Administering a Medicare Set Aside
When a case is settled for a Medicare beneficiary, be it workers’ compensation or liability, a Medicare Set Aside (MSA) may be implemented. Once the decision is made to utilize an MSA, the question becomes how will it be administered? The criteria for MSA administration is that the funds may only be used to pay for future medical expenses of the type normally covered by Medicare for treatment of the injury victim’s injury related medical conditions. CMS’s guidelines (for workers’ compensation cases) indicate that set aside funds should be placed in an interest bearing account and may be either professionally administered or self-administered. If the injury victim self-administers the set aside, the claimant is supposed to submit an annual self-attestation form when the monies in the set aside have been exhausted. If the set aside is professionally administered, the MSA administrator must prepare an annual accounting summary concerning the expenditures from the set aside and send it to the CMS Medicare contractor responsible for monitoring the individual’s case.
The MSA administrator, whether it is the injury victim or a professional administrator, must make sure that the set aside pays at the proper rate; that funds are spent only on Medicare covered expenses and that Medicare does not pay for injury related care until the set aside funds are exhausted. As for the first responsibility, the set aside is supposed to pay based upon how the set aside was calculated. For example, in workers’ compensation cases the set aside is usually calculated based upon the state workers’ compensation fee schedule. For liability settlements, it is generally usual and customary rates. So the set aside administrator should pay at the appropriate rate as determined by the calculation of the set aside allocation. If the provider does not agree to accept payment at the appropriate rate, the balance of the cost must be paid with funds outside of the MSA. The MSA administrator isn’t required to determine what would be the Medicare approved charges and there isn’t a need to consider Medicare deductibles or co-payment amounts. This may seem a bit foreign, but it is the proper way to make payments out of the set aside.
As for the second responsibility, the set aside can only be used for Medicare covered expenses related to the injuries. The set aside monies must be spent appropriately and this must be documented or Medicare could reject future care until the set aside is properly replenished with funds. Lastly, the set aside funds must be properly exhausted before Medicare is billed by providers. There are two type of exhaustion, temporary or total. The type of exhaustion depends on how the set aside has been funded. If the set aside is funded with an annuity then each year there is a potential for temporary exhaustion. The way this works is that at inception the set aside is funded with a “seed” amount (lump sum) and then annual annuity payments. If in any one year the set aside is exhausted, then Medicare picks up for the remainder of the year. When the next annuity payment comes in then that must be exhausted before Medicare will pay. It works like an annual deductible. If the set aside is funded with a lump sum then all of the funds must be exhausted before Medicare pays for injury related care.
As you can see this can be quite a complex undertaking for the average injury victim. Proper self-administration of a set aside can be nearly impossible for most people. There are companies that provide self-administration support services that can assist injury victims in managing their set aside accounts. However, the degree to which these are effective is dependent on how compliant the injury victim is in following through with the services. For many larger settlements and set-asides, professional administration is a much better option even though it is more expensive. The set aside monies can only be used for Medicare covered medical services. If a professional administrator is used, it has to be paid from the non-Medicare Set Aside settlement proceeds. Typically, the set aside administrative expenses (if there is an annual fee) are paid by an annuity that is set up just to pay for the services. The set aside administrative expense can also be paid by a lump sum, but again it has to come from monies outside of the amount allocated to the Medicare Set Aside. Attorney fees related to the set aside administration or legal issues that may arise in administering the set aside similarly can’t come from the monies in the set aside.
A Medicare Set Aside Trust (MSAT) is a formal trust agreement administered by a corporate trustee typically paired with a professional Medicare Set Aside administrator. With an MSAT, you get a trustee that has a fiduciary duty paired with a set aside administrator who can handle the intricacies of managing set aside funds and reporting to CMS. If the trustee or administrator can no longer perform their duties, a new trustee or administrator may be appointed but the fiduciary obligations and creditor protections of the trust remain. Trusts are covered by state trust and fiduciary laws. Typically custodians don’t need any type of licensure whereas trust companies or banks do, which is another layer of protection for the injury victim’s funds.
Since set-asides are difficult to self-administer and the many drawbacks to custodial arrangements for professional administration, Settlement Solutions Medicare Set-Aside Pooled Trust (SSMSAPT) was created a low cost simple solution for administration. Most Medicare set aside administrators offer custodial arrangements which put a client’s money at risk in the event of insolvency of the administrator. SSMSAPT is different since it is a trust arrangement that creates a fiduciary duty on the part of the trustee of the trust. This means it can go in perpetuity even in the event the trustee can no longer serve as a new one is appointed. Also, the SSMSAPT gives the trust beneficiary an experienced set-aside administrator who can adjudicate bills and manage the intricacies of reporting to Medicare.
There are some things that are important to recognize about set asides in general. First, the monies belong to the injury victim not Medicare. This means at death the unused funds go to the injury victim’s beneficiaries (assuming the custodial agreement or trust provide for this). When the injury victim dies, the set aside should be left “open” for 15-27 months since Medicare providers have a long period to bill for services rendered and there may be bills the set aside must pay. Second, the interest earned on the monies in the set aside are taxable but the set aside funds can be used to pay taxes. The interest is retained in the set aside and can’t be withdrawn. Third, if a settlement involves someone incompetent to handle their own affairs then obviously a professional administrator must be used. Fourth, if an injury victim is eligible for both Medicaid and Medicare then the set aside should be inside of a special needs trust to preserve all available benefits and professional administrator is necessary. Lastly, to date there are no “Medicare Set Aside police” monitoring set asides but if it is improperly administered then that can lead to a loss of coverage for injury related Medicare covered services. In the event of improper expenditures, the injury victim would have to replenish the set aside and exhaust those funds properly before getting Medicare coverage again for injury related care. Accordingly, it is vitally important to make sure the set aside is properly administered. Given the government’s increased efforts to enforce the Medicare Secondary Payer Act a la mandatory insurer reporting, CMS has more information than ever to make sure of proper enforcement.
To learn more about pooled set-aside trusts and other pooled trust solutions for personal injury settlements, visit www.pooledtrustservices.com.