One of the challenges that modern law school teachers of workers’ compensation law face is how (and whether) to teach beginning students about some of the complicated interactions between state and federal law. Workers’ compensation opt-out laws—which will be discussed in coming posts—are one example of this kind of interaction (in that case between workers’ compensation and ERISA). Another such interaction is between workers’ compensation and Medicare when cases are being “lump sum” settled in lieu of a claimant receiving ongoing benefit payments out into the future.
A Medicare Set-aside is a mechanism which “sets aside” a portion of gross settlement proceeds for future work related or accident related medical services and prescription drug costs which are “covered and otherwise reimbursable by Medicare”. The intent is to maintain Medicare as a “secondary” payer where an otherwise “primary” payer such as a workers’ compensation or liability insurance carrier would be responsible. These agreements or “arrangements” may also provide that Medicare be reimbursed for any payments it made during the period before an employer or insurance company’s liability for a work-related injury had been established. Set- asides are a hot topic of discussion because of their broad impact on the workers’ compensation settlement process.
Medicare Set-asides were first utilized in 1995 and after the “Patel” memorandum in 2001, which initially described the legal necessity for set-asides, became incorporated on a widespread basis within workers’ compensation settlements, judgments and awards. Medicare Set-asides may take different forms including workers’ compensation set asides (WCMSA), liability set asides (LMSA) or group health set asides (GHSA).
The Centers for Medicare & Medicaid Services (CMS) is the federal agency that administers Medicare. CMS approved $1.8 billion worth of WCMSA’s in fiscal year 2013 (latest available statistics see p. 22 here). According to one researcher WCMSAs make up about 49% of workers’ compensation total gross settlement proceeds and of that 40% arises due to prescription drug pricing. These are staggering sums in the context of settling workers’ compensation claims and can often lead to cases not being resolved or being resolved with the medical component of the case left open.
Medicare will defer payment for work or accident covered and otherwise reimbursable medical services and prescription costs until the amount placed in the Medicare Set-aside “account” has been properly depleted. Proper depletion means the administrator of the Medicare Set-aside has used Medicare Set-aside funds only for future work or accident related expenses.