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Laws that Impact Settlement

In order to properly advise personal injury victims about their legal options at settlement, an attorney first must know and understand the laws that impact settlement.  There are important federal laws that can impact a client’s eligibility for public benefits post settlement that must be explained.  There are also financial options provided for under the Internal Revenue Code that should be explored.  In this post and those that follow, I will discuss these issues in more detail with a focus on the ethical and malpractice issues raised in discussing the form of a personal injury settlement.

Public Assistance

            The Medicare Secondary Payer Act (“MSP”)

A client who is a current Medicare beneficiary or reasonably expected to become one within 30 months should concern every trial lawyer because of the implications of the MSP.  The Medicare Secondary Payer Act (“MSP”) is a series of statutory provisions[1] enacted in 1980 as part of the Omnibus Reconciliation Act[2] 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.[3]  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.[4]  

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.  CMS’ recommended way to protect an injury victim’s future Medicare benefit eligibility is establishment of a Medicare Set Aside (“MSA”) to pay for injury related care until exhaustion. 

In certain cases a Medicare Set Aside may be advisable in order to preserve future eligibility for Medicare coverage. A Medicare set aside allows an injury victim to preserve Medicare benefits by setting aside a portion of the settlement money in a segregated account to pay for future Medicare covered healthcare. The funds in the set aside can only be used for Medicare covered expenses for the client’s injury related care. Once the set aside account is exhausted, the client gets full Medicare coverage without Medicare ever looking to their remaining settlement dollars to provide for any Medicare covered health care. In certain circumstances, Medicare approves the amount to be set aside in writing and agrees to be responsible for all future expenses once the set aside funds are depleted.

The problem is that MSAs are not required by a federal statute even in Workers’ Compensation cases where they are commonplace.  Instead, CMS has intricate “guidelines” and “FAQs” on their website for nearly every aspect of set asides from submission to administration.  There are no such guidelines for liability settlements involving Medicare beneficiaries.  Without codification of set asides, there are no clear cut appellate procedures from arbitrary CMS decisions and no definitive rules one can count on as it relates to Medicare set asides.  While there is no legal requirement that an MSA be created, the failure to do so may result in Medicare refusing to pay for future medical expenses related to the injury until the entire settlement is exhausted.  This creates a difficult situation for Medicare beneficiary-injury victims and contingent liability for legal practitioners as well as other parties involved in litigation involving physical injuries to Medicare beneficiaries. 

            42 U.S.C. 1396p(d)(4)

The receipt of personal injury proceeds by someone seriously injured can cause ineligibility for means based tested government benefit programs.  Medicaid[5] and SSI[6] are two such programs.  However, there are planning devices that can be utilized to preserve eligibility for disabled injury victims. A special needs trust can be created to hold the recovery and preserve public benefit eligibility since assets held within a special needs trust are not a countable resource for purposes of Medicaid or SSI eligibility.  The creation of special needs trusts is authorized by the Federal law.[7]  Trusts commonly referred to as (d)(4)(a) special needs trusts, named after the Federal code section that authorizes their creation, are for those under the age of sixty five.[8]  However, another type of trust is authorized under the Federal law with no age restriction and it is called a pooled trust, commonly referred to as a (d)(4)(c) trust.[9]  These trusts are discussed fully below. 

A personal injury recovery can be placed into a SNT so that the victim can continue to qualify for SSI and Medicaid.  Federal law authorizes and regulates the creation of a SNT.  The 1396p[10] provisions in the United States Code govern the creation and requirements for such trusts.  First and foremost, a client must be disabled in order to create a SNT.[11]  There are three primary types of trusts that may be created to hold a personal injury recovery each with its own requirements and restrictions.  First is the (d)(4)(A)[12] special needs trust which can be established only for those who are disabled and are under age 65.  This trust is established with the personal injury victim’s recovery and is established for the victim’s own benefit.  It can only be established by a parent, grandparent, guardian or court order.  The injury victim can’t create it on his or her own.  Second is a (d)(4)(C)[13] trust typically called a Pooled Trust that may be established with the disabled victim’s funds without regard to age.  A pooled trust can be established by the injury victim unlike a (d)(4)(A).  Third and last is a third party[14] SNT which is funded and established by someone other than the personal injury victim (i.e., parent, grandparent, charity, etc. . .) for the benefit of the personal injury victim.  The victim still must meet the definition of disability.  There is also a less common trust that can be utilized if an elderly injury client has too much income from Social Security to qualify for some Medicaid based nursing home assistance programs.  This trust is authorized by the federal law under (d)(4)(B)[15] and is commonly referred to as a Miller Trust. 

            Dual Eligibility: The Intersection of Medicare and Medicaid – SNT/MSA

If you have a client that is a Medicaid and Medicare recipient, extra planning may be in order.  If it is determined that a Medicare Set Aside is appropriate, it raises some issues with continued Medicaid eligibility.  A Medicare Set Aside account is considered an available resource for purposes of needs based benefits such as SSI/Medicaid.  If the Medicare Set Aside account is not set up inside a Special Need Trust, the client will lose Medicaid/SSI eligibility.  Therefore, in order for someone with dual eligibility to maintain their Medicaid/SSI benefits the MSA must be put inside a Special Needs Trust.  In this instance you would have a hybrid trust which addresses both Medicaid and Medicare.  It is a complicated planning tool but one that is essential when you have a client with dual eligibility.