Protecting Medicaid & Medicare for Dual-Eligible Clients
If your client has Medicaid and Medicare, there are a few things you need to understand before cutting settlement checks to them. Both benefits may be jeopardized if settlement funds are handled improperly.
Qualifying for Medicaid & Medicare
Qualifying for Medicaid varies by state and program, so understanding what form of Medicaid your client has is critical. Medicaid is generally asset and/or income sensitive, which means funds received by the client will disqualify him or her from their benefits, at least temporarily. Not all Medicaid programs operate this way, however, so it is important to know whether the client’s Medicaid benefit is means-tested. In addition to financial resource tests, one must generally qualify based on medical need, such as being blind or disabled (or being the dependent on someone who is), over age 64, or pregnant.
Medicare is a federal program, and as such the qualifications are the same everywhere. A person becomes eligible for Medicare at age 65 so long as they worked for at least 10 years (40 quarters) paying Medicare taxes. Prior to age 65, a person can become eligible for Medicare after receiving Social Security Disability (SSDI) or Railroad Retirement Board Disability benefits for at least 24 months. There is no wait time for those with certain conditions, such as End-Stage Renal Disease (ESRD) or amyotrophic lateral sclerosis (ALS, also known as “Lou Gehrig’s disease” or motor neuron disease). There are no income or asset-based qualifications for Medicare.
How Settlement Funds Can Jeopardize Medicare & Medicaid Benefits
People who are eligible for both benefits are commonly referred to as “dual eligibles.” Due to the qualifications, those who become eligible are truly in need and reliant on these benefits to pay for all of their medical care. There are two ways in which a lawsuit recovery can jeopardize these benefits:
- Excess income/resources can disqualify the person from Medicaid.
- Not creating a Medicare Set-Aside (MSA) in certain situations may cause Medicare to deny coverage for injury-related care.
How to Protect the Client’s Medicaid Benefit
Excess income/resources can be handled in one of two ways: it can be spent on “exempt” assets or it can be placed into a special needs trust.
Exempt assets are those that Medicaid will not count as resources. Again, this varies by state, but generally includes a home, vehicle, household items, and burial insurance or funeral contracts. In some states these items are excluded up to any value, while in others there is a limit on the amount that can be spent on particular resources. Typically, the spend must occur by the end of the calendar month of receipt and be reported to the local Medicaid office to have little or no impact on benefits.
Funds placed into a special needs trust in accordance with 42 U.S.C. 1396p(d)(4)(c) are not counted as income or a resource by government entities for purposes of qualification for needs-based benefits. While the money remains the client’s money, the trustee is responsible for ensuring the funds are spent in accordance with the rules of the trust and the relevant benefits. Chief among these rules is that the money must be spent for the client’s benefit. In other words, the client cannot use the money to purchase gifts or pay someone else’s bills. The trustee also cannot give the client cash because this would be countable income. This kind of trust must be used as a supplement to benefits, not as a replacement for benefits. This means that if Medicaid is paying for a particular service, the client cannot use his or her trust to pay for that service but can use the trust to pay for services not covered by Medicaid, such as experimental or alternative therapies. The trustee can, however, use the funds in the trust to pay bills on behalf of the client, repay those who have made purchases on the client’s behalf, or load funds on a qualifying pre-paid debit card the client can use to make purchases. Special needs trusts do require some planning and compromise on the client’s part, but those who need to maintain their Medicaid benefits often find this a fair trade-off.
How to Protect the Client’s Medicare Benefit
Medicare is comprised of different benefits. Part A covers services provided in the hospital. Part B covers services provided in a doctor’s office. Parts A and B are collectively known as “Original Medicare.” Part C covers care provided by Medicare Advantage plans (private HMOs contracted with Medicare). Part D covers prescription drugs.
If a client has Original Medicare (Parts A and B) and will need injury-related treatment post-settlement, a Medicare Set-Aside (MSA) may be necessary to comply with the Medicare Secondary Payer Act. This is because the Centers for Medicare and Medicaid Services (CMS) require that their future interests be protected, and while this concept is largely undefined, creating an MSA is the “recommended method” for protecting Medicare’s interests. An MSA is a fund the client creates to pay for injury-related Medicare-covered services. CMS’ position is that since the client received compensation for future medicals, they should use those funds first before letting Medicare pick up the bill. In other words, an MSA serves as a substitute for Medicare for injury-related services until the funds in the MSA are exhausted.
To be clear, an MSA is never “mandatory” in that it is not required by law or regulation, but that does not mean it is a good idea to ignore them entirely. If CMS determines an MSA should have been established and one was not, they may decline to cover services for the client in the future and the personal injury attorney might be looking at a legal malpractice claim.
MSAs can be administered by the client (self-administration), or the client can hire professionals to do it for them (professional administration). MSAs may only be used to pay for Medicare-allowable care at the proper rate, so most people opt for professional administration. There are many companies that will provide this service for a fee using a custodial arrangement; however, professional administration can also be provided by utilizing a trust which offers additional protections since the trust goes on in perpetuity.
How to Protect Both Medicare’s Future Interests and the Client’s Medicaid Eligibility
If the client is dual eligible, a special needs trust can be combined with an MSA to protect Medicare’s future interests and preserve the client’s Medicaid eligibility. An MSA is considered a countable asset and may cause the client to lose his or her Medicaid coverage; however, if the funds are deposited into a special needs trust, they will not be countable and professional administration can still be used to ensure the funds are spent correctly. Even if the client wants to spend their non-MSA funds on exempt assets, it would still be to their benefit to create an SNT with an embedded MSA so their Medicaid coverage is not impacted.
This strategy works for both a standalone SNT or a pooled SNT. Standalone SNTs tend to be costly and time-consuming as an attorney will need to draft the trust. Further, a trustee who is educated in government benefit programs must be selected and paid. It is generally faster, less expensive, and easier to utilize a pooled SNT that will also administer an MSA. Pooled SNTs are established trusts, which means they can be joined immediately and are staffed by knowledgeable professionals. The trustee of a pooled trust is required by law to be a non-profit corporation, so the cost is generally much lower than a for-profit bank administering a standalone SNT.
Pooled Trust Services offers the Settlement Solutions National Pooled Medicare Set-Aside Special Needs Trust. This pooled trust complies with 42 U.S.C. 1396p(d)(4)(c) for protection of Medicaid benefits and provides professional MSA administration. For dual eligible clients, this solution provides both protection and peace of mind.