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Overview of set asides

Moving away from the mandatory insurer reporting to get at the heart of the MSA mystery requires an examination of the “law” of set asides.  The rationale for creating an MSA is compliance with the MSP.  The MSP is a series of statutory provisions[i] enacted in 1980 as part of the Omnibus Reconciliation Act[ii] with the goal of reducing federal health care costs.  The MSP provides that if a primary payer exists, Medicare only pays for medical treatment relating to an injury to the extent that the primary payer does not pay.[iii]  The regulations that implement the MSP provide “[s]ection 1862(b)(2)(A)(ii) of the Act precludes Medicare payments for services to the extent that payment has been made or can reasonably be expected to be made promptly under any of the following” (i) Workers’ compensation; (ii) Liability insurance; (iii) No-fault insurance.[iv] 

There are two issues that arise when dealing with the application of the MSP: (1) Medicare payments made prior to the date of settlement (conditional payments) and (2) future Medicare payments for covered services (Medicare set asides).  Since Medicare isn’t supposed to pay for future medical expenses covered by a liability or Workers’ Compensation settlement, judgment or award, CMS recommends that injury victims set aside a sufficient amount to cover future medical expenses that are Medicare covered.[v]  CMS’s “recommended” way to protect future Medicare benefit eligibility is establishment of an MSA to pay for injury related care until exhaustion.[vi] 

An MSA is a portion of settlement proceeds set aside, called an “allocation,” to pay for future Medicare-covered services that must be exhausted prior to Medicare paying for any future care related to the injury.  The amount of the set aside is determined on a case-by-case basis and is submitted to CMS for approval if it is a Workers’ Compensation case and fits within the review thresholds established by CMS.  CMS’s review and approval process is voluntary.  There are no formal guidelines for submission of liability settlements and the CMS Regional Offices determine whether or not to review liability submissions.  CMS explains on its Web site that the purpose of a Medicare set aside is to “pay for all services related to the claimant’s work-related injury or disease, therefore, Medicare will not make any payments (as a primary, secondary or tertiary payer) for any services related to the work-related injury or disease until nothing remains in the WCMSA.”  According to CMS the set aside is meant to pay for all work-injury-related medical expenses, not just portions of those future medical expenses. 

HOW DID SET ASIDES COME ABOUT?

For many years, personal injury cases have been resolved without consideration of Medicare’s secondary payer status even though since 1980 all forms of liability insurance have been primary to Medicare.  At settlement, by judgment or through an award, an injury victim would receive damages for future medical that were Medicare covered.  However, none of those settlement dollars would be used to pay for future Medicare covered health needs.  Instead, the burden would be shifted from the primary payer (liability insurer or Workers’ Compensation carrier) to Medicare.  Injury victims would routinely provide their Medicare card to providers for injury related care. 

These practices began to change in 2001 when set asides were officially recognized by CMS as a MSP compliance tool for Workers’ Compensation cases.  Interestingly, around that same time the General Accounting Office was studying the Medicare system and pointed out that Medicare was losing money by paying for care that was covered under the Workers’ Compensation system.[vii]  Accordingly, CMS circulated a memo in 2001 to all its regional offices announcing that compliance with the secondary payer act required claimants to set aside a portion of their settlement for future Medicare covered expenses where the settlement closed out future medical expenses.[viii]  The new “set aside” requirement was designed to prevent attempts “to shift liability for the cost of a work-related injury or illness to Medicare.”[ix]  Set asides ensure that Medicare does not pay for future medical care that is being compensated by a primary payer by way of a settlement or an award.  The procedures and policy for set asides have been developed through subsequent CMS memoranda known as Frequently Asked Questions as discussed more fully below.