Sunday, March 22, 2015

What should a voluntary MSA include?

We occasionally see commentators make recommendations for the use of Medicare set-asides (MSAs) in liability cases. In fact, we have made recommendations regarding this issue from time to time.

As a recap and reminder, a "set-aside" arrangement involves placing a pool of money in an account or trust, with the intent to use that money in the future for medical services or equipment that would be covered by Medicare. The money would usually come from a settlement or payment on a judgment. The typical scenario would involve:
  • Amos settles his personal injury case for $100,000.
  • Medicare had made conditional payments in the amount of $12,000.
  • After notification of the settlement of the case, Amos's attorney receives from the Coordination of Benefits and Recovery Contractor a letter requiring reimbursement in the amount of $9,420, after a reduction to account for the costs of recovery.
  • The attorney sends payment in that amount to the COBRC.
  • The attorney is concerned about the need for future medical care arising from the accident, so he decides to establish a voluntary MSA in the amount of $8,000 to be used, if needed, for payment of those expenses to the extent that they would be Medicare-eligible.
CMS has a system in place to review the sufficiency of the amounts of MSAs when workers' compensation cases are settled. It has adopted regulations and it has personnel who review the claims to ensure that the amount of the MSA will be sufficient. If it approves the MSA, the regulations provide that the claimant must use the MSA funds as the "primary payer" to pay for Medicare-eligible medical needs, and that, once the MSA has been depleted, Medicare will once again step in to pay for related medical expenses as primary.

Although CMS has made comments about doing the same for MSAs in other contexts, most notably liability cases, it remains true today that
  • CMS does not require MSAs in liability cases
  • CMS has no system in place to review or approve MSAs in liability cases
  • Without such approval, CMS is not bound by any decision made by the claimant or his professional advisors
Our standard recommendation to liability insurers has been, for the last several years, that they have no reason to insist upon an MSA when settling a liability case, but that, if the plaintiff's attorney determines, for the protection of his client, that an MSA should be set up on a voluntary basis, there is every reason for the defendant and his insurer to cooperate with that request.

What should be included in a voluntary set-aside? For the answer to that question, we have to consider the substantive law of damages in the state of Michigan. For not every Medicare-eligible medical expense related to the subject accident will be properly payable from the MSA.

The impetus for MSAs comes from the language of the MSP statute which provides that
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. . .
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 USC 1395y-B-2-a-ii
Thus, if the plaintiff in a liability case has received payment (in the form of a settlement or payment on a judgment entered by a court) for damages resulting from an accident, Medicare will not pay in the future for the medical expenses for which such payment has already been made to the Medicare beneficiary.

But the laws relating to the recovery of damages in a civil action based on tort do not allow for the recovery of each and every item of medical expense that may arise in the future. Specifically, Michigan case law provides that, for "future medicals" - the expenses of medical treatment related to the accident that have not yet occurred - they can be recovered by the plaintiff only if they are proven to be "reasonably likely to be incurred" in the future. If they are only possible, or contingent, or uncertain, they cannot be awarded as damages by a jury, and they would not be included in calculating the reasonable value of a settlement. But such uncertain or contingent damages would still be included in a release in the event of settlement, and would be merged into a judgment in the event of a trial resulting in a verdict in favor of the plaintiff.

Hence it follows that only the items of future medicals that were found to be "reasonably likely to be incurred" in the future as of the time of the trial or settlement should be funded in advance by the use of a voluntary MSA if the plaintiff chooses to establish such an arrangement. Medical expenses that were, at that time, only possible, contingent, or foreseeable would not be included in the bar under 42 USC 1395y-B-2-a-ii and should not be included in the MSA.