SPECIAL ISSUES IN WC AND TPL SETTLEMENTS
INVOLVING PRESERVATION OF ELIGIBILITY FOR
MULTIPLE PUBLIC BENEFIT PROGRAMS: PART II
By John J. Campbell, Esq.
Introduction
Planning to maintain Medicare eligibility in the context of worker’s
compensation (WC) settlements has become a fairly common practice. As a result,
Medicare Set Aside Arrangements are now used routinely in the settlement of WC
claims involving future medical expenses where the claimant must maintain
eligibility for Medicare benefits. Plaintiffs wishing to preserve Medicare eligibility
following their TPL settlements involving future medical expenses also should be
more likely to employ some sort of arrangement, similar to a Medicare Set Aside
Arrangement, as part of their settlements.
However, there are many cases where the plaintiff may be severely disabled
and may have future requirements for significant attendant or custodial care, which
are not covered by Medicare. In addition, the plaintiff may only receive a limited
monthly SSDI benefit and may wish to be able to qualify for SSI. There are those
cases, too, in which the plaintiff might currently rely on Medicaid or SSI, in
addition to Medicare and SSDI, to meet his or her ongoing needs.
Because eligibility criteria for Medicare, Medicaid, SSDI and SSI vary so
widely, unique and complex issues arise in settlements for plaintiffs needing to
access these multiple benefit programs. Settlement of these types of complex cases
requires a holistic approach to public benefit planning to ensure that the receipt of
settlement proceeds will not foreclose the plaintiff’s ability to access all public
benefit programs which he or she may need.
Part I of this article focused on the features and eligibility criteria applicable
to each of the 4 most relevant public benefit programs: Medicare, Medicaid, SSDI
and SSI. Part II of this article will discuss some special settlement planning
techniques and considerations necessary to preserve multiple public benefit
eligibility for the settling plaintiff.
1
Government Claims and Liens
In any settlement involving a plaintiff who was eligible for either Medicare
or Medicaid at any time following his or her injury, there may be a Medicare
Secondary Payer (MSP) claim or a Medicaid lien that must be satisfied before any
other payments may be made from settlement proceeds. Therefore, it is essential in
such cases to give notice of the plaintiff’s claim and any potential settlement to the
Medicare Coordination of Benefits Contractor and the Medicaid agencies in any
states where the plaintiff may have received those benefits.
Notice of the plaintiff’s WC or TPL claim should be given as soon as the
plaintiff knows of its existence. Early notification can help to prevent or minimize
overpayments where a third party, such as a WC or no-fault carrier, has the
responsibility to provide for the plaintiff’s medical care on an ongoing basis.
Further, the sooner Medicare and Medicaid are on notice of the existence of a
claim, the more quickly they can determine the total amounts of any payments they
may have made for injury related medical care.
The plaintiff should also notify both Medicare and Medicaid of a potential
settlement as soon as the real possibility of settlement arises. This will increase the
likelihood that at an accurate estimate of any potential MSP claim and Medicaid
lien amounts can be known before the parties negotiate the final settlement terms.
This is important because satisfaction of both the MSP claim and the
Medicaid lien is required before any distributions from settlement can be made to
the plaintiff or to fund a Medicaid or SSI exempt trust under OBRA ‘93. If the
plaintiff agrees to a settlement amount without knowing what the MSP claim or
Medicaid lien amounts are, he or she takes the risk that those government claims
and liens could exhaust the settlement proceeds and leave little or nothing for the
plaintiff’s needs.
Medicare Secondary Payer Claims
The Medicare Secondary Payer statute was originally enacted in 1980 and is
codified under federal law at 42 U.S.C. §1395y(b). The statute was amended by the
Omnibus Budget Reconciliation Act of 1989 (OBRA ‘89); and again by the
2
Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA).
The OBRA ‘89 provisions became the subject of significant controversy for
several years recently, due to conflicting federal court decisions regarding the
interpretation of the amended statutory language. The language at issue, contained
in 42 U.S.C. §1395y(b)(2)(A) & (B), stated:
(2) Medicare secondary payer
(A) In general
Payment under this subchapter may not be made, except as provided in
subparagraph (B), with respect to any item or service to the extent that . . .
(ii) payment has been made or can reasonably be expected to be made
promptly (as determined in accordance with regulations) under a workmen's
compensation law or plan of the United States or a State or under an
automobile or liability insurance policy or plan (including a self-insurance
plan) or under no fault insurance.
In this subsection, the term "primary plan" means . . . a workman's
compensation law or plan, an automobile or liability insurance policy or plan
(including a self-insured plan) or no fault insurance, to the extent that clause
(ii) applies.
42 U.S.C. §1395y(b)(2)(A); and
(i) Primary Plans
Any payment under this subchapter ... shall be conditioned on reimbursement
to the appropriate Trust Fund established by this subchapter when notice or
other information is received that payment for such item or service has been
or could be made under such subparagraph. ...
(ii) Action by United States
In order to recover payment under this subchapter for such an item or service,
the United States may bring an action against any entity which is required or
responsible (directly, as a third-party administrator, or otherwise) to make
3
payment with respect so such item or service (or any portion thereof) under a
primary plan ..., or against any other entity (including any physician or
provider) that has received payment from that entity with respect to the item
or service, and may join or intervene in any action related to the events that
gave rise to the need for the item or service. ...
42 U.S.C. §1395y(b)(2)(A).
In 2002, the U.S. Court of Appeals for the 5th Circuit decided the case of
Thompson v. Goetzman, 315 F.3d 457 (5th Cir. 2002), aff'd en banc, 337 F.3d 489
(5th Cir. 2003). In that case the 5th Circuit held that a payment by the defendant
directly to the plaintiff did not constitute a "self-insurance plan" under the federal
MSP statute, since the defendant did not have formal claims procedures in place
similar to those used by an insurance company. The Goetzman Court also found
that the existing language of the MSP statute limited the government’s right to
recover its MSP claim to those situations in which a third party payer was expected
to pay promptly (within 120 days according to the MSP regulations) for the
plaintiff’s medical claims. Thus, the defendant in Goetzman was held not to be a
"third party payer" under the MSP statute and was permitted to completely avoid
repayment of Medicare's considerable MSP claim in that case.
The following year, the U.S. Court of Appeals for the 11th Circuit arrived at
the opposite conclusion regarding the meaning of the language in 42 U.S.C.
§1395y(b)(2)(A) & (B). United States v. Baxter Int'l, Inc., 345 F.3d 866 (11th Cir.
2003). The 11th Circuit concluded that it was the clear intent of the statute that
Medicare always be secondary, regardless of whether prompt payment could be
expected from a third party payer. The Baxter Court also rejected Goetzman’s
holding that a setting aside of funds and the existence of formal claims procedures
are necessary to the existence of a “self-insurance plan.”
The MMA, which was enacted by Congress in 2003, contained significant
revisions to the MSP statute which were clearly directed at setting this controversy
aside. Specifically, the MMA made the following changes to the MSP statute (new
language is underlined and language that was removed is stricken through):
(2) Medicare secondary payer
(A) In general
4
Payment under this subchapter may not be made, except as provided in
subparagraph (B), with respect to any item or service to the extent that . . .
5
(ii) payment has been made or can reasonably be expected to be made
promptly (as determined in accordance with regulations) under a workmen's
compensation law or plan of the United States or a State or under an
automobile or liability insurance policy or plan (including a self-insured plan)
or under no fault insurance. . .
. . . An entity that engages in a business, trade, or profession shall be deemed
to have a self-insured plan if it carries its own risk (whether by a failure to
obtain insurance, or otherwise) in whole or in part.
(B) Repayment required
(i) AUTHORITY TO MAKE CONDITIONAL PAYMENT- The Secretary
may make payment under this title with respect to an item or service if a
primary plan described in subparagraph (A)(ii) has not made or cannot
reasonably be expected to make payment with respect to such item or service
promptly (as determined in accordance with regulations). Any such payment
by the Secretary shall be conditioned on reimbursement to the appropriate
Trust Fund in accordance with the succeeding provisions of this subsection.
(ii) Primary plans
Any payment under this subchapter with respect to any item or service to
which subparagraph (A) applies shall be conditioned on reimbursement to the
appropriate Trust Fund established by this subchapter when notice or other
information is received that payment for such item or service has been or
could be made under such subparagraph. A primary plan, and an entity that
receives payment from a primary plan, shall reimburse the appropriate Trust
Fund for any payment made by the Secretary under this title with respect to
an item or service if it is demonstrated that such primary plan has or had a
responsibility to make payment with respect to such item or service. A
primary plan's responsibility for such payment may be demonstrated by a
judgment, a payment conditioned upon the recipient's compromise, waiver, or
release (whether or not there is a determination or admission of liability) of
payment for items or services included in a claim against the primary plan or
the primary plan's insured, or by other means. If reimbursement is not made
to the appropriate Trust Fund before the expiration of the 60-day period that
begins on the date such notice or other information is received on the date
notice of, or information related to, a primary plan's responsibility for such
payment or other information is received the Secretary may charge interest
6
(beginning with the date on which the notice or other information is received)
on the amount of the reimbursement until reimbursement is made (at a rate
determined by the Secretary in accordance with regulations of the Secretary
of the Treasury applicable to charges for late payments).
(iii) Action by United States
In order to recover payment under this subchapter for such an item or service,
the United States may bring an action against any entity which is required or
responsible (directly, as a third-party administrator, or otherwise) to make
payment with respect to such item or service (or any portion thereof) under a
primary plan (and may, in accordance with paragraph (3)(A) collect double
damages against that entity), or against any other entity (including any
physician or provider) that has received payment from that entity with respect
to the item or service, and may join or intervene in any action related to the
events that gave rise to the need for the item or service. In order to recover
payment made under this title for an item or service, the United States may
bring an action against any or all entities that are or were required or
responsible (directly, as an insurer or self-insurer, as a third-party
administrator, as an employer that sponsors or contributes to a group health
plan, or large group health plan, or otherwise) to make payment with respect
to the same item or service (or any portion thereof) under a primary plan.. . .
