Does My Client Need a Medicare Set-Aside Even If They Don’t Have Medicare Yet?
As lawyers are fond of saying: it depends.
First, we need to understand why MSAs exist and the problem they seek to resolve. Let’s look at a hypothetical, and we’ll start with someone who has Medicare for simplicity’s sake. Your client, who has Medicare, is injured in a car accident. The client suffers a traumatic brain injury and broken hip among other injuries resulting in a need for care that will extend years, possibly until the end of the client’s life. What Medicare is trying to avoid in this scenario is them paying for your client’s care when the client receives compensation from the defendant for future medical damages, resulting in a windfall of sorts.
Medicare Set-Asides in Practice
The Medicare Secondary Payer act was passed to prevent this from happening by ensuring that if another party has responsibility, then that party pays first. This applies to liability, no-fault, and workers’ compensation cases. For care received before resolution of the lawsuit, Medicare issues conditional payment which creates a Medicare ‘lien’. The conditional payment must be paid back when the case is concluded. From that point forward, Medicare wants its interests protected regarding it paying for any future injury-related care.
While a Medicare Set-Aside is never required, it is Medicare’s preferred method of protecting the trust fund. The MSA evaluation process starts with an analysis and estimate of the injury-related care the client will need in the future. The client then takes that money from his or her settlement and sets it aside to use first for any future injury-related claims; however, there are a number of rules to be followed with regard to the administration of such set-aside. A client may choose to self-administer, but many opt for professional administration through a custodial account or trust. At that point, all the client needs to do is follow the instructions of their custodian or trust administrator with regard to how bills should be submitted.
How this works in practicality is that an account or trust is created to hold the MSA. The account or trust may be funded with a lump sum or periodic payments from an annuity. If funded with a lump sum, the entire sum must be spent on Medicare-covered, injury-related care. Once the MSA is completely exhausted, Medicare will start paying for injury-related care again. If funded with an annuity, the funds operate like a deductible. If the funds are exhausted in any given year, Medicare will start paying for injury-related care again. For example, if the client has a $100,000 MSA to be funded with 10 annual payments of $10,000 every January, and the MSA is exhausted by June, then Medicare will pay for injury-related care from July to December. When the next January payment arrives, the MSA must be used again as the primary payment source for injury related medical care that is Medicare covered.
The consequence of not creating a set-aside (or failing to properly administer one) is that Medicare may find it’s interests not properly protected and stop paying for injury related care. This rarely happens, leading some clients to play the odds. But if the client has spent the proceeds of their settlement and suddenly finds that Medicare won’t pay for their care, this could be devastating.
To create an MSA or not to create an MSA
Returning to the original question: does my client need an MSA even though they don’t currently have Medicare? Maybe not, unless 1) there is a reasonable expectation of Medicare enrollment within 30 months, 2) their settlement value is over $250,000, and 3) the client will continue treatment after settlement or other resolution of the case. Even if your client isn’t 62, they might still have a “reasonable expectation” of enrolling in Medicare if they are disabled. If they qualify for (or already have) Social Security Disability Insurance (SSDI), then they will qualify for Medicare 2 years after qualifying for SSDI. That being said, if the client finishes treating prior to settlement, and can get a letter from their doctor stating this, then they do not need an MSA even if they currently have Medicare.
A related issue arises if the individual has other public benefits to protect. If your client has needs-based benefits such as SSI or Medicaid, establishing an MSA by itself will be a countable resource and may disqualify the client from his or her benefits. If the client is disabled, one option is to utilize a special needs trust with the MSA embedded. The special needs trust will ensure the funds are not a countable resource while the MSA will allow the client to protect Medicare’s future interests.
Turn-key Solutions for MSA trusts
Pooled Trust Services offers two pooled MSA trusts. Both combine the protection, longevity, and low cost of a pooled trust with the ease of professional administration. The Settlement Solutions Medicare Set-Aside Pooled Trust can be used by any client who needs an MSA, while the Settlement Solutions National Pooled Medicare Set-Aside Special Needs Trust can be used by a client with a disability who has public benefits to protect. Both trusts partner with Rising Financial and Optum to provide professional administration. Once the client’s trust sub-account is created, they receive cards from Optum and Rising which will be presented at pharmacies and medical offices, respectively, to ensure the bills are adjudicated and then submitted to the trust for payment. Both function as seamless, turn-key solutions to make MSAs as easy and painless as possible.