Medicare Set-Aside (MSA) Arrangements in Louisiana Workers Compensation

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Medicare and Louisiana Workers Compensation

Medicare is a federal program that provides health coverage for certain individuals who are retired or who have become disabled.

Generally speaking, Medicare is available for:

    1. Persons who have reached the requisite retirement age (usually 65 years) as set forth by the Social Security Administration;
    2. Persons who have received Social Security Disability Benefits for at least two years regardless of age;
    3. Persons who have been diagnosed with End-Stage Renal Disease (ESRD) and who are participating in a qualified treatment program (dialysis); and
    4. Persons who are diagnosed with Amyotrophic Lateral Sclerosis (ALS).

Medicare became intertwined with Louisiana workers compensation in 1981 with the passage of the Medicare Secondary Payer Act (MSPA), which makes Medicare a “secondary payer” in place of third-party obligors (such as workers compensation insurance companies) who are considered “primary payers” under the MSPA.

Critically,  in Louisiana workers' compensation, the Medicare Secondary Payer Act (MSPA) prevents cost-shifting from the workers compensation insurance company (who is obligated to pay for medical treatment of the injured worker) to Medicare, which is good public policy since Medicare is funded by taxpayers.

In addition to the MSPA, the Center for Medicare Services (CMS) is authorized by Congress to set forth federal regulations concerning Medicare's rights with respect to workers compensation claims.

Medicare has the two following significant rights under the Medicare Secondary Payer Act (MSPA):

    1. To recover “conditional payments” from the primary payer (such as workers compensation insurance company), which means that if medical treatment is paid for by Medicare, but should be paid by the workers compensation insurance company, then Medicare has the right to recover its payments from the workers compensation insurance company; and
    2. To ensure that the primary payer (such as the workers compensation insurance company) adequately funds the employee's future medical costs in a workers compensation settlement.

So basically, the main point of the Medicare Secondary Payer Act (MSPA) is to “protect Medicare's interest,” which is important because Medicare (and thus the taxpayers) should not have to pay the medical expenses for a work-related injury that are otherwise owed by the workers compensation insurance company.

In short, Medicare will not allow the injured worker simply to settle his or her workers compensation claim, pocket all the money for the future medical expenses, and then have Medicare pay for all the future medical expenses.

To avoid such a scenario, Medicare requires that the workers compensation insurance company "set-aside" a portion of that settlement money so that it can be used for future medical expenses, thereby preventing Medicare from having to pay for those future medical expenses.

This process of "setting-aside" a portion of that settlement money is known as a "Medicare Set-Aside Arrangement" or an "MSA" for short.

In some circumstances, determining whether Medicare's interest is protected includes the Center for Medicare Services (CMS) reviewing the settlement for approval.

What is a Medicare Set-Aside Arrangement in Louisiana Workers Compensation?

In Louisiana workers compensation, a Medicare Set-Aside Arrangement (MSA) is a financial agreement that allocates a portion of a workers' compensation settlement to pay for future medical services related to the workers compensation injury, illness, or disease.

These funds that are "set-aside" in an MSA must be depleted before Medicare will pay for medical treatment related to the workers compensation injury, illness, or disease.

The Center for Medicare Services (CMS), which sets forth federal regulations concerning Medicare's rights with respect to workers compensation claims, states that all parties in a workers' compensation case have “significant responsibilities” to protect Medicare's interests when resolving cases that include future medical expenses.

While there are no laws requiring that an MSA be submitted to CMS for review, the recommended method to protect Medicare's interests is an MSA.

If any party chooses to submit an MSA for review, CMS requests that the party complies with its established policies and procedures.

CMS will only review new MSA proposals when one of the following conditions is met:

    1. The claimant is a Medicare beneficiary, and the total settlement amount is greater than $25,000.00; or
    2. The claimant has a reasonable expectation of Medicare enrollment within 30 months of the settlement date, and the anticipated total settlement amount for future medical expenses and disability/lost wages over the life or duration of the settlement agreement is expected to be greater than $250,000.00.

The amount of each MSA is determined on a case-by-case basis.