42 U.S.C. §1395y(b)(2)(A) & (B) (2004).
Thus, Congress essentially legislated Goetzman out of existence in passing
the MMA's amendments to the MSP statute. Brown v. Thompson, 374 F.3d 253
(4th Cir. 2004). Medicare’s status as secondary payer and its rights to recover any
overpayments or conditional payments are now clear. Any third party who is liable
for payment of Medicare covered services is considered primary to Medicare. By
agreeing to settlement of a WC or TPL claim, the WC or liability insurance carrier
(or self-insured defendant) establishes its liability under the MSP statute.
Any payments Medicare may have made for the plaintiff’s injury related
medical expenses prior to settlement, even if payments were made by mistake, will
result in an MSP claim which must be satisfied as part of the settlement. If not, the
Centers for Medicare and Medicaid Services (CMS) can bring suit for repayment of
Medicare’s claim against the WC or liability insurance carrier, a self-insured
7
defendant or employer, or any entity which receives proceeds from the settlement,
including the plaintiff and his or her attorney.
In a suit against an insurance carrier to recover its MSP claim, CMS can seek
double damages. A similar private right to sue the carrier for double damages is
also granted under federal law to the WC claimant who is eligible for Medicare
benefits.
Medicare’s claim is always first in line for repayment from settlement
proceeds, even before any state Medicaid liens that may exist.
Medicare will reduce its claim to take into account the plaintiff’s costs and
attorney’s fees in procuring the settlement. In addition, there are essentially three
methods that can be employed to seek full or partial waivers of Medicare’s claim.
The MSP claim can be either compromised or waived, pursuant to 31 U.S.C. §3711
(the Federal Claims Collection Act), under the MSP statute (42 U.S.C.
§1395y(b)(2)(B)(iv), or under 42 U.S.C. §1395gg(c).
The bases for a compromise under 31 U.S.C. §3711 are: 1) the claimant does
not have the money to repay the claim within a reasonable period of time; 2) CMS
would find it difficult to prevail on the claim in a court of law; or 3) the costs to
CMS of collecting the claim exceeds the value of the claim. Under 42 U.S.C.
§1395gg, claims can be compromised for economic hardship, for equity and good
conscience, and for reasons beyond the fault of the claimant.
Under the MSP statute, claims can be waived, in whole or in part, if waiver is
determined to be in the best interests of the MSP program. A denial of a waiver
request under this provision is not appealable.
Medicaid Liens
The ability of the states to recover liens from WC and TPL settlements for
Medicaid benefits provided to the plaintiff has its origins in two federal statutory
provisions. Those provisions state:
(a) A State plan for medical assistance must – . . .
8
(25) provide – . . .
(H) that to the extent that payment has been made under the State plan
for medical assistance in any case where a third party has a legal
liability to make payment for such assistance, the State has in effect
laws under which, to the extent that payment has been made under the
State plan for medical assistance for health care items or services
furnished to an individual, the State is considered to have acquired the
rights of such individual to payment by any other party for such health
care items or services.
42 U.S.C. §1396a(a)(25)(H); and
(a) For the purpose of assisting in the collection of medical support
payments . . . a State plan for medical assistance shall –
(1) provide that, as a condition of eligibility for medical assistance . . .
to an individual . . . the individual is required –
(A) to assign the State any rights . . . to payment for medical care from
any third party; . . .
(C) to cooperate with the State in identifying, and providing
information to assist the State in pursuing, any third party who may be
liable to pay for care and services available under the plan. . .
42 U.S.C. §1396k(a)(1).
At the same time, federal law contains a seemingly conflicting provision,
often referred to as the “anti-lien statute.” That statute provides:
(a) . . .
(1) No lien may be imposed against the property of any individual prior to his
death on account of medical assistance paid or to be paid on his behalf under
the State plan, except
(A) pursuant to the judgment of a court on account of benefits incorrectly
paid on behalf of such individual, or
(B) in the case of the real property of an individual - (i) who is an inpatient in
a nursing facility, intermediate care facility for the mentally retarded, or other
medical institution, if such individual is required, as a condition of receiving
9
services in such institution under the State plan, to spend for costs of medical
care all but a minimal amount of his income required for personal needs, and
(ii) with respect to whom the State determines, after notice and opportunity
for a hearing (in accordance with procedures established by the State), that he
cannot reasonably be expected to be discharged from the medical institution
and to return home . . .
42 U.S.C. §1396P(a)(1).
A controversy arose almost immediately over whether the anti-lien statute
prohibited states from executing Medicaid liens against the proceeds of WC and
TPL settlements. The U.S. Department of Health and Human Services,
Departmental Appeals Board issued two decisions in the mid-1990's addressing this
issue. Those decisions each stated the position of the U.S. Department of Health
and Human Services (HHS) that federal law permits states to seek recovery from all
settlement proceeds; and that these proceeds are not considered “property of the
individual” because the state’s Medicaid lien attaches while the settlement proceeds
are still property of the defendant (or the defendant’s insurance carrier). Calif.
Dep’t. of Health Servs., D.A.B. No. 1504. 1995 WL 66334 (HHS Jan. 5, 1995); and
Wash. State Dep’t of Soc. and Health Servs., D.A.B. No. 1561, 1996 WL 157123
(HHS Feb. 7, 1996).
The courts in several states were quick to adopt HHS’s position. A line of
cases ensued in which it was held that the effect of 42 U.S.C. §1396a(a)(25)(H), 42
U.S.C. §1396k(a)(1) and HHS’s construction of 42 U.S.C. §1396P(a)(1) was to
render the Medicaid lien statute inapplicable to TPL settlements altogether. Thus,
these cases held that the states were empowered to recover their liens from all
settlement proceeds under statutorily mandated assignments by Medicaid
beneficiaries of all of their rights to recovery against third parties. Cricchio v.
Pennisi, 683 N.E.2d 301 (N.Y. 1997); Calvanese v. Calvanese, 710 N.E.2d 1079
(N.Y. 1999); Waldman v. Candia, 722 A.2d 581 (N.J.Super.App.Div. 1999);
Wilson v. State, 10 P.3d 1061 (Wash. 2000); and Houghton v. Department of
Health, 57 P.3d 1067 (Utah 2002).
In 2002, the Minnesota Supreme Court rejected the position of HHS and the
courts in New York, New Jersey, Washington and Utah in an unusually meticulous
10
and thorough opinion. Martin v. City of Rochester, 642 N.W.2d 1 (Minn. 2002). In
the Martin case, the Court undertook a detailed analysis of all three federal statutory
provisions under criteria requiring that, wherever possible, statutes should be
construed to give them their plain meaning and to resolve any apparent conflicts.
The Martin Court first declined to follow HHS’ position that settlement
proceeds are not considered “property of the individual” because the state’s
Medicaid lien attaches while the settlement proceeds are still property of the
defendant. The Court found that the plaintiff’s right to pursue a claim against a
liable third party is property of the individual; and that the federal anti-lien statute
forbids the placing of a Medicaid lien against such property, except to the extent the
plaintiff may have assigned his or her claims to the state under 42 U.S.C.
§1396a(a)(25)(H) and 42 U.S.C. §1396k(a)(1).
The Court then reasoned that the clear meaning of the language in 42 U.S.C.
§1396a(a)(25)(H) and 42 U.S.C. §1396k(a)(1) was that the states were only
permitted to recover liens for Medicaid benefits provided to the extent that the
plaintiff may have held a claim against a third party for medical expenses that were
paid by Medicaid. Therefore, the state statute that required Medicaid beneficiaries
to assign all claims against third parties to the estate was in excess of what was
allowed under federal law. The Court held that, to the extent the state’s assignment
statute required assignment of claims other than claims for past medical expenses
that were paid by Medicaid, the state statute was preempted by federal law.
The Martin Court ultimately found that the three federal statutes created a
statutory scheme whereby the states were authorized under 42 U.S.C.
§1396a(a)(25)(H) and 42 U.S.C. §1396k(a)(1) to seek recovery from any portion of
a TPL settlement meant to compensation the plaintiff for past medical expenses that
were covered by Medicaid. At the same time, the federal anti-lien statute prohibited
the states from placing Medicaid liens on settlement proceeds meant to compensate
the plaintiff for damages other than past medical expenses, as those other damage
claims could not rightly be required to be assigned to the states.
In 2005, the first decision on this issue by a federal appellate court was issued
by the U.S. Court of Appeals for the 8th Circuit. Ahlborn v. Arkansas Dept. of
Human Services, 397 F.3d 620 (8th Cir., Feb. 9, 2005). In that case, the plaintiff had
11
been seriously injured and permanently disabled in a motor vehicle accident in
1996. She applied and qualified for Medicaid benefits in the State of Arkansas.
According to Arkansas law, she was required, as a condition of Medicaid
eligibility, to assign “any settlement, judgment, or award which may be obtained
against any third party” to the Arkansas Department of Human Services (ADHS),
the state Medicaid agency, “to the full extent of any amount which may be paid by
Medicaid” for her benefit. Ark. Code Ann. §20-77-307(a).
By the time Ms. Ahlborn settled her third party tort claim, Medicaid had
made payments totaling $215,645.30 for her care. The net amount of Ms.
Ahlborn’s settlement was $550,000, of which $35,581.47 represented settlement of
her claim for past medical expenses. Based upon state law and the required
assignment, ADHS attempted to assert its $215,645.30 Medicaid lien against the
entire settlement.
