STRUCTURES & ADMINISTRATION ANTIDOTES FOR THE CHALLENGES OF FUNDING MEDICARE SET ASIDES By:

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Amos Morris
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1 STRUCTURES & ADMINISTRATION ANTIDOTES FOR THE CHALLENGES OF FUNDING MEDICARE SET ASIDES By: Patricia A. Law Brant Hickey & Associates, and Porter Leslie - Ametros Effective October 31, 2017 pursuant to the passage of Senate Bill 1332, the Arizona Legislature REPEALS Section , the former section titled Final Settlement Agreements; definition and ADDS new section titled Settlement of accepted claims; exception; definitions so that there is now the opportunity to settle fully and finally accepted workers compensation claims in Arizona. The settlement can resolve all or any part of the claim and will not include any future rights of reopening. In other words, in Arizona, it will now be possible to fully settle out future medical costs as many other states do. With the new change, it is important to focus on the process for settling medical and working with parties that have a deep understanding of how it works. Settling a case without the right resources can lead to jeopardizing the benefits to the injured worker which could lead to issues for all parties to the settlement. As with many other states, in Arizona, the settlement must be in writing, signed by the employer/carrier with an opportunity for the claimant to obtain counsel. There must be an attestation by the claimant if represented that they fully understand the settlement, what the future costs for medical care will be and it must be clearly explained. The funds for the future medical payments are to be set aside from the indemnity portions with any interests of Medicare being considered pursuant to the federal statute called the Medicare Secondary Payer Act (Section 42 U.S.C13957) In order to fully consider the interests of Medicare it is best to obtain a Medicare Set Aside (MSA) allocation report. Consult your structured settlement expert and they will point you in the direction of a solid vendor to obtain the report and what steps to take to remain in compliance. A good general threshold for consideration is any total settlement amount that is over $25,000, but it is always a good idea to have a MSA completed and in the file for protection of any interests of Medicare. Below are high level points of how to know when to get a Medicare Set Aside done. It is recommended to get a MSA report and Medicare will review and approve the MSA when: o The claimant is on Medicare already and the settlement is over $25,000 OR o The settlement is greater then $250,000 AND the claimant has reasonable expectation of Medicare enrollment within 30 months of settlement date

2 Reasonable expectation INCLUDES: o Claimant has applied for social security disability o Claimant has been denied SSDI but will appeal o Claimant currently appealing denial o Claimant 62 years and 6 months (30 months from eligibility) o Clamant has ESRD (End Stage Renal Disease) o Claimant has ALS (Amyotrophic Lateral Sclerosis) It is important to note that Medicare merely offers to review and approve the types of cases listed above to confirm that the MSA adequately protects Medicare s interests. However, any settlement no matter the size should take Medicare s interests into consideration, whether it is very small or very large. So, in any settlement of medical, it is important to remember Medicare is paying attention and it is recommended to document the file that Medicare s interests are being addressed. So, do you need a MSA on every settlement? No; there are cases where MSAs are not needed. These include cases where: : o The claimant is being compensated for past medical expenses only o There is NO evidence the claimant is attempting to maximize settlement to the detriment of Medicare o The treating physician concludes the claimant no longer requires Medicare-covered treatment o The medical portion of the claim is not settling Essentially, if the settlement does not cover future medical costs that, in any other situation, would have otherwise been covered under Medicare, then there is no need for a MSA. Let s also take a look at a few common misconceptions when it comes to MSAs and Medicare compliance: o The settlement language alone will consider Medicare interests; simply mentioning Medicare or the MSA will not be sufficient. The claimant needs to understand the responsibility to remain compliant after settlement and a professional administrator is a great choice to help them do so. o Each regional office of Center for Medicare Services (CMS) operates the same. Medicare operates from regional offices that each can respond to requests and conduct oversight of the program differently and on varying timelines. It is important to work with parties that know your region well. o Medicare will not automatically know of the settlement. Insurance carriers, self-insured employers and TPAs along with other responsible reporting entities are required to send data to Medicare on every settlement involving a beneficiary. This is called Mandatory

3 Insurance Reporting under Section 111 of the Medicare, Medicaid and SCHIP Extension Act of Medicare will then know and keep track of every case that is settled. This helps Medicare track the cases to ensure those injured workers settling are spending the funds appropriately. These cases will not fly under the radar. Once you figure out your case needs a MSA, what goes into the Medicare Set Aside Report? o Documentation outlining future medical care for life of an individual o The claimant s rated age which predicts the life expectancy of the claimant based on last two years of medical records which need to be provided to the MSA vendor o The medical treatment listed in the MSA report which is related to claim-related injuries only and items Medicare would cover o Injury documentation based on medical records from initial injury/treatment for at least the last two years o Documentation the claimant s medical condition is stationary; parties typically order the MSA once the claimant s medical care stabilizes, or in other words, once they reach Maximum Medical Improvement (MMI) Several key factors determine the cost (projected future care) of the MSA: o The age of the claimant (utilizing rated age): if it is determined that the claimant has less years to live due to health complications, the MSA will cost less o The treating physician plan, if there is significant treatment, the allocation will be more o State Fee Schedule Pricing: The cost of medical treatments in Arizona will be priced depending on the state workers compensation fee schedule o Whether it is paid via structured settlement or lump sum: Structuring the payments of the MSA means that much less money needs to be funded today to provide the stream of future payments. A structured settlement will reduce the total cost of the MSA, while still ensuring the injured worker receives the future benefits they deserve. When you order a Medicare Set Aside here are a few important factors to consider: Who is the Medicare Set Aside vendor? Not all vendors are created equal and some create more thorough reports with faster turnaround times. Does the MSA state the settlement will be structured? Lump sum cash funding vs. structured settlement funding makes a HUGE difference in the savings the payer can obtain by using a structure over just paying the present value lump sum cost of the MSA.