The Center for Medicare Services (CMS) recommends that any workers compensation claim involving a Medicare beneficiary be reported to the Benefits Coordination & Recovery Center (BCRC).

Once the claim has been reported, the BCRC will apply it to the beneficiary's Medicare record and send it to the Commercial Repayment Center (CRC) for processing.

The CRC will issue a Conditional Payment Letter (CPL) or Conditional Payment Notice (CPN) to the workers compensation insurance company and the employee, explaining Medicare's recovery rights with respect to conditional payments and outlining next steps in the process.

Medicare's Rights in Louisiana Workers Compensation

Medicare has two main rights under the Medicare Secondary Payer Act (MSPA) and Louisiana workers compensation law:

    1. To recover “conditional payments” from the workers compensation insurance company (which is backward-looking); and
    2. To ensure that the workers compensation insurance company adequately funds the employee's future medical costs in a settlement (which is forward-looking).

Concerning the first backward-looking right, this right to recover “conditional payments” from the workers compensation insurance company is the equivalent of a lien.

That is, if medical treatment that is otherwise owed by workers compensation is paid by Medicare, then Medicare has the right to recover its payments from the is the workers compensation insurance company.

In fact, the federal government is able to sue the workers compensation insurance company to recover the amount Medicare paid in conditional payments for the work injury, and double damages can be assessed against the workers compensation insurance company.

In other words, if it becomes necessary for the Center for Medicare Services (CMS) to take legal action to recover its lien, then CMS may recover twice the lien amount, plus interest.

The workers compensation insurance company is able through the coordination of benefits center website to request information on any conditional payments made, and CMS will send a conditional payments letter to the workers compensation insurance company upon such request.

This backward-looking right to recover “conditional payments” is not contingent on there being any workers compensation settlement; Medicare's right to recoup conditional payments exists regardless of whether a workers compensation settlement is ever reached.

So if the workers compensation insurance company has received a conditional payments letter from CMS, those conditional payments must be reimbursed to CMS regardless of whether the employee ever settles his or her claim.

Concerning the second forward-looking right to ensure that the workers compensation insurance company adequately funds the employee's future medical costs in a settlement, this second right of Medicare is linked specifically to a workers compensation settlement.

This second forward-looking right fulfills the main purpose of the Medicare Secondary Payer Act (MSPA) by ensuring the protection of “Medicare's interests” and preventing cost-shifting from the workers compensation insurance company (who is obligated to pay for medical treatment of the injured worker) to Medicare, which is good public policy since Medicare is funded by taxpayers.

Medicare should not assume the responsibility of paying the medical expenses for a work injury that is otherwise owed by the workers compensation insurance company.

So in order to ensure that Medicare will not have to begin paying for treatment upon settlement of the employee's claim, the proceeds must include an amount of money sufficient to cover the employee's future medical costs.

If the settlement is adequately funded, then Medicare's interest is protected as contemplated by the Medicare Secondary Payer Act (MSPA).

When to Consider Submitting a Settlement to CMS for Review in Louisiana Workers Compensation 

There are no legal requirements that any Medicare Set-Aside (MSA) must be sent to the Center for Medicare Services (CMS) for review or approval.

But if a party does choose to use the MSA review process of the Center for Medicare Services (CMS) in order to obtain approval, CMS requires compliance with CMS' established policies and procedures.

CMS reviews proposed MSA amounts in order to determine if the proposed MSA amount is sufficient to cover future medical expenses related to the workers compensation settlement, judgment, or award.

If a proposed MSA total settlement amount meets the "workload review" thresholds, the proposal can be submitted to CMS for approval.

If the parties to a workers compensation settlement stipulate to an MSA amount but do not receive CMS approval, then CMS is not bound by that MSA amount stipulated by the parties, and CMS may refuse to pay for future medical expenses related to the work-related injury, even if they would ordinarily have been covered by Medicare.

However, if CMS approves the MSA amount and the account is later appropriately exhausted, Medicare will pay Medicare-covered, work-injury-related medical bills for services otherwise covered and reimbursable by Medicare regardless of the amount of care the beneficiary continues to require.