Ms. Ahlborn sued ADHS in federal court, seeking a declaratory judgment
that ADHS could only recover its lien from the portion of her settlement
representing payment for past medical expenses. Ms. Ahlborn’s argument was
based upon the anti-lien statute.
ADHS argued that the Arkansas statute requiring the assignment of all rights
against third parties was required by 42 U.S.C. §1396a(a)(25)(H) and 42 U.S.C.
§1396k(a)(1). Those provisions, argued ADHS, allowed the state to recover its lien
from all settlement proceeds, rather than just that portion of proceeds meant to
compensate the beneficiary for medical expenses. Further, ADHS argued that the
federal anti-lien statute did not prohibit this because the settlement proceeds were
not Ms. Ahlborn’s property when the state’s lien attached, since the proceeds were
still in the hands of the defendants.
ADHS’ argument relied heavily on Houghton v. Dep’t of Health, 57 P.3d
1067 (Utah 2002); and Wilson v. State, 10 P.3d 1061 (Wash. 2000). ADHS also
relied heavily on the U.S. Department of Health and Human Services, Departmental
Appeals Board decisions in Calif. Dep’t. of Health Servs., D.A.B. No. 1504. 1995
WL 66334 (HHS Jan. 5, 1995); and Wash. State Dep’t of Soc. and Health Servs.,
D.A.B. No. 1561, 1996 WL 157123 (HHS Feb. 7, 1996).
12
The Eighth Circuit Court of Appeals analyzed and rejected the holdings in
Haughton and Wilson. Primarily, the Court disagreed with those courts’
construction of the federal statutes permitting state Medicaid lien recovery. As the
Court stated:
We believe a straightforward interpretation of the text of these statutes
[42 U.S.C. §1396a(a)(25)(H); and 42 U.S.C. §1396k(a)(1)]
demonstrates that the federal statutory scheme requires only that the
State recover payments from third parties to the extent of their legal
liability to compensate the beneficiary for medical care and services
incurred by the beneficiary. Under §1396a(a)(25)(H), a state Medicaid
plan must include provisions specifying that, when the State provides
medical benefits to an applicant, “the State is considered to have
acquired the rights of such individual to payment by any other party for
such health care items or services.”. . . This acquisition of rights
occurs only in cases where “a third party has a legal liability to make
payment for [medical] assistance. Id. Section 1396k(a)(1) similarly
requires that an applicant assign to the State her right “to payment for
medical care from any third party.” . . . Both statutes are thus limited
to rights to third-party payments made to compensate for medical care.
In so ruling, the Court favorably cited Martin. The Court, following the same
line of reasoning as did the Minnesota Supreme Court, determined that the key
issue was whether the proceeds of the settlement constituted Ms. Ahlborn’s
“property.”
Further, the Court was not willing to accept HHS’s interpretation of the
relevant federal statutes on that issue. The Court stated that deference to HHS’s
interpretation of the law, as stated in the two HHS decisions cited above, was
inappropriate where the language of the federal statutes in question was not
ambiguous.
Instead, the Court conducted a separate analysis and concluded that Ms.
Ahlborn’s unliquidated tort claim was a “chose in action”, treated as “property”
under both statute and common law. Further, the Court declined to differentiate
13
between the settlement proceeds themselves and Ms. Ahlborn’s claim to those
proceeds. Thus, the Court reasoned, the federal anti-lien statute clearly prohibited
the placement of a lien on those claims, except to the extent that 42 U.S.C.
§1396a(a)(25)(H) and 42 U.S.C. §1396k(a)(1) permitted the states to recover from
third party payments for medical care.
As the Court stated:
In the end, we are left with a federal statutory scheme that clearly
requires Ahlborn to assign her rights to recover from third parties for
the costs of medical care and services incurred as a result of their
tortious conduct, but protects all of Ahlborn’s nonassigned property
from recovery by the State through the anti-lien statute. The Arkansas
statutes requiring Ahlborn to assign her entire cause of action against
the third-party tortfeasors, and establishing a statutory lien on
settlement proceeds for matters other than medical care and services,
conflict with and frustrate this federal scheme.
As a result, the Court held that, to the extent that the Arkansas statutes require an
assignment of rights to third party claims or payments other than for medical care,
the Arkansas statutes are pre-empted by federal law.
The Ahlborn case is the first case decided by a federal appellate court on the
issue of the scope of the states’ rights to recover Medicaid liens from the proceeds
of third party settlements. As such, Ahlborn could signal a significant change in the
law in this area. Further, while Ahlborn dealt with a TPL settlement, the Court’s
reasoning would seem equally applicable to WC settlements.
For large settlements where a state Medicaid agency may attempt to assert a
lien significantly greater than the portion of the settlement reasonably allocated to
past medical expenses, it may be worth pursuing the remedy of declaratory
judgment in federal court, rather than waiting for the state agency to sue in state
court. A state’s allegedly over broad enforcement of its Medicaid lien recovery
rights may also form the basis of a suit in federal court under 42 U.S.C. §1983.
Certainly, for plaintiffs living in one of the states under the jurisdiction of the
14
federal Eighth Circuit Court of Appeals, the Ahlborn opinion would constitute
strong precedent. Medicaid lien recovery is almost certain to be restricted to
settlement proceeds for past medical expenses these states.
Other federal circuits may find Ahlborn persuasive as well. The federal
Tenth Circuit Court of Appeals, for instance, has issued rulings in the past that seem
to signal a policy to restrict the ability of states to enact Medicaid laws that go
beyond the powers granted to the states under federal law. E.g., Ramey v.
Reinertson, 268 F.3d 955 (10th Cir. 2001).
Even in states such as Utah, New York, New Jersey and Washington, where
the state courts have ruled that their state Medicaid agencies are empowered to seek
recovery from non-medical portions of settlement recoveries, the federal courts with
jurisdiction over those states may prove more friendly forums. Alternatively, a
state Medicaid agency may be more willing to negotiate recovery of its lien from
settlement, knowing that there is a risk that a federal court may determine the state’s
Medicaid lien statute to be subject to federal preemption under Ahlborn.
Strong advocacy is needed when dealing with state Medicaid liens in the
context of third party and worker’s compensation settlements. The Ahlborn case
could prove to be an effective tool to ensure that the greatest possible portion of
settlement proceeds will remain available to the plaintiff.
Medicare Set Aside Arrangements
WC Settlements
Federal law provides Medicare with expansive rights in the context of WC
settlements involving claimants who are, or soon will become eligible for Medicare
benefits. The MSP statute and regulations establish Medicare’s status as secondary
payer in relation to the WC carrier or self-insured employer. Any overpayments or
conditional payments that Medicare may make prior to settlement must be
reimbursed before any other claims or liens.
The MSP statute and regulations also specifically provide that Medicare will
not pay for any future medical expenses after a settlement is received until the total
15
future medical expenses related to the employee’s injury equals the portion of the
settlement which was allocated to future medical expenses. (42 C.F.R.
§411.46(d)(2).)
If the WC settlement does not close out future medical expense liability,
Medicare will continue to be secondary payer with relation to the WC carrier.
However, federal law also allows Medicare to retain its secondary payer status after
a WC settlement that does foreclose future liability for the claimant's work related
medical expenses, at least until the amount of the settlement which was allocated to
future medical expenses is exhausted on medical expenses. Any conditional
payments or overpayments Medicare may make for the claimant’s work related
medical expenses after settlement can result in a post-settlement MSP claim,
leaving the claimant, his or her attorney and the WC carrier or self-insured
employer vulnerable to potential future liability.
Where a proper allocation to future medical expenses is not made as part of
settlement that closes out future medical expenses, CMS will consider the entire
settlement as being allocated to future medical expenses by application of a formula
found in the federal regulations. If CMS believes that a WC settlement does not
reasonably consider Medicare's interests and that the settlement is an attempt to
shift responsibility for the WC claimant's future medical expenses from the WC
carrier to Medicare, CMS even has the power to disregard the settlement altogether.
(42 C.F.R. §411.46(b)(2).) In such instances, CMS may then continue to treat the
WC carrier as a primary payer, even after the settlement has been approved and
finalized by the state WC judge or commissioner.
Even in settlements containing a reasonable allocation to future medical
expenses, the claimant will have the responsibility to ensure that these allocated
funds are spend only on future, work related medical expenses of the type normally
covered by Medicare. Otherwise, CMS will deny future coverage for work related
medical care.
When a WC claim is settled without the parties properly complying with the
requirements of the federal MSP statute and regulations (42 U.S.C. §1395y; and 42
C.F.R. §§411.20-.37 and 411.40-47), the WC carrier, the claimant, and their
attorneys may remain exposed to significant potential liability after the settlement;
16
and the claimant may risk the denial of his or her future Medicare benefits. A
Medicare Set Aside Arrangement provides a safe vehicle for settling a WC claim
for future medical expenses; and for the proper post-settlement administration of a
WC future medical expense allocation.
Since July, 2001, CMS has released several memoranda, through which CMS
has refined its policies and procedures for the review and processing of proposals
for Medicare Set Aside Arrangements. The contents of all of CMS' memoranda
have been published as “Answers to Frequently Asked Questions” on CMS'
website: http://www.cms.hhs.gov.
Currently, CMS review and approval is mandatory for WC settlements of
future medical expenses in which the claimant is already eligible for Medicare; and
in cases where the claimant is reasonably expected to become eligible for Medicare
within 30 months of the settlement and the total value of the settlement, including
future medicals expenses and indemnity, is greater than $250,000. For cases not
meeting these review criteria, CMS approval is not currently required.
The funds in a Medicare Set Aside Arrangement may only be used to pay for
the claimant’s future, work related medical expenses of the type normally covered
by Medicare; and only while the claimant is eligible for Medicare benefits. Funds
in a Medicare Set Aside Arrangement may not be used to pay premiums for
Medicare Supplemental (“Medigap”) Insurance.
