/content/article/2006/05/01/AR2006050100126.html . 

 

          The potential financial impact of the MSPWCSA has not been determined with any precision, but it is sure to be huge.  Medicare is certain to lose billions of dollars in potential MSP claim recoveries; costs shifted from WC carriers onto the Medicare program; and additional administrative expenses.  Given Medicare’s current financial straights, substantially increasing the fiscal burdens of the program seems, at best, unwise. 

 

Some of the MSPWCSA’s provisions have merit.  There should be time limits for CMS determinations and responses to overpayment requests; an appeal procedure for adverse MSA determination; and criteria for reasonably considering Medicare’s interests in smaller settlements.  There should also be a fair procedure to terminate or modify the funding in an MSA where the claimant’s medical condition or other circumstances justify.

 

However, the vast majority of the sweeping changes proposed under the MSPWCSA seem ill-conceived and extreme.  Most of these provisions go far beyond what is needed to address the problems created by the requirements of the MSP statute and by CMS policies.  Perhaps further study of this proposed legislation by the House Ways and Means and Energy and Commerce Committees will result in a more reasoned approach.  If not, the MSPWCSA could manage to succeed in ensuring the premature and complete demise of Medicare.