An MSA amount should not be submitted to CMS when the resolution of the workers' compensation claim results in the medical portion of the claim being left open—that is, the resolution does not include medical expenses and the workers compensation insurance company will continue to pay for medical expenses related to the workers compensation injury after settlement. 

Generally, an MSA has a 6-month shelf-life; failure to submit an MSA to CMS within six months of the allocation will result in the need to redo the MSA.

The CMS "Workload Review" Thresholds 

CMS will review a proposed MSA amount when the following workload review thresholds are met:

    1. The claimant is a Medicare beneficiary, and the total settlement amount is greater than $25,000.00; or
    2. The claimant has a reasonable expectation of Medicare enrollment within 30 months of the settlement date, and the anticipated total settlement amount for future medical expenses and disability or lost wages over the life or duration of the settlement agreement is expected to be greater than $250,000.00.

A claimant has a reasonable expectation of Medicare enrollment within 30 months if any of the following apply:

    1. The claimant has applied for Social Security Disability Benefits;
    2. The claimant has been denied Social Security Disability Benefits but anticipates appealing that decision;
    3. The claimant is in the process of appealing and/or re-filing for Social Security Disability benefits;
    4. The claimant is 62 years and six months old; or
    5. The claimant has an End-Stage Renal Disease (ESRD) condition but does not yet qualify for Medicare based upon ESRD.

The $25,000 and $250,000 thresholds are determined by considering all parts of a settlement, including indemnity benefits and attorney's fees.

If the workers compensation case settles in conjunction with a tort case, the total amount received by the claimant in the settlement of the tort case (not just the net to the claimant after fees and expenses) is also used to determine if the workload threshold is met.

Thresholds for Current Medicare Beneficiaries

If the employee is a Medicare beneficiary at the time of the settlement, then Medicare's interests must be considered in the settlement.

An employee who is a Medicare beneficiary will already have a Medicare card and be eligible for Medicare benefits even if he or she has never utilized Medicare before.

Again, an employee who is a Medicare beneficiary will fall into one of the following four categories:

    1. Persons who have reached the requisite retirement age (generally 65 years) as set forth by the Social Security Administration;
    2. Persons who have received Social Security Disability Benefits for at least two years regardless of age;
    3. Persons who have been diagnosed with End-Stage Renal Disease (ESRD) and who are participating in a qualified treatment program (dialysis); and
    4. Persons who are diagnosed with Amyotrophic Lateral Sclerosis (ALS).

CMS will review a proposed workers compensation settlement of a current Medicare beneficiary to confirm that the settlement amount and, in particular, the future medical expense portion, protect Medicare's interests if the settlement value is $25,000.00 or greater.

However, CMS will not bother to review a workers compensation settlement of a Medicare beneficiary if the value of the settlement is below $25,000.

So Medicare's interest must be considered in all workers compensation settlements concerning an employee who is a current Medicare beneficiary, but CMS will only give formal approval of such a settlement if the value of a settlement exceeds $25,000.00.

Thresholds for Medicare Beneficiaries within the Following 30 Months

CMS also requires the employer to protect Medicare's interests when the employee is not yet a Medicare beneficiary, but there is a “reasonable expectation” of Medicare eligibility within the next thirty (30) months, and the total value of the settlement (undiscounted medicals and discounted indemnity) is $250,000.00 or greater.

Again, according to CMS, a reasonable expectation of Medicare enrollment exists when any of the following exist: 

    1. The claimant has applied for Social Security Disability Benefits;
    2. The claimant has been denied Social Security Disability Benefits but anticipates appealing that decision;
    3. The claimant is in the process of appealing and/or re-filing for Social Security Disability benefits;
    4. The claimant is 62 years and six months old; or
    5. The claimant has an End-Stage Renal Disease (ESRD) condition but does not yet qualify for Medicare based upon ESRD. 

If any of these five factors are present, and the total settlement value is $250,000.00 or more, the workers compensation insurance company must consider Medicare's interests.

CMS will also review the settlement if any of these five factors are present, and the total settlement value is $250,000.00 or more, and if the workers compensation insurance company wishes to submit it for approval.