CMS no longer allows the payment of administrative fees or attorney’s fees
from funds in any Medicare Set Aside Arrangement created after May 7, 2004.
Therefore, it is extremely important to provide a means to pay these expenses out of
settlement proceeds other than those that will be used to fund the Medicare Set
Aside Arrangement. In many cases, a separate annuity can be funded to pay
anticipated expenses directly to the trustee or professional custodian, who would be
required upon termination of administration to refund any unused payments to the
beneficiary or to some other payee designated by the beneficiary.
Obtaining CMS’s release of the MSP claim and its approval of the proposed
settlement and a Medicare Set Aside Arrangement in WC cases meeting the above
review criteria provides the safety and finality necessary to accomplish settlement,
17
while ensuring that Medicare will pay for future medical expenses, once the
Medicare Set Aside Arrangement is exhausted. This results in lower costs and
reduced exposure to future liability for the WC carrier or self-insured employer; and
greater peace of mind and reduced costs for claimants because their medical
benefits will not be summarily denied.
TPL Settlements
Until recently, CMS only actively asserted its post-settlement status as
secondary payer following settlement of WC claims. Representatives from CMS
have now announced CMS’ position that Medicare retains its secondary payer
status after settlement of TPL claims as well.
According to CMS, its position regarding TPL settlements is not new, but is
based upon language in the MSP statute that has been in effect since at least 1989.
The MSP statute, at 42 U.S.C. §1395y(b)(2)(A) states:
Payment under this subchapter may not be made . . . with respect to any item
or service to the extent that. . .
(ii) payment has been made or can reasonably be expected to be made
promptly (as determined in accordance with regulations) under a workmen's
compensation law or plan of the United States or a State or under an
automobile or liability insurance policy or plan (including a self-insured
plan) or under no fault insurance.
42 U.S.C. §1395y(b)(2)(A)(ii) (emphasis added). CMS' position is based on its
interpretation of the MSP statute as providing that a TPL settlement that closes out
future medical expenses represents a situation in which "payment has been made"
for an item or service otherwise covered by Medicare “under an automobile or
liability insurance policy or plan (including a self-insured plan) or under no fault
insurance.”
However, CMS' power to determine whether an allocation to future medical
expenses in a settlement represents a reasonable consideration of Medicare's
interests is based upon the MSP regulations that apply only to WC settlements.
These provisions in the MSP WC regulations provide the only authority for CMS to
18
review the "reasonableness" of an allocation for future medical expenses or to
disregard a settlement if it appears to be an attempt to shift responsibility for future
medical expenses to Medicare. The same is true of the regulation that allows CMS
to determine its own "reasonable allocation" of a settlement. 42 C.F.R. §411.47.
CMS arguably appears to have the statutory authority, following a TPL
settlement, to consider a portion of any TPL settlement allocated to future medical
expenses as being a "payment that has been made" for an item or service covered by
Medicare. However, CMS does not appear to have any authority under any statute
or regulation to independently determine which portion of a TPL settlement
represents payment for a future "item or service" absent an allocation in the
settlement itself. Further, CMS appears to have no authority in a TPL settlement to
determine the reasonableness of the settlement's allocation to future medical
expenses or to calculate its own allocation.
In spite of this, it appeared initially that CMS was going to require
submission and review of Medicare Set Aside Arrangements in TPL settlements
meeting the WC review criteria. Now, it appears that CMS is not ready to go quite
so far, at least not yet.
CMS' has not yet published policy on this issue in an official written
statement. Representatives from the agency have indicated that they are preparing
new "Answers to Frequently Asked Questions" (FAQ's) that will hopefully provide
guidance on what the agency expects or requires. Those FAQ's are to be published
on CMS' web site, but CMS has not stated when this will be.
Until the FAQ's are published, the following guidance, provided very
recently by the MSP Coordinators from two of CMS’ Regional offices, is offered:
CMS' position is that we expect any funds that are allocated for future
medicals to be spent before any claims are submitted to Medicare for
payment and the beneficiary will probably be asked about it on the initial
enrollment questionnaire that is systems-generated, but, we are not asking
that MSA's be established in theses cases, nor are we
reviewing/approving/denying them.
19
and
CMS has no current plans for a formal process for reviewing and approving
liability Medicare set-aside arrangements. However, even though no formal
process exists, there is an obligation to inform CMS when future medicals
were a consideration in reaching the liability settlement, judgment or award
as well as any instances where a settlement, judgment or award specifically
provides for medicals in general or future medicals.
Thus, CMS currently has no official procedure for review of Medicare Set
Aside Arrangements in TPL settlements and likely would neither review, approve
or deny any Medicare Set Aside Arrangement that a settling TPL plaintiff might
choose to submit. However, CMS does require that the parties "reasonably consider
Medicare's interests" in TPL settlements.
Thus, it is necessary to notify CMS of any TPL settlement in which future
medical expenses is a consideration or in which there is a specific provision for past
or future medical expenses. Further, Medicare will require that any funds which are
allocated to future medical expenses in the settlement be spent on injury related
medical expenses before any claims are submitted to Medicare.
Until CMS publishes policy regarding future medical benefits in TPL
settlements, each plaintiff settling a TPL claim will have to determine a safe means
to ensure that his or her future injury related medical expenses will be covered by
Medicare. Thus, it is currently advisable in TPL settlements to create and fund
some type of arrangement to ensure payment of future medical expenses as part of
the terms of settlement. This will be extremely important in the event the plaintiff
later receives a denial of benefits from Medicare for future injury related care. The
amount with which to fund such an arrangement and the type of arrangement used
will depend on the facts of each individual case.
It will also be very important for the plaintiff's attorney to ensure that
language is included in the settlement documents allocating a specific amount to
future medical expenses; and to properly document the plaintiff's file with a life
care plan or some similar expert projection of future medical expenses. This should
allow the plaintiff to later demonstrate that Medicare's interests were reasonably
20
considered.
The current position of CMS appears to recognize that the agency's powers
are more limited in TPL settlements than in WC settlements. However, what little
has been said by agency representatives at this point indicates that CMS has not
altogether foreclosed the possibility of requiring submission and review of
Medicare Set Aside Arrangements in TPL settlements in the future. Unless and
until a federal appeals court may determine limits on CMS's powers regarding the
treatment of future medical expenses in TPL settlements, failure to take some
precautions to ensure compliance with CMS's current policy in this area could result
in a denial of Medicare benefits for future injury-related medical expenses for the
settling plaintiff.
Medicare Set Aside Trusts
Until as recently as 1995, claimants settling a WC claim involving future
medical benefits found themselves in a difficult situation. The settling WC
claimant was expected to apply the portion of his or her WC settlement allocated to
future medical expenses solely to payment of work related future medical expenses
before Medicare would cover those items. However, there was no formal vehicle or
process in place at that time to accomplish this. WC claimants were left completely
on their own.
Most claimants did not have the experience or sophistication to keep the
meticulous records needed to verify proper application of their settlement funds,
especially where those funds might take several years to exhaust. Further, most
claimants were not equipped to determine which of their medical expenses were of
the type normally covered by Medicare or what the proper payment amounts should
be. The risk that claimants would make errors in the application of funds from their
future medical expense allocations or that they would not keep proper accounting
records and receipts was colossal. It was a situation fraught with potentially
disastrous consequences for the claimant, as well as the settling employer and its
WC insurance carrier.
This situation gave rise to the invention and use of the first Medicare Set
Aside Trust in 1995. The original purpose of the Medicare Set Aside Trust was to
21
provide a formal and safe means for the settling WC claimant to reasonably
consider Medicare's interest with the "blessing" of CMS. This continues to be the
primary purpose behind all of today's Medicare Set Aside Arrangements.
A Medicare Set Aside Trust is a formal trust agreement, administered by a
trustee. As such, Medicare Set Aside Trusts are subject to all of the state and
federal fiduciary laws applicable to trusts and trustees. These laws provide
significant protections for the claimant who is the beneficiary of the trust, as well as
for Medicare.
State fiduciary laws will permit the trust beneficiary to bring an action in
court to hold a trustee liable to reimburse the trust for any losses due to improper
administration. Further, professional trustees are generally required to be licensed
and bonded or insured.
The funds in a Medicare Set Aside Trust should be placed in low risk, highly
liquid investments to ensure continued growth of the funds; and to ensure that funds
will be available when needed to cover medical costs. Professional trustees will
have experience in how to properly invest funds in the trust, based on acceptable
investment risk tolerances and on the individual needs of the beneficiary.
However, the proper administration of a Medicare Set Aside Trust requires
more than knowledge and experience in investment and trust administration. It also
requires expertise in medical claims administration, particularly in the
administration of claims under criteria for Medicare coverage under Medicare Part
A and Part B. Therefore, a Medicare Set Aside Trust should contain language
requiring the trustee to possess such expertise or employ a medical claims
administrator who does.
A properly and carefully drafted Medicare Set Aside Trust under the
administration of an experienced trustee and medical claims administrator provides
the safest vehicle for administration of set aside funds. However, it is no longer the
only such vehicle that is recognized or approved by CMS.
Medicare Set Aside Custodial Agreements
22
It took almost 9 years for CMS to gradually develop its current official
policies and procedures regarding the use of Medicare Set Aside Arrangements in
WC settlements. At first, CMS indicated that a Medicare Set Aside Trust was the
preferred method of reasonably considering Medicare’s interests. The use of a
formal trust was seen as the only vehicle which would provide sufficient protections
to ensure proper administration of Medicare Set Aside funds.
