How Can Settlement Trusts and Medicare Set-Aside Accounts Work Together to Help My Client?
If your client is Medicare eligible at the time of his or her settlement, there is a strong possibility they will need to establish a Medicare Set-Aside (MSA) account. As a result of the Medicare Secondary Payer Act, Medicare may deny injury-related benefits indefinitely if their interests are not adequately considered. In the context of a personal injury or workers’ compensation case, this means a portion of the settlement proceeds should be utilized prior to billing Medicare for any subsequent care related to the injury.
To determine how much needs to be set aside, a professional specializing in allocations reviews the medical records and makes a recommendation regarding how much of the client’s future, injury-related medical care will be covered by Medicare. In the context of workers’ compensation, this recommended amount is oftentimes reviewed by CMS and may be approved or denied. Once Medicare approves an amount to be set aside, a separate, interest-bearing account is established for the funds and will need to be administered in compliance with CMS guidelines. For liability settlements, there is no current review process.
Once the case settles and a decision has been made to set money aside for future Medicare covered expenses, the question becomes how to administer the set aside. This article will compare three options for handling MSA administration: Self-administration, custodial accounts, and Settlement MSA trusts.
Administration of any MSA requires a thorough understanding of the relevant CMS guidelines and medical billing procedures. The administrator has annual reporting requirements and is expected to ensure that the MSA pays only for Medicare-covered expenses, that it pays at the proper rate, and that Medicare is not billed until the funds are temporarily or totally exhausted. Improper administration can result in funds being exhausted too quickly or Medicare refusing to pay for some services. Unless your client has extensive knowledge and experience in this arena, self-administration is a daunting task.
There are a number of options for setting up custodial accounts. In short, funds are deposited into an interest-bearing account and administered by a professional administrator. The client is typically given a card to present to providers for care. While this may be seamless for the client, there are some drawbacks to using custodial accounts. Custodians generally do not need to be licensed and custodial arrangements may not provide any protection for the client’s money in the event of insolvency. The major drawback of custodial arrangements is that they may not go on in perpetuity if the custodian goes out of business leaving the client to figure out how to handle the set aside.
Settlement MSA Trust
A Settlement MSA trust operates in a similar fashion as a custodial agreement in that the funds are professionally administered and the client accesses care using a card presented to the provider. The difference is that a trust provides a significant amount of protection not provided by a custodial account. The funds are administered by a trustee who is typically a bank, trust company or non-profit. Trustees also have legal and fiduciary duties to the client, and if the trustee can no longer serve, a new one can be appointed to ensure the account will exist for as long as it needs to in order to comply with the CMS guidelines for MSAs. Therefore, a trust can go on in perpetuity as the trustee or administrator can be replaced if they no longer can serve.
It is important to understand how a Settlement MSA trust differs from other kinds of Settlement trusts your client might consider. An ordinary settlement trust will generally give wide discretion to the trustee to make distributions for the beneficiary’s support. The language of the trust might specify a particular standard, such as the beneficiary’s health, education, maintenance, and support (HEMS), or the beneficiary’s best interest. Some settlement trusts include a pass-through election, which means that the money flows into the trust (typically from an annuity) and “passes through” the trust, out to the beneficiary at regular intervals. You may be asking yourself what the point of such an arrangement would be. Why not pay the client directly? While this is certainly an option and could work well for financially-savvy, fiscally responsible clients, it offers zero protection from creditors and would not prevent the client from selling their annuity, which could result in them losing tens of thousands of dollars over the lifetime of the annuity.
When an MSA is embedded in a settlement trust, two sub-accounts are created: one for the MSA funds and one of the remaining settlement funds. The MSA sub-account can be funded with a lump sum or annuity and will be administered in accordance with CMS regulations by a professional MSA administrator. The settlement sub-account will be administered in accordance with the terms of the governing trust. This solution can be especially useful for clients who are at risk of misappropriating MSA funds or selling their annuity.
The downside to using a trust is the cost of administration; however, these expenses can be managed by utilizing a pooled trust. Pooled trusts are created and managed by non-profit organizations. They allow multiple trust beneficiaries to “pool” their accounts, which reduces the cost of administration and provides additional investment opportunities. Funds are maintained in separate sub-accounts for each beneficiary and never co-mingled.
Clients have a variety of options for managing their MSA and they must choose wisely to reduce their risk and get the most out of their settlement. For the average client, professional administration of some kind makes sense and will be well worth the cost.
Since set-asides are difficult to administer and there are many drawbacks to custodial arrangements for professional administration, Settlement Solutions Medicare Set-Aside Pooled Trust (SSMSAPT) was created as a low cost, simple solution for administration. SSMSAPT is proud to offer one of the lowest-cost solutions for MSA administration in the country. 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 complexities of reporting to Medicare.
To learn more, visit www.pooledtrustservices.com