CMS will not, however, review a settlement if the value is less than $250,000.00 even if there is a reasonable expectation of the employee being on Medicare within thirty months, and technically Medicare's interests do not have to be considered if the value is less than $250,000.00. 

There is No Requirement to Submit Any MSA to CMS

CMS thresholds are nothing more than workload thresholds - they govern when CMS will review an MSA but are in place merely to limit the number of MSAs reviewed.

If a workload threshold is met, an MSA can be submitted to CMS for approval; however, these thresholds are created based on CMS' workload, and are not intended to indicate that the parties may disregard Medicare's interests in Louisiana workers compensation claims.

Again, if the threshold is met, the MSA may be submitted to CMS for consideration; there is no requirement that an MSA be submitted to CMS for approval.

The workload thresholds exist solely to control the amount of paperwork received by CMS.

If a claimant is on Social Security Disability and Medicare and settles his case for $1,000,000, the parties still may proceed without submitting the MSA to CMS.

However, it should be a rare situation when an MSA meeting the threshold is not submitted to CMS, because CMS approval of an MSA should operate as a “get out of jail free” card.

An MSA should operate as a “get out of jail free” card because it is extremely unlikely that a federal judge would rule that an MSA did not adequately protect the Medicare's interests if CMS had already approved the MSA.

In fact, a primary benefit of submitting an MSA to CMS for approval is the certainty associated with CMS reviewing and approving the proposed amount with respect to the amount that must be appropriately exhausted.  

CMS Approval of Medicare Set-Asides in Louisiana Workers Compensation

Generally speaking, there are four steps involved in creating a CMS-approved MSA, as follows:

    1. Analysis of the workers compensation claim and medical information in order to determine the amount of money required for the MSA;
    2. Negotiation of a tentative settlement and preparation of draft settlement documents to settle the workers compensation case that incorporates terms for creation and administration of the MSA;
    3. Obtaining approval from CMS for the amount of the proposed MSA; and
    4. Finalizing the settlement and funding the MSA.

Generally, an MSA has a 6-month shelf-life; and failure to submit an MSA to CMS within six months of the MSA allocation will result in the need to redo the MSA.

In order for Medicare to review a settlement, the workers compensation insurance company will need to submit a consent-to-release form signed by the employee along with a copy of the employee's Medicare card if he or she is a beneficiary.

CMS will issue a letter to the requesting workers compensation insurance company and copy the employee advising whether the settlement and, in particular, whether the future medical portion of the settlement, “adequately considers Medicare's interests with respect to Medicare-covered future medical items and services, including prescription drugs.”

If CMS finds the amount is too low, it will include in the letter a higher dollar amount it believes adequately protects Medicare's interests.

CMS Approval Can Occur Before or After Approval by the OWC Court

The Medicare Secondary Payer Act (MSPA) does not require the parties to obtain CMS approval of the settlement before obtaining court approval in the Office of Workers' Compensation.

CMS review of a settlement may take months, and the parties may not want to wait on CMS before finalizing the settlement between themselves.

This is because the employee wants to hurry and get the lump sum cash payment, and the workers compensation insurance company wants to close the claim and bring down the reserves.

But approval of the settlement will not be recognized by CMS until a final copy of the workers compensation Judge's Order of Approval is received.

If the workers compensation Court approves the settlement first and then CMS comes back with a higher amount, the parties can file a motion with the workers compensation Court to modify the previously-approved settlement to reflect the amount determined by CMS to be adequate, and the workers compensation insurance company will typically pay the additional amount.

CMS May Come Back with a Higher MSA Amount

CMS will either approve the MSA or will recommend a different amount.

It is only very, very rarely, that CMS recommends a lower amount than the MSA amount submitted to it.

Typically, CMS will request a higher MSA amount, which is to be expected as most companies preparing allocations believe that a 100% approval rate would mean that their allocations are consistently too high.

If CMS recommends a higher amount, a request for reconsideration may be made, though these are rarely successful; nonetheless, there is no formal appeal process from a CMS determination.