However, Medicare Set Aside Trusts have two main drawbacks. Many of the
medical claims administrators with the expertise in Medicare needed to ensure
proper trust distributions for Medicare covered services are unable to become
licensed as professional trustees. Thus, proper administration requires both a
trustee and a professional medical claims administrator. This results in increased
costs of administration.
Further, professional trustees typically charge fees based upon a minimum
annual amount, plus a percentage of the value of the monies in the trust; and many
professional trustees will only agree to administer trusts with at least $100,000 in
assets. Thus, in WC settlements where the Medicare Set Aside amount is less than
$100,000, it is difficult to find a professional trustee willing to serve; and the fees
charged by professional trustees who will agree to serve become disproportionately
large as compared to the size of the fund being administered.
Only a small percentage of WC claims for future medical expenses are settled
for more than $100,000. As a result, most WC claimants were forced to look to
another type of Medicare Set Aside Arrangement to ensure proper administration of
the set aside funds, while minimizing the costs of administration. In response to
this need, medical claims administrators began to offer their services under
Medicare Set Aside Custodial Agreements.
These custodial agreements are drafted to contain guidelines and protections
similar to those found in trust agreements. However, since custodial agreements are
not technically considered trusts, the medical claims administrators can administer
the funds directly without being licensed as professional trustees; and can also
fulfill their medical claims administration functions. Thus, custodians are able to
charge significantly less in fees than those associated with the administration of
23
formal Medicare Set Aside Trusts.
Before the publication of CMS' initial policy memorandum on July 23, 2001,
"Workers' Compensation: Commutation of Future Benefits", there was little
guidance from the government regarding its official position on the use of Medicare
Set Aside Arrangements. However, that memorandum clarified that CMS will
accept the use of non-trust arrangements, such as custodial agreements, as part of an
approved Medicare Set Aside Arrangement.
Self-Administered Medicare Set Aside Arrangements
Even formal Medicare Set Aside Custodial agreements can become
disproportionately expensive to administer in smaller WC settlements. The vast
majority of WC claims for future medical expenses settle for less than $50,000. In
fact, most will settle for under $20,000. In these cases, even the fees of professional
medical claims administrators can be prohibitive.
As a result, CMS was virtually flooded with requests to allow claimants to
“self-administer” their Medicare Set Aside Arrangements. Self-administration
provides the advantage of eliminating most administration costs altogether. On the
other hand, it eliminates the protection of having an experienced medical claims
administrator to determine what claims are properly payable as injury related
medical expenses that would normally be covered by Medicare.
In a policy memorandum released on April 23, 2003, CMS announced that
self-administration of Medicare Set Aside Arrangements will be permitted, so long
as this is allowed under state law. However, CMS requires that self-administered
arrangements will be subject to the same guidelines for administration as
arrangements being administered professionally.
Claimants are using self-administered arrangements at an increased rate,
especially since the ban on payment of administrative fees from Medicare Set Aside
Arrangements went into effect on May 7, 2004. As more and more Medicare Set
Aside Arrangements are being self-administered, many practitioners have become
increasingly concerned over the possible problems with self-administration.
24
The simple truth is that, even though self-administration is permitted, it is not
always advisable. Many claimants will simply not make appropriate administrators
due to lack of sophistication or poor money-management skills.
Further, if the claimant is mentally incapacitated, CMS will not permit him or
her to act as administrator. Sometimes, a friend or relative of the claimant may be
able to act in the claimant’s place. However, where no suitable volunteer is
available to administer the Medicare Set Aside Arrangement, it may still be
necessary to use a professional administrator.
CMS has now provided guidelines for self-administration of Medicare Set
Aside Arrangements. These guidelines essentially advise plaintiffs of the following
information regarding self-administration requirements:
25
1.
Medicare regulations at 42 CFR 411.46 state that:
“If a lump-sum compensation award stipulates that the amount paid is
intended to compensate the individual for all future medical expenses
required because of the work-related injury or disease, Medicare
payments for such services are excluded until medical expenses related
to the injury or disease equal the amount of the lump-sum payment;”
2.
The guidelines presume that the claimant has settled his or her case and
has funded an MSA account with sufficient funds to pay for future
skilled medical care that is accident-related;
3.
The Set-Aside arrangement fund must not be used to pay the
individual’s expenses unless the individual is then currently eligible for
Medicare;
4.
The Set-Aside funds must be placed in an interest-bearing account
separate from the individual’s personal savings and checking accounts;
5.
The Set-Aside fund may only be used to pay for medical services
related to the work injury that would normally be paid by Medicare.
Examples of some items Medicare does not pay for are: prescription
drugs, acupuncture, routine dental care, eyeglasses, or hearing aids.
Plaintiffs are advised to obtain a copy of the booklet “Medicare &
You” from their local Social Security office for a list of services not
covered by Medicare. If they have any questions, they are advised to
call 1-800-Medicare (1-800-633-4227);
6.
If payments from the Set-Aside arrangement fund are used to pay for
services that are not covered by Medicare, Medicare will not pay injury
related claims until these funds are restored to the Set-Aside
arrangement fund. Once the MSA is properly exhausted, the claimant
is eligible for Medicare;
26

7.
The Administrator of the account (the claimant) will be responsible for
keeping records of payments made from the account, and sending an
annual attestation or summary (if requested) of any medical bills paid
to the Medicare contractor. The annual attestation or summary should
be submitted no later than 30 days after the end of each year
(beginning one year from the establishment of the account). A
summary should give a line item description of every bill paid. Rate
and dollar amounts of every bill must be included.
8.
An annual accounting summary must include the following for each
transaction:



Date of each service

Procedure performed

Diagnosis

Paid receipt or canceled check

The cost of the procedure

A statement of the balance in the account at
the end of each year; and

9.
The funds in the account may be used to pay for the following costs
that are directly related to the account:

Photocopying charged

Mailing fees/postage

Any banking fees related to the account
These guidelines are helpful, but do not contain specific provisions regarding
administration comparable to those found in a formal Medicare Set Aside Trust or
Custodial Agreement. Further, these guidelines alone do not constitute a binding
agreement between the claimant and the WC carrier or self-insured employer
regarding the administration of the Medicare Set Aside Arrangement. Thus, the
WC carrier or self-insured employer may have little or no recourse against the
claimant if he or she fails to follow the guidelines, resulting in a post-settlement
MSP claim.
27
It is strongly advised that a formal custodial agreement be used, even where it
is to be self-administered. It is also advised that the claimant or other nonprofessional administrator be required to provide a written acknowledgment of the
guidelines and a written agreement to abide by them.
Even these precautions will not provide much protection to the claimant.
Therefore, claimants are advised to seek the counsel or assistance of an attorney or
other professional regarding proper administration of their Medicare Set Aside
Arrangements.
Limitations on Use of Custodial and Self-Administered Arrangements
Medicare Set Aside Custodial Agreements and self-administered Medicare
Set Aside Arrangements will cause problems for plaintiffs or claimants who may
also need to preserve eligibility for Medicaid or SSI. Whether a Medicare Set
Aside Arrangement is required by CMS in a WC settlement meeting CMS’ review
criteria or a similar arrangement is used in a TPL settlement on a voluntary basis,
these types of arrangements, whether self-administered or not, will be treated as
“implied trusts” under both SSI and state Medicaid regulations.
Even formal Medicare Set Aside Trusts will be problematic if they are only
drafted to reasonably consider Medicare’s interests. Since Medicare Set Aside
Trusts, Custodial Agreements and Self-Administered Arrangements are all funded
with property belonging to the plaintiff or claimant, each will be subject to SSI and
Medicaid restrictions applicable to self-settled trusts.
As a result, funds held in such arrangements will generally be considered
available resources for purposes of determining Medicaid or SSI eligibility; or the
funding of such arrangements will be treated as transfers without fair consideration,
resulting in the imposition of a period of ineligibility. Where the plaintiff must
preserve Medicaid eligibility, it will be necessary to use a formal Medicare Set
Aside Trust that will also comply with the criteria applicable to self-settled Special
Needs Trusts under OBRA ‘93.
28
Further, the Medicare Set Aside Trust must be irrevocable; and any payments
from the trust for support items will be treated as income to the plaintiff. Finally,
the plaintiff may not act as the settlor of the Medicare Set Aside Trust; nor may the
plaintiff serve as the trustee.
In WC cases where CMS review criteria apply, the Medicare Set Aside Trust
arrangement must still be submitted to CMS for approval, although this is currently
not required for Medicare Set Aside Trust arrangements in TPL settlements.
However, in both WC and TPL settlements, the trust will have to be submitted
separately for approval by either the state Medicaid agency, the Social Security
Administration or both.
In short, where a plaintiff or claimant wishes to preserve eligibility for
Medicare, as well as for Medicaid or SSI, the Medicare Set Aside Arrangement will
be subject to the same criteria for creation, approval, funding and administration as
will an OBRA ‘93 Special Needs Trust. At the same time, the Medicare Set Aside
Arrangement will also need to comply with Medicare’s regulations and policies.
Use of Trusts In WC and TPL Settlements Involving Medicare, SSI and
Medicaid Eligibility Issues
To more fully understand how to coordinate the use of a Medicare Set Aside
Trust in a settlement involving multiple public benefit eligibility issues, it is
necessary to understand Medicaid and SSI planning strategies involving the use of
trusts. It is also necessary to understand the strategies regarding the use of different
types of trusts often used in WC and TPL settlements.
The use of trusts is fairly common in WC settlements which only involve
public benefits such as Medicare or SSDI where eligibility is not based on financial
need. The same is true of TPL settlements in which financial needs based public
benefit eligibility is not an issue. Since trusts employed in these settlements need
not meet the strict requirements contained in Medicaid or SSI regulations, it is not
uncommon, especially in large settlements, to utilize multiple trusts for different
purposes.