4 Keep in mind that when CMS reviews the MSA and approves the value, the CMS approval MUST be submitted as a structured settlement at approval in order to utilize the savings of the annuity options. It is almost impossible to go back to change a lump sum MSA to a structured MSA after approval. It should be best practice to always submit as a structured settlement as the MSA can always be funded as a lump sum if the parties decide on that option later. Is there Professional Administration listed in the MSA? Professional administration is highly recommended by CMS. It ensures the assets of the MSA are reported properly to Medicare so the claimant s Medicare benefits are protected for the rest of their life. It also saves the claimant money by ensuring discounts on the claimant s ongoing medical treatments. Getting a Professional Administrator can be helpful in addressing medical concerns that the injured worker may have with any case. It is also helpful to pick the administrator early on in negotiations so they can help walk the claimant through the settlement process. Selfadministration is also an option where the claimant undertakes the responsibility themselves. Some professional administrators have products and tools to help claimants that self-administer, but ultimately, professional administration is the recommended solution. The MSA vendor can indicate if the MSA will be professionally administered, but it is not a critical component. The claimant can always opt to use a professional administrator later on. Now that the MSA has been produced and the settlement value negotiated, how does the ultimate agreement and funding take place? 1. Remember the Settlement Agreement language should include: a. Specific language in the settlement documents representing Medicare s interests b. MSA information c. Structured annuity information d. Professional administration information 2. The funding of the Medicare Set Aside is as follows: a. The initial check for seed Money is deposited directly to the MSA Account b. The Annuity payments starting one year from settlement are to be deposited in the MSA account for the benefit of the claimant s medical needs approved in the MSA c. Funding for both the Seed and Annuity payments should go directly to the Professional administrator for an account for the benefit of the claimant when the case is professionally administered. If not, the checks go directly to the claimant for self-administration. When it comes to structures, they are very powerful to lower the total payout required to fund the ongoing cash needs of the MSA. Below are two real-life examples of how adjusters have used structured settlements to save on the funding of the Medicare Set Aside.

5 Male age 55 on SSDI Rated age - 70 Life expectancy 16 years per MSA report $3,444 per year for 16 years LUMP SUM vs. STRUCTURE (ANNUITY) EXAMPLE A Lump Sum Structure (annuity) Lump sum Cost: $55,109 Structure premium: $26,196 Professional Admin $ 3,000 Seed Money: $ 6,888 Professional Admin $ 3,000 Total $58,109 Total $36,084 Female age 65 Rated age 78 Life expectancy 19 years $15,890 per year for 19 years TOTAL SAVINGS $22,025 LUMP SUM vs. STRUCTURE (ANNUITY) EXAMPLE B Lump Sum Structure (annuity) Lump sum Cost: $349,580 Structure premium: $243,807 Professional Admin: $ 3,000 Seed Money: $ 35,152 Professional Admin $ 3,000 Total $352,580 Total $281,959 TOTAL SAVINGS $70,621 As shown, structures can be instrumental in saving money on an MSA by making present value cash go further over time. At the same time, working with the professional administrator can help settle the case, because the administrator can show what items in the MSA actually cost after settlement and this can provide good perspective for negotiating the case. It is important to remember the medical items in the MSA are priced out according to the Industrial Commission of Arizona Fee Schedule. Often the professional administrator can secure the same items for 10%-50% below the Fee Schedule. With that information in hand, the adjuster can provide the claimant with valuable perspective that the professional administrator is going to make the funds in the MSA last longer by saving the claimant money on every occasion.

6 Harnessing the savings of the structure and the medical negotiating power of the professional administrator can be a very convincing way to help the claimant get comfortable with the settlement offer. CONCLUSION The funding of a Medicare Set Aside utilizing a structured settlement is a large consideration in the cost of the full and final settlement. The use of a structure minimizes the misuse of funds by the claimant for purposes other than the funding of medical payments for his/her claim. Remember, should the claimant not use the funds for the Medicare expenses and exhausts the claim settlement funds, it is conceivable that Medicare will not only stop paying for the medicals necessary but may also pursue penalties from the claimant. In that case the claimant could come back to the insured/self-insured for additional monies even though the settlement was deemed full and final. In other words, now that settlement of future medical will become final in Arizona, taking Medicare Set Asides seriously is very important and making sure they are structured is a great first step. Also, the utilization of professional administration is worthwhile for the insured/self-insured to fund up front to assist with the settlement negotiations. Professional administration is a means to preserve the funds in the MSA. This also will relieve the anxiety of the claimant/counsel of maintaining records for Medicare as well as save monies in the Medicare Set Aside account through the use of nationwide vendors for prescriptions, doctors, equipment, etc. Combining the savings of the structure and the efficiency of the professional administrator can not only help all parties reach settlement, but also helps the payer remain in compliance with Medicare. While settling future medical claims in Arizona is a new frontier, many experts in the structured settlement, MSA and professional administration business have been helping clients settle these claims for years and are in familiar territory. Don t hesitate to rely on their expertise to help get the case closed properly. Patricia Law has been in the structured settlement industry for over 30 years. She specializes in workers compensation claims in various states including Arizona, Nevada, Idaho, Utah, etc. She attended Arizona State University as well as Utah State University. She has assisted numerous self-insureds, insurance carriers and TPAs with utilizing annuities in the workers compensation field. Porter Leslie is the President of Ametros, the industry leader in professional administration. Porter has built his career leading customer-focused businesses in the healthcare and financial services industries. Porter earned a B.A. in Economics from Columbia University, as well as an MBA from the Wharton School and an M.A. in International Studies from the Lauder Institute at the University of Pennsylvania.

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