If the MSA results from a settlement of a tort case in federal court, some magistrate judges are willing to hold a hearing to determine the adequacy of the MSA, and CMS should be invited to these hearings (although they will decline the invitation). The court will then take evidence on the MSA, including testimony from the employee's treating doctor on future medical treatment and perhaps an expert from the company that prepared the allocation before rendering a decision on the adequacy of the MSA. 

Once CMS either approves the allocation, or it becomes clear that CMS will not entertain further requests for reconsideration, the parties must decide how to proceed.

In Louisiana workers compensation, the workers compensation insurance company can reserve the right to void the medical settlement if CMS fails to produce a reasonable recommendation or can simply accept CMS' recommendation and fund the extra amount.

CMS' requests for increases have been more reasonable in recent years (and allocations have improved) then they were previously (where MSA allocations could be tripled by CMS for no good reason), which allows the parties to plan for CMS increases.

Pharmacy and Prescription Medication Issues with Medicare Set-Asides

Pharmacy and prescription medication costs are often the biggest driving cost in MSAs and often result in outrageously high MSA projections.

This is because CMS can look at the costs of the medication currently being prescribed and project that over the remainder of the employee's life without considering the necessity of that medication on a short-term basis only.

Unfortunately, these outrageously high MSA projections due to prescription medication costs can often prevent the workers compensation company from settling a claim.

One way to limit this is to have the treating doctor specify in a report or letter the reason for the current medication, the cost of generics, and whether the medication will taper off at some point as the employee continues to heal from the injury and to include the doctor's comments in the MSA submission.

This opinion of the employee's treating physician should be prepared on the physician's letterhead; neither a pre-prepared questionnaire nor a sworn affidavit from the employee will be acceptable to obtain large reductions in the future prescription medication set-aside.

The Medicare Set-Aside Accounts in Louisiana Workers Compensation

The most common method of ensuring CMS approval of a workers compensation settlement is through a “Medicare Set-Aside” account (MSA).

This practice of carving out the medical portion of the settlement proceeds and requiring the employee to “set it aside” to use for payment of future medical expenses has become the preferred manner for workers compensation insurance companies to protect Medicare's interest.

Typically, the workers compensation insurance company retains an outside vendor to prepare the MSA.

This outside vendor will assess the future medical exposure to include therapy, injections, prescription medication, routine doctor visits, diagnostics, and surgery if necessary, and then put a reasonable dollar amount on those future costs.

Thus, in preparing the MSA, this outside vendor is essentially cost-projecting the future medical expenditures over the employee's life expectancy and can be calculated using evidence-based medicine.

Once an MSA is established and funded, it must be administered, which can be done by the employee, the employee's representative, appointed guardian, or conservator, or by a professional administrator.

The administrator must establish the WCMSA account, pay Medicare-covered services from the WCMSA account, and provide CMS with a reporting of the expenditures from the WCMSA.

Professionally-Administered MSA Accounts

MSA accounts can either be self-administered by the employee or administered by a professional administrator.

Professional administration is more appropriate for larger MSA accounts because a failure to follow Medicare's rules on MSA administration of the account could result in the employee's inability to receive reimbursement for medical treatment from Medicare for workers compensation-related medical conditions even when the MSA is exhausted.

Professional administration typically only occurs in MSAs funded by an annuity, as both the MSA and the cost of professional administration can be covered in the annuity.

The professional administrator handles all aspects of the payment of the employee's medical bills, including ensuring payment at the proper rate and reporting to CMS.

The use of the professional administrator also serves as an extra layer of protection for the employee as Medicare's rules for administering an MSA account are generally too complicated for many injured workers.

Also, professional administration of an MSA should be used when an injured employee has non‐workers compensation-related mental issues ‐‐‐ such as a low level of intellectual functioning or other mental disorders, making it difficult for him to administer an MSA account.

Though CMS very rarely questions an injured employee's ability to self-administer an MSA, an employee's ability to comply with Medicare's rules should be considered when considering the proper means of administering the MSA.

Employee-Administered MSA Accounts

In addition to having an MSA administered by a professional administrator, an injured employee can self-administer MSA account.