29
In settlements involving seriously disabled plaintiffs who may require
significant attendant or custodial care several years in the future, it may be
important to preserve the ability to qualify for Medicaid or SSI at a later time, even
though immediate eligibility is not required. Similarly, a plaintiff may not wish to
access Medicaid right away for a variety of other reasons, such as an aversion to the
restrictions that must be placed on the use of settlement funds in a Medicaid or SSI
exempt trust. In these cases, both exempt and non-exempt trusts are often
employed.
Support Trusts and general Medical Trusts are two common examples of
non-exempt trusts often used in WC and TPL settlements. These types of trusts can
be attractive to both plaintiffs and defendants. From the plaintiff’s point of view,
the trust provides a fund that will be professionally administered to guaranty a
source for payment of medical and/or support expenses. From the point of view of
the defendant or the defendant’s insurance carrier, these trusts can actually limit the
costs of settlement over the long term by including “reversionary” provisions that
will pay any unused funds remaining in the trusts back to the defendant or the
defendant’s carrier after the plaintiff dies.
Where both exempt and non-exempt trusts are created and funded as part of a
WC or TPL settlement to preserve future Medicare, Medicaid and SSI eligibility,
special considerations will apply.
Support Trusts or general Medical Care Trusts will need to contain
provisions permitting those trusts to “empty out” into an exempt OBRA ‘93 Special
Needs Trust when the plaintiff needs to qualify for Medicaid or SSI. When this
happens, any reversionary provisions in those trusts will become ineffective. In
addition, the plaintiff’s ability to receive or benefit from support payments from an
SSI or Medicaid exempt trust will be limited.
Even where non-exempt trusts are not used, a Medicare Set Aside Trust
specially drafted to comply with the requirements of OBRA ‘93 will still be limited
to payment of future, injury related medical expenses of the type normally covered
by Medicare. Therefore, a separate OBRA ‘93 Special Needs Trust or Pooled Trust
30
account will also need to be created and funded from settlement proceeds to pay for
expenses and services not covered by Medicaid, SSI or Medicare.
Finally, the criteria governing the creation and administration of Medicaid
and SSI exempt trusts will depend upon whether the plaintiff will require long term
care or attendant care in the home; and upon the laws in the state where the plaintiff
resides.
Will Medicaid or SSI Criteria Apply?
In a decision issued on October 1, 1999, the Federal District Court for the
District of Colorado considered, among other things, 1) whether, in an SSI state, a
trust approved under the federal SSI eligibility criteria could nonetheless be
considered invalid under state Medicaid law; and 2) whether a Medicaid beneficiary
in an SSI state can be denied Medicaid benefits under state Medicaid regulations if
the individual continues to qualify for SSI. Ramey, et al., v. Rizzuto, 72 F. Supp.2d
1202 (D.C. Colo. 1999).
The case involved three plaintiffs, all severely disabled with multiple
sclerosis. All three had self-settled trusts. The main issue before the Court was
whether the trusts were available resources in excess of $2,000 with respect to each
of the respective plaintiffs. In analyzing the trusts, the State of Colorado attempted
to apply the federal and state laws relative to Medicaid Qualifying Trusts, and the
Colorado Medicaid laws requiring that all trusts for Medicaid beneficiaries must be
approved by the state Medicaid agency.
The Court correctly determined that Colorado is a state in which an
individual who is eligible for SSI benefits is categorically eligible for Medicaid.
The Court held that, since the plaintiffs’ trusts were approved by the Social Security
Administration and, given that the plaintiffs were qualified for SSI, the state was
required to grant them Medicaid benefits, regardless of whether their trusts
complied with the state’s Medicaid law regarding treatment of trusts. That is, the
District Court found in clear and precise language that the Medicaid agencies in SSI
states cannot employ methodology or criteria more restrictive than that of SSI when
evaluating trusts.
31
Since the Social Security Administration had already approved two of the
trusts, the Court held that the State of Colorado could not now fail to approve the
trusts. Further, the Court held that the state Medicaid agency had no independent
right to review the trusts once the trusts had been approved by Social Security.
The District Court’s opinion was affirmed in 2001 by the United States Court
of Appeals for the 10th Circuit in Ramey v. Reinertson, 268 F.3d 955 (10th Cir.
2001).
The Court’s holding in Ramey reaches beyond the treatment of SSI-approved
trusts. It governs any situation in which state Medicaid regulations in an SSI state
might impose more restrictive criteria for eligibility than those imposed by federal
regulations governing SSI.
The result is that, in an SSI state, an individual who is eligible for SSI under
the federal Social Security regulations cannot be denied Medicaid benefits due to
the application of a more restrictive state law or regulation.
Special Planning Considerations for SSI and Medicaid
To persons planning for SSI and Medicaid eligibility and living in SSI states,
the Ramey case is extremely important. In these states, a trust which is approved by
the Social Security Administration for an SSI beneficiary cannot also be required to
comply with any additional requirements under state Medicaid law; and an
individual who qualifies for SSI cannot be denied Medicaid under any state
Medicaid law that might impose eligibility requirements, (e.g., regarding treatment
of in-kind income), stricter than those imposed by SSI.
Thus, for a person whose Medicaid eligibility is due to eligibility for SSI, that
person’s Medicare Set Aside Trust and Special Needs Trust must comply with SSI
criteria, regardless of what criteria may exist under state Medicaid law. Further, if
such an individual qualifies for SSI, even after consideration of all cash and in-kind
income, that individual cannot be denied Medicaid benefits, even if a calculation of
32
the individual’s cash and in-kind income under state Medicaid regulations might
otherwise result in ineligibility.
If the beneficiary’s Medicaid eligibility is due to SSI eligibility, the Medicare
Set Aside Trust and the Special Needs Trust must be drafted and created to comply
with both OBRA ‘93 criteria and the SSI criteria found in the POMS. This will
require certain provisions that will actually be more restrictive than what would be
required under Medicaid regulations alone.
When a Special Needs Trust or OBRA ‘93 compliant Medicare Set Aside
Trust is created for an adult beneficiary, SSI will not recognize the trust as valid if it
is created by the beneficiary’s parent or grandparent. This is because SSI does not
consider a parent or grandparent to have complete legal authority over the assets of
an adult child or grandchild, even when the parent or grandparent is acting under a
power of attorney. Thus, an exempt Special Needs Trust or Medicare Set Aside
Trust for an adult beneficiary must be created by a court or by the beneficiary’s
legal guardian to satisfy SSI requirements in the POMS.
The POMS also require that the trusts name one or more specific individuals
as contingent beneficiaries upon the beneficiary’s death, after repayment to the
State for medical assistance benefits provided. It is not sufficient merely to name
the beneficiary’s estate as contingent beneficiary or name generally as beneficiaries
those persons who would inherit from the beneficiary under state intestacy laws.
Otherwise, SSI will not consider the trusts to be “irrevocable” and will treat the
assets in the trusts as being available to the beneficiary.
The Special Needs Trust should also be drafted carefully to take advantage of
the more liberal treatment of in-kind income under the SSI regulations. Recall that
the monthly reduction in SSI benefits resulting from the receipt of in-kind income is
not necessarily related to the actual value of in-kind income received. For example,
if an individual receives $500 in groceries each month, the reduction in that
individual’s SSI benefit will be the same as if the individual receives free rent,
groceries and utilities each month valued at $5,000. The ability to receive in-kind
income from the Special Needs Trust can be of great value to an SSI beneficiary
living in an SSI state.
33
Therefore, the Special Needs Trust should provide that distributions from the
trust be limited to noncash distributions to the beneficiary or cash distributions paid
to third parties on behalf of the beneficiary. Cash distributions to third parties may
be for the purchase of support items or for the purchase of non-support items or
supplemental needs not covered by public benefits, such as: a specially equipped
van or other vehicle for transportation, a color television or other entertainment
appliance, a computer, periodical subscriptions, personal care goods, an electric
wheelchair or other supportive device, or professional health-care services not
otherwise covered by Medicaid. Distributions for non-support or supplemental
needs will not be counted as either cash income or in-kind income to the
beneficiary.
However, the distribution of in-kind income to an individual who may not be
receiving the full SSI benefit of $579 per month can cause problems. This issue
must always be explored where the individual is under age 65 and eligible for
Medicare due to SSDI eligibility because the individual’s SSI benefit will be no
greater than the difference between the maximum SSI benefit and the individual’s
actual monthly benefit from SSDI.
Under the presumed value rule, if the individual’s monthly SSI benefit is
equal to an amount less than $20 plus one-third of the maximum SSI benefit, the
offset from in-kind income will reduce the individual’s SSI benefit to $0 and will
result in ineligibility. Under the one-third reduction rule, the same result will occur
if the individual’s monthly SSI benefit is less than one-third of the maximum SSI
benefit before the offset.
Thus, cash distributions from the Special Needs Trust to third parties to
purchase support items constituting in-kind income should be limited to situations
where the SSI reduction for in-kind income will not result in a complete offset of
the beneficiary’s monthly SSI benefit. This will require that the trustee know which
rule will apply to the calculation of the individual’s benefit reduction for in-kind
income; and will also require that the trustee have current and accurate information
on the exact amounts of the individual’s monthly SSDI and SSI benefits.
34
SSDI
Whenever a disabled worker under age 65 wishes to settle his or her WC
claim and the settlement includes a settlement of future wages, (“indemnity), it is
possible that the settlement could adversely affect the claimant’s SSDI benefits.
