When Must a Client Have a Professionally Administered Medicare Set Aside and how are MSAs Professionally Administered?
A client must have a professionally administered Medicare Set Aside (MSA) whenever state law doesn’t prohibit it. So if a client is legally incapacitated and can’t handle their own financial affairs under your state’s laws, then they must have a professionally administered MSA. If the client is dual eligible, both Medicaid and Medicare eligible, and the MSA will be inside of a special needs trust then it will have to be professionally administered. However, the more difficult question is when should someone have a professionally administered set aside?
Although Medicare allows a plaintiff to self‐administer the MSA account, it can be a daunting task and potentially cause the loss of Medicare eligibility. If the plaintiff elects to self‐administer their account, they must have both the financial acumen and medical bill adjudication knowledge to do so. Rarely do the majority of the population have both of those requisite skills. Since most people don’t handle large sums of money or have the ability to decipher medical billing, mistakes are made by those who self-administer. While there are no “Medicare set aside police”monitoring set-asides, if the MSA is improperly administered; it can lead to a loss of coverage for injury-related Medicare-covered services defeating the purpose of the set aside in the first place.
How is the MSA Administered?
The obligation to administer MSA funds begins as soon as the attorney releases the settlement proceeds to the plaintiff. The plaintiff has the option of funding the MSA with a single lump sum out of the settlement proceeds or with future periodic payments using a structured settlement annuity (Ref: 7/23/2001 CMS Memo). When a set aside is funded with a lump sum, Medicare begins to pay for injury-related health care as soon as the account is totally exhausted. When a set aside is funded with an annuity, Medicare begins to pay for injury-related health care when there is “temporary exhaustion” each year.
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 on 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. Some medical providers are not used to dealing with Medicare set-asides and having an MSA administrator can help with negotiating the best rates at the appropriate fee schedule. 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 is 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 at any point of the year the set aside is exhausted, then Medicare picks up for the remainder of the year. When the next annuity payment comes in to replenish the account, then those funds must be exhausted again before Medicare will pay. It works like an annual deductible in that regard. 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.
Accounting & Attestation of the MSA
The administrator must maintain accurate records of all expenditures from the Medicare set aside account. Although it is not a requirement, the plaintiff should keep a receipt of each and every payment made, as an added precaution. The administrator will need to submit a final accounting ledger within 60 days of the MSA funds being depleted. The annual and final accounting should include evidence of all the expenditures from the Medicare set aside account. For liability MSAs, the accounting only has to be done upon the account balance reaching zero but annual reporting is still best practices. In worker’s compensation cases, there are annual reporting requirements. The purpose of these account filings is for Medicare to confirm the MSA funds have been spent appropriately.
Once an MSA account has been completely exhausted and assuming the funds have been spent properly, the plaintiff has met their obligation to protect Medicare’s interests. They can then start to submit bills to Medicare again. At that time, the administrator should send a final attestation to Medicare as proof the funds were spent appropriately.
Administrative Solutions for Set Asides
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 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. 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.
There are several important points to recognize about set-asides. 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 6-12 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 is taxable but Medicare allows for the set-aside funds to be used to pay taxes. Any interest earned is retained in the set-aside account 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 must 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 that can lead to a loss of coverage for accident 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 through the mandatory insurer reporting[i], 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.