Self-administration is more appropriate for larger MSA accounts since the employee will have much less work to do, much less exposure if an error occurs, and can save on the expenses of a professional administration of an MSA.

So, in settlements involving Medicare, the workers compensation insurance company will specify in the settlement documents how much of the total amount is to be set-aside and self- administered by the employee to pay for continued medical care.

The employee will agree to place the set-aside amount into an interest-bearing account and to only withdraw from that account to pay medical bills and medication expenses related to the work injury.

In self-administration of an MSA, the employee agrees to be the administrator of the account, so it is his or her responsibility to keep track of medical bills and receipts and to ensure that no bills are submitted to Medicare until the MSA is exhausted.

It is also the employee's responsibility to comply with Medicare's reporting and accounting rules and requirements regarding paying out of the MSA account, such as:

    1. The MSA funds must be kept in a separate interest-bearing account;
    2. The MSA funds can only be used for medical treatment related to the workers compensation injury that would otherwise be covered by Medicare and certain limited administration expenses;
    3. The worker's medical treatment must be paid at the rate used to calculate the MSA; and
    4. An annual accounting must be made to Medicare, using a form provided by Medicare.

If an injured employee is unable to handle these basic rules for administering an MSA, then the employee should probably choose a professional administered MSA rather than a self-administered MSA. 

Lump-Sum and Structured Settlements in Medicare Set-Asides in Louisiana Workers Compensation

Generally, two methods of funding MSAs exist: lump-sum funding and structured funding by an annuity.

If the workers compensation insurance company wants CMS approval of a structured MSA, then the structured terms will have to be submitted to CMS; that is, if CMS receives only a lump sum submission, then it will not review the MSA as a structure.

However, with the employee's permission, the workers compensation insurance company can go back to CMS to submit a structured MSA for approval.

But when CMS approves an MSA, they approve the method of funding as well, so the funding method can not likely be changed after CMS approval.

Nonetheless, even if an MSA is submitted to CMS as a structured annuity and is approved in such form, the workers compensation insurance company is still free to pay it in a lump sum if it so wishes.

Once CMS approves the annuitized MSA, then Medicare's obligation to pay kicks in if the employee exhausts the seed money (first-year post-settlement) or the annual payment in any year after that.

Medicare will also pay for the employee if he lives past his life expectancy.

Lump-Sum Funding of an MSA

An MSA can be established as a lump-sum arrangement where the injured worker accepts a single payment intended to pay for all future medical expenses and disability benefits related to the work injury or disease.

When an MSA is designated as a lump-sum settlement, Medicare will not make any payments for the employee's medical expenses (for work-related injuries or diseases) until all the funds within the MSA (including any interest earned on the funds in the account) have been completely exhausted.

Lump-sum funding of an MSA normally occurs when the amount of the MSA is low as structuring the account will not result in significant cost savings to the workers compensation insurance company.

And typically, when the amount of the MSA is low, the MSA will be self‐administered; but if CMS recommends a higher amount, the difference is normally given to the employee in a lump sum as well.

Generally, MSAs that are lump sums are easier to monitor than structured arrangements.

Structured Funding of an MSA Through Annuity

In addition to lump-sum funding of an MSA, an MSA can also be established as a structured arrangement (through annuitized funding), where payments are made to the account on a defined schedule to cover expenses projected for the future years.

Structuring the MSA portion of a compensation settlement is often used in cases where the MSA amount is high.

In a structured WCMSA, the workers compensation insurance company will make an initial payment to the employee ‐ the "seed money" ‐ followed by annual payments from a purchased annuity for the remainder of the employee's life expectancy.

The life expectancy is established by a “rated age,” or an impaired life expectancy based on the employee's injury, lifestyle, and other health conditions; however, the obligation of the workers compensation insurance company to pay for medical expenses ends with the death of the employee so determining an accurate rated age protects against inflating an MSA beyond the expected life of the employee.

The amount of seed money and the annual payments are determined in the allocation, but if CMS recommends higher amounts, adjustments are made to the annuity and the seed money depending on the recommendation of CMS. 