This is because the Social Security Act, (42 U.S.C. § 424a), and the Social Security
regulations, (20 C.F.R. §404.408), each contain a provision requiring a reduction in
SSDI benefits if the claimant’s combined SSDI and WC benefits total more than
80% of the claimant’s average current earnings. This reduction stops when the
claimant reaches age 65 and his or her disability benefits are replaced by Social
Security old age/retirement insurance benefits. The reduction is not required if state
law requires a reduction in WC wage benefits for a claimant entitled to SSDI, rather
than a reduction in SSDI benefits.
In the majority of states, receipt of WC wage indemnity benefits can
profoundly affect SSDI. Receipt of workers’ compensation disability benefits in
those states will directly reduce the SSDI payment on a dollar-for-dollar basis, to
the extent that the claimant’s combined WC and SSDI benefits exceed eighty
percent (80%) of his or her average current earnings.
The WC claimant’s regular monthly SSDI benefits should already reflect the
set-off, if any, for periodic WC indemnity payments the claimant is currently
receiving, since a claimant is required by law to notify the Social Security
Administration (SSA) if he or she is receiving regular WC indemnity payments. If
the claimant’s WC compromise settlement includes settlement of the claimant’s
future indemnity benefits, the indemnity portion of the settlement can also result in
a reduction in future SSDI benefits. To determine the SSDI reduction from a lump
sum settlement of a WC indemnity claim, the lump sum, less attorney’s fees and
other costs of procurement, is prorated over the number of months the claimant
would have received periodic WC indemnity payments if the indemnity benefits
had not been paid in a lump sum.
The size of the SSDI reduction will depend primarily upon the size of the
monthly WC indemnity payment (or the prorated monthly amount calculated from a
lump sum payment) and on the amount of the claimant’s average current earnings.
35
A higher average current earnings amount, or a lower monthly WC indemnity
amount, will result in a smaller SSDI reduction.
The regulation provides that the average current earnings will be the highest
of three amounts: 1) the average monthly earnings used to calculated the claimant’s
SSDI benefit; 2) the claimant’s average monthly earnings from any work the
claimant did (including self-employment) that was covered by Social Security for
the five highest years in a row after 1950; or 3) the claimant’s average monthly
earnings from work or self-employment during the year the claimant became
disabled or in the highest earnings year during the five year period just prior to
disability. Since the average current earnings amount is based upon historical
earnings data, there is not much, if anything, a claimant can do to increase his or her
average current earnings. Whichever of the three calculations under the regulation
produces the highest amount will be the one which determines the claimant’s
average current earnings amount.
It is extremely important that the WC settlement agreement, which is
approved by the state WC board, contain a reasonable allocation and apportionment
to indemnity, as well as to future medical expenses. This allocation has added
importance in any of the SSDI reduction states, because of the impact on the
proration of the indemnity portion of the settlement. The settlement agreement
must be specific about whether the indemnity portion of the settlement is to be paid
by lump sum or annuity, or whether the claimant has the option of receiving his or
her indemnity payment in either form. In the remaining states, where the WC
carrier takes the set-off, the settlement agreement should make it clear that the
amount in the settlement apportioned to indemnity already reflects the set-off.
If the parties to the WC settlement do not ensure that the WC settlement
agreement contains a reasonable apportionment to indemnity, the SSA will perform
a separate apportionment based upon the regulations. Theoretically, this could
result in SSA apportioning all of the settlement to indemnity. (If the WC settlement
also omits a reasonable apportionment to future medicals, such that CMS
apportions the entire settlement to future medical expenses, imagine the
consequences to the claimant!)
36
However, the manner in which the indemnity portion of the WC settlement is
paid and the specific terms of the settlement agreement can result in a substantial
increase or decrease in the amount of the SSDI reduction that will be applied to
future benefits. This is because: 1) the SSDI reduction is only taken until the
claimant reaches age 65; 2) virtually every state’s WC law only requires the
employer to pay wage indemnity through age 65; and 3) the number of payments
over which the indemnity is prorated depends upon the manner in which the
indemnity is paid and the specific wording of the settlement agreement.
If the indemnity portion of the settlement is paid with a structured annuity
that will pay out over a period that extends beyond age 65, this would result in
smaller payments each month than if the indemnity settlement were paid in a lump
sum (which will be prorated over the period up to age 65 to determine the monthly
set-off amount) or if it were paid by an annuity that only paid out until age 65. This
reduction in the monthly indemnity payment amount or prorated amount could
result in a smaller SSDI set-off.
In cases where the claimant needs to preserve eligibility for Medicaid or SSI,
the direct receipt of indemnity payments from an annuity can result in the plaintiff
having too much income to qualify. On the other hand, if the annuity is set up to
make these payments into an exempt Special Needs Trust to prevent that income
from being counted for purposes of the Plaintiff’s Medicaid or SSI eligibility, those
payments cannot extend beyond the point when the claimant reaches age 65.
Therefore, claimants living in SSDI set-off states may find that planning to
minimize the set-off of SSDI benefits and planning to preserve Medicaid or SSI
eligibility will be mutually exclusive. These claimants will likely need to accept a
reduction in their monthly SSDI benefits in favor of preserving the ability to qualify
for SSI and/or Medicaid.
Structured Settlements
Sections 104(a)(1) & (2) of the Internal Revenue Code (IRC) provide that
proceeds of a WC settlement or settlement of a TPL claim involving physical injury
or sickness (except for punitive damages) are not taxable. However, income earned
by plaintiffs on lump sum settlements of such claims is taxable. Settling parties as
37
far back as the 1970's reasoned that if a settlement could be paid out in periodic
payments over time, the tax on settlement income could be deferred.
However, there was a drawback to this idea. When the parties to a WC or
TPL claim agree to a settlement, it is the obligation of the defendant to pay the
settlement monies to the plaintiff. This is true whether the settlement is for a lump
sum or for structured, periodic payments. Until all of the settlement proceeds are
paid, the defendant’s obligation continues. A defendant would not likely be willing
to agree to provide periodic payments if it required the defendant to actually make
physical payments after the settlement to the plaintiff for 10 or 20 years. When
defendants settle, they want finality, not a continuing obligation.
In 1983, Congress passed the Periodic Payment Act, amending the IRC to
grant statutory authority for the use of periodic payments in personal injury
settlements. The Act most notably created Section 130 of the IRC, which provided
a means whereby a settling defendant could fulfill his or her obligation to make
periodic payments of settlement proceeds through a qualified assignment.
Under the original Section 130, the income from an annuity that made
periodic payments as part of a settlement of a TPL claim for physical injury or
sickness was exempt from income tax if there was a qualified assignment of the
obligation to make the annuity payments. Section 130 was amended in August,
1997, to permit the use of qualified assignments in WC settlements as well. Since
that time, the use of structured settlements has become more an more common, both
in WC settlements and in settlements of TPL claims involving physical injury or
sickness.
The assignment of the obligation to make periodic payments constitutes a
“qualified assignment” if the following requirements are met:
(1) assignee must assume liability from a person who is a party to the suit or
agreement, or the WC claim, and
(2)
(A) such periodic payments are fixed and determinable as to amount and time
of payment,
38
(B) such periodic payments cannot be accelerated, deferred, increased, or
decreased by the recipient of such payments,
(C) the assignee's obligation on account of the personal injuries or sickness is
no greater than the obligation of the person who assigned the liability, and
(D) the periodic payments must be excludable from the gross income of the
recipient under IRC Sections 104(a)(1) & (2).
IRC Section 130.
Further, the periodic payments must be funded with a commercial annuity
issued by a life insurance company; and the annuity payments cannot be more that
the periodic payments under the qualified assignment. Finally, the annuity must be
purchased with settlement proceeds within 60 days before or after the qualified
assignment and must be designated specifically to payment of the qualified
assignment.
Once there is a qualified assignment of an annuity funding a structured WC
or physical injury settlement, the plaintiff cannot change the terms of the annuity,
such as the payment amounts or the entity designated as payee.
Qualified assignments under Section 130 will only be available in the
settlement of WC or physical injury claims, and only with regard to settlement
proceeds that are exempt from taxation under Sections 104(a)(1) & (2) of the IRC.
For settlements of TPL claims that are not related physical injury, such as claims for
breach of contract, business torts, employment discrimination or civil rights
violations, Section 130 will not apply.
In non-physical injury cases, structured settlements can still be used to defer
taxes on settlement proceeds, but the defendant will virtually always insist on an
assignment of his or her obligation to make periodic payments. In other words,
there will be an assignment, but not a qualified assignment. Further, the assignee
will almost always be an insurer or an assignment company.
Since the annuity will be assigned to and owned by a “non-natural person,”
the annuity will be subject to I.R.C. Section 72u. Section 72u provides that such
39
annuities are generally not considered to be “annuity contracts,” so that the
investment or interest income on the contract must be reported in the year(s)
received or accrued. To be exempt from the provisions of Section 72u, the annuity
must qualify as an “immediate annuity” under Section 72u(3)(E).
To be an “immediate annuity,” the annuity must be purchased with a single
premium or annuity consideration. (I.R.C. §72u(4)(A)). The annuity must also
begin paying out no later than one year after it is purchased and must pay out in
substantially equal payments at least annually over the life of the annuity. (I.R.C.
§72u(4)(B) & (C)). Since the plaintiff receiving the annuity payments does not own
the annuity, he or she will not have the legal authority to change the terms or the
designated payee of the annuity.
Use of Annuities in Public Benefit Planning
Since both SSI and Medicaid eligibility are based partly upon the individual’s
level of income, a structured annuity that makes periodic payments directly to the
beneficiary could prevent the individual from qualifying for those benefits for the
lifetime of the annuity. Further, if the annuity is assigned to a third party, the
individual will not be able to amend the annuity at a later time to redirect payments
into a Medicaid or SSI exempt trust.