Structuring an MSA through an annuity provides benefits to both the workers compensation insurance company and the employee:

    • The workers compensation insurance company can mitigate its costs of funding the MSA which would be much more expensive in a lump sum payment; and
    • The employee is protected against squandering the MSA funds all at once because the receipt of medical proceeds is paid out periodically.  

If, in any given coverage year, the deposited funds are not completely spent, they are carried forward to the next period and added to the next annual deposit; the whole fund, including carry-forwards, must be exhausted before Medicare will pay for any work injury-related medical expenses.

If the fund is exhausted appropriately in a given annual period, Medicare will pay for further work injury-related medical expenses during that period; in the next annual period, the replenished MSA funds again must be used, until the MSA amount is appropriately exhausted. 

Attorney's Fees and Structured Settlements

An injured employee's attorney can not take his or her attorney's fee out of the seed payment in the employee's structured MSA.

So if the indemnity portion of the employee's claim is settled separately from the medical portion, and the proceeds of the medical claim are essentially the full MSA funds, then the employee's attorney can not take his or her attorney's fee out of the MSA seed payment.

This is because the MSA seed money constitutes payment of medical expenses in consideration of Medicare's interests, so the entire amount of this MSA seed money must be available to the employee to pay for his medical care in accordance with the Medicare Secondary Payer Act (MSPA). 

Medicare's Enforcement Rights in Louisiana Workers Compensation

A workers compensation Medicare Set-Aside Arrangement (MSA) allocates a portion of the workers compensation settlement for all future work-injury-related medical expenses that are covered and reimbursable by Medicare.

When a proposed MSA amount is submitted to CMS for review, and the claimant obtains CMS' approval, the CMS-approved MSA amount must be appropriately exhausted before Medicare will begin to pay for care related to the beneficiary's settlement, judgment, award, or other payment.

The goal of establishing an MSA is to estimate, as accurately as possible, the total cost that will be incurred for all medical expenses otherwise reimbursable by Medicare for work-injury related conditions during the claimant's life, and to set aside sufficient funds from the settlement, judgment, or award to cover that cost.

Once the CMS-approved set-aside amount is exhausted and accurately accounted for to CMS, Medicare will pay primary for future Medicare-covered expenses related to the workers compensation injury that exceed the approved set-aside amount.

Claimants who receive a workers' compensation settlement, judgment, or award that include an amount for future medical expenses must consider Medicare's interest concerning future medical treatment.

If Medicare's interests are not considered, CMS has a priority right of recovery against any entity that received any portion of a third-party payment either directly or indirectly—a right to recover, or take back, that payment.

Medicare may also refuse to pay for future medical expenses related to the work-related injury until the entire settlement is exhausted.

There are two main situations where Medicare may try to enforce its rights following a Louisiana workers compensation settlement:

    1. When the employee fails to comply with the rules for administering an MSA; and
    2. When the MSA itself (or the lack of an MSA) does not adequately protect the interests of Medicare.

When the Employee Fails to Comply with MSA Rules

When an injured employee fails to comply with the rules for administering an MSA, Medicare will likely require that the employee replace the funds in the MSA.

Typical failures to comply with the rules for administering an MSA include situations where:

    1. The employee has failed to report claims;
    2. The employee has mistakenly overpaid claims; and
    3. The employee has mistakenly used the MSA for expenses not allowed by CMS.

In such scenarios, Medicare may also refuse to pay for related medical treatment until the employee has replaced and exhausted these funds.

If the employee fraudulently used the funds for an obviously non‐intended purpose or repeatedly violated Medicare's rules, Medicare could also seek to recover any payments it made for related treatment that should have come out of the MSA plus double damages.

Also, if the MSA is inadequate due to the employee's inability to administer it and that inadequacy was not conveyed to CMS at the time that the settlement was submitted for approval, the workers compensation insurance company may be liable for the payments made and double damages.

When the MSA Itself (Or the Lack of an MSA) Does Not Adequately Protect the Interests of Medicare

Once the workers compensation insurance company and the injured employee have received approval on an MSA from CMS, they can rest assured that they have “adequately considered Medicare's interests.”

The injured employee knows there is enough money to continue treating and has the assurance that in the event the set-aside is exhausted Medicare will take over payment of his treatment related to the work injury the workers compensation insurance company knows that they have a full release of all workers compensation liability from the employee and that CMS will not come back on them to recoup any supposed underpayment of future medical expenses that should have been included in the settlement. 

But if CMS does not approve a settlement, or if a settlement is not even submitted for a CMS for review, CMS has the right to go after the workers compensation insurance company and the employee for a settlement that does not adequately protect Medicare's interests.

In fact, CMS can also deny Medicare payments to the employee up to the amount of the total settlement if CMS approval is not obtained.

But again, there is no law or regulation that requires CMS approval of any workers compensation settlement; federal law only requires that Medicare's interests be considered in settlements where the employee is a current beneficiary or where the employee has a reasonable expectation of being on Medicare within thirty months, and the settlement value is $250,000.00 or greater.

So a workers compensation insurance company who has in good faith evaluated the employee's future medical and pharmacy expenses and who agrees to pay in a settlement an amount that reasonably funds payment of those expenses has complied with the law, and the workers compensation insurance company and the employee should be protected against any concern of Medicare post-settlement. 

True Compensability Disputes

Medicare's interests do not need to be considered in settlement of a true compensability dispute, which is when the workers compensation insurance company alleges that the employee should not even have to be paid at all.

For example, if the workers compensation insurance company believes that the employee did not have a compensable accident, or that he or she was not in the course of employment at the time of the accident, or that the employee was intoxicated at the time of the accident, or that the employee's alleged injury is a pre-existing condition completely unrelated to the work accident, then the employer's position is that no benefits are owed because the underlying claim is not "compensable" under Louisiana law in the first place.

In these situations, the workers compensation insurance company is not a primary payer under the MSPA, and there is no need to protect Medicare's interests.

In fact, federal law states that if a “lump sum compromise settlement forecloses the possibility of future payment of workers compensation benefits, medical expenses incurred after the date of the settlement are payable under Medicare.”

But federal law also states that if the settlement “appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for the treatment of a work-related condition, the settlement will not be recognized.”

So both the injured employee and the workers compensation insurance company must consider whether the settlement is a true compromise of a disputed claim versus a commutation settlement that relieves the employer from exposure of an ongoing obligation of paying benefits that are not disputed, and both parties must be in good faith when asserting the settlement is a compromise of a compensability dispute.

But settlements of truly contested, non-compensable claims are often of the lower dollar amount, as it would not make sense for the employer to argue it has no liability under the workers compensation act yet pay a large full value settlement.

However, if the facts of a case indicate that the compensability defense being raised by the workers compensation insurance company is without merit, then simply stating in the settlement documents that the settlement is a compromise of a disputed claim and that the workers compensation insurance company contends it has no liability will not make that settlement a true compromise.

This would amount to the very cost-shifting that the MSPA sets out to avoid. A good practice is to evaluate the strengths and weaknesses of the defense, to include analyzing the chances of winning at trial. 

The Louisiana Statute for Medicare Set-Asides (MSAs) in Louisiana Workers Compensation

The primary Louisiana statute regarding Medicare Set-Asides (MSAs) in Louisiana workers compensation is La. R.S. 23:1212, which reads as follows:

§1212.  Medical expense offset

A.  Except as provided in Subsection B, payment by any person or entity, other than a direct payment by the employee, a relative or friend of the employee, or by Medicaid or other state medical assistance programs of medical expenses that are owed under this Chapter, shall extinguish the claim against the employer or insurer for those medical expenses.  This Section shall not be regarded as a violation of R.S. 23:1163.  If the employee or the employee's spouse actually pays premiums for health insurance, either as direct payments or as itemized deductions from their salaries, then this offset will only apply in the same percentage, if any, that the employer of the employee or the employer of his spouse paid the health insurance premiums.

B.  Payments by Medicaid or other state medical assistance programs shall not extinguish these claims and any payments made by such entities shall be subject to recovery by the state against the employer or insurer.

Acts 1989, No. 454, §5, eff. Jan. 1, 1990; Acts 2001, No. 1062, §1.

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