Many states have enacted Medicaid regulations that are hostile to the use of
annuities. In some states, the purchase of an annuity that pays out to the individual
can be treated as a transfer without fair consideration, resulting in a period of
Medicaid ineligibility. There have even been cases where the entire value of the
annuity payable to an individual has been treated as an available resource. In either
case, the annuity would have an adverse effect on the plaintiff’s ability to qualify
for Medicaid benefits.
Structured annuities can still be used in WC and TPL settlements involving
multiple public benefit issues, but they must be used carefully. In these cases, the
annuity generally should not be set up with the individual plaintiff as payee.
Rather, the annuity should pay out to either an exempt Special Needs Trust or an
exempt Medicare Set Aside Trust.
40
Use of Annuities to Fund Medicare Set Aside Trusts
Under Section 130 of the IRC, an annuity that funds a qualified assignment
must be fixed as to the amount and time of periodic payments. However, those
payments need not be made monthly or even annually.
In many WC and physical injury cases, the plaintiff may have anticipated
future medical needs that will not necessarily be consistent or regular. For example,
a plaintiff may anticipate the need for surgery or replacement of certain durable
medical equipment many years after the settlement. In these instances, it is not
unusual for the structured settlement to include an annuity that might pay out large
payments at 5 or 10 year intervals, specifically to provide extra funds in those years
when unusually large medical costs are expected.
For many years, such deferred annuities were often used to fund Medicare
Set Aside Arrangements. Usually, an immediate annuity would also be used to
provide a steady stream of income to pay for regular or routine medical expenses
expected to recur monthly or annually; and the Medicare Set Aside Arrangement
would also receive an immediate lump some as “seed” money for unexpected
emergencies. By deferring payment for large and infrequent costs until needed, the
defendant could reduce the costs of funding the settlement while still providing the
plaintiff with sufficient settlement funds to meet his or her needs for future care.
On October 15, 2004, CMS issued a policy memorandum that essentially
ended the use of deferred annuities to fund Medicare Set Aside Arrangements. That
memorandum, under FAQ #5, states that, while annuities may be used to fund
Medicare Set Aside Arrangements, their use will be restricted and subject to the
following requirements:
1.
The Medicare Set Aside Arrangement must be funded with seed
money sufficient to cover the first anticipated surgery and/or
replacement, plus two years of anticipated annual payments;
41
2.
3.
The annuity payments of the remainder of the approved set aside
amount must be divided over the plaintiff’s remaining life expectancy,
or a shorter period if CMS agrees; and
The annuity payments have to be made on or before a set anniversary
date beginning no more than 1 year after the settlement.
In other words, CMS will only allow the use of immediate annuities to fund
Medicare Set Aside Arrangements; and only when a significant lump sum amount
is also used to seed the Medicare Set Aside Arrangement at the outset.
Either a deferred annuity or an immediate annuity may be used to ensure a
source for payment of costs and fees for administration of a Medicare Set Aside
Trust, but the annuity must not be owned by or pay out into the trust itself. Instead,
the individual or entity acting as trustee should be individually named as payee.
There should also be a separate contract requiring the trustee to use the annuity
proceeds only to cover administrative fees and costs of the plaintiff’s trust. The
contract should also require that, upon resignation or removal of the trustee or upon
termination of the trust, the trustee be required to pay any remaining or unused
payments to the new trustee or to someone designated by the plaintiff. It is highly
recommended that a highly reputable, bonded or insured trustee be employed in this
instance.
Use of Annuities to Fund Other Trusts
Both deferred annuities and immediate annuities may be used to fund
Medicaid or SSI exempt trusts, as well as non-exempt trusts. However, since there
will virtually always be a qualified or non-qualified assignment of these annuities in
any WC and TPL settlement, careful planning is required to preserve the plaintiff’s
ability to qualify for Medicaid or SSI. Once one of these annuities is created to pay
out to a non-exempt trust, it cannot later be changed to pay into an exempt trust.
Further, even though a non-exempt trust could immediately forward annuity
payments it receives to the exempt trust, this will not prevent the payments to the
non-exempt trust from being treated as either income or resources of the plaintiff.
42
Unlike Medicare, Medicaid and SSI do not impose restrictions on the use of
structured annuities to fund exempt Special Needs Trusts. If the plaintiff expects to
incur future medical expenses on a fairly regular basis, an immediate annuity can be
used to provide the necessary funding over time. If large expenses are expected
periodically in the future, a deferred annuity may be appropriate as well. However,
all annuity payments into an exempt Special Needs Trust must be completed before
the plaintiff reaches age 65. Further, the Special Needs Trust should also be seeded
initially with a lump sum sufficient to provide immediate liquid funds for
unexpected costs; and the annuity payments should be large enough to ensure that
funds in the trust will not be exhausted before the next payment date.
It can be problematic to set up non-exempt trusts that will be funded with
structured annuities. So long as the annuity is still making payments, these
payments will be considered income or resources available to the plaintiff. This
could easily prevent him or her from qualifying for Medicaid or SSI. If an annuity
is purchased to pay into a non-exempt trust, it should only be done where the
plaintiff is not expected to require Medicaid or SSI until a fairly distant point in the
future. Otherwise, it is wiser to fund the non-exempt trust with a lump sum that can
be transferred completely to an exempt Special Needs Trust when the need arises.
The annuity payments should be limited so that the entire annuity will pay
out completely before the earliest time plaintiff is likely to require Medicaid or SSI
benefits. The non-exempt trust must also provide for complete divestiture of any
accumulated assets into an exempt Special Needs Trust when the time comes to file
a Medicaid or SSI application or when the plaintiff is near reaching age 65,
whichever occurs first.
Medicaid and SSI exempt Special Needs Trusts can be drafted in a manner
which will obviate the need to use non-exempt trusts altogether. A Special Needs
Trust can provide the trustee with discretion to use trust assets for all of the
plaintiff’s support and non-support needs until the plaintiff applies for Medicaid or
SSI. During periods when the plaintiff is not qualified for these benefits, all of the
plaintiff’s needs are considered “supplemental” and can be paid by the Special
Needs Trust. Therefore, a separate support trust or medical trust would not be
necessary.
43
In some cases, an exempt Special Needs Trust can continue to provide inkind support to the plaintiff, even after an application for benefits is filed. Where
the plaintiff intends to access Medicaid as the result of SSI eligibility, (i.e, in an SSI
state), the trust may sometimes cover support items for the plaintiff through direct
third party vendor payments. Since these third party payments for support are
treated as in-kind income under SSI regulations, the amount of the resulting
reduction in SSI benefits will be limited by application of the one-third reduction
rule or the presumed value rule. However, the trustee must be careful to ensure that
the reduction will not completely eliminate the plaintiff’s SSI benefit before making
any distributions that would be considered in-kind income.
One last recommendation when funding an exempt Special Needs Trust with
a structured annuity is to make certain that annuity payments will increase each year
to keep up with inflation. Medical and long term care costs are increasing at a
tremendous rate and will likely continue to do so in the foreseeable future.
At the same time, a seriously disabled plaintiff will usually have increased
medical care needs as time goes on, resulting in even greater increases to future
medical expenses. If the funding annuity does not contain an inflation feature that
will adequately compensate for significant increases in expenses for future medical
care, there is a risk that the trust may become prematurely exhausted in some future
year. This could needlessly force the plaintiff to forego a needed treatment or
service not covered by Medicaid until the next scheduled annuity payment.
Conclusion
Whenever a plaintiff is considered disabled under the Social Security Act,
any WC or TPL settlement will need to reasonably consider Medicare’s interests
under the MSP statute and regulations, at least to some degree. Otherwise, the
plaintiff’s future Medicare benefits for injury related medical care will be
jeopardized. However, plaintiffs with serious disabilities will find that their future
needs for attendant or custodial care will not be covered by Medicare; or that their
available SSDI benefits will not be sufficient to pay for Medicare co-pays or
deductible amounts.
44
Settlements, by nature, will almost always require compromise. As a result,
settlement proceeds will seldom be sufficient to pay for all of the plaintiff’s injury
related medical care for the remainder of his or her lifetime. A seriously disabled
plaintiff will need to look to public benefits to fill the gap between the costs of
future lifetime care and the limited amount of actual settlement proceeds that will
be available to pay for that care. Where Medicare will not cover a significant
portion of the plaintiff’s future medical care, the plaintiff will need to preserve the
ability to qualify for Medicaid and/or SSI.
In settlements where multiple public benefit eligibility issues exist, common
settlement strategies, such as the use of structures, trusts and informal custodial or
self-administered accounts, can produce uncommon problems. In these types of
complex settlement situations, practitioners must be familiar with the features and
benefits provided by each of the major public benefit plans, as well as with their
varied criteria for eligibility.
Even more importantly, practitioners must understand the interaction
between the differing features and laws that govern the various available public
benefit plans, as well as those that govern the use of trusts and structures to settle
WC and TPL claims generally. Devising a settlement package that will work as
intended in such a complex environment requires special knowledge, experience
and skill.
Structured settlement components will need to be carefully considered and
prepared. Trust instruments will need to be carefully drafted and may require the
assistance of a court for creation. Medicare claims and state Medicaid liens will
need to be determined, negotiated and satisfied. Reliable projections for the
plaintiff’s future medical care will be needed. The approval of multiple government
agencies may be required. In the end, each different aspect of the settlement
package will need to address its respective purpose, without interfering with the
proper functioning of the others.
To accomplish these myriad tasks and goals, experts from several disciplines
will often need to work together to create a settlement that will provide the greatest
45
benefit to the plaintiff, while not being so costly as to discourage the defendant’s
willingness to negotiate. For this reason, a holistic and multi-disciplinary approach
to the settlement of claims involving multiple public benefit eligibility issues is
usually the best approach. Hopefully, this article has at least accomplished the goal
of assisting practitioners to recognize these issues when they arise and to know
when to call in the rest of the team.
46