Negotiating payment of future medical bills is crucial for many plaintiffs. Medicare Secondary Payer provisions require claimants who receive or will receive Medicare to follow specific guidelines for future medical payments. Medicare won't cover medical expenses related to a lawsuit if settlement funds include funds for future medical expenses until they are fully utilized. In this case, Medicare becomes the secondary payer to the settlement or award.

What Is a Medicare Set-Aside?

A Medicare Set-Aside (MSA) is a way to protect Medicare's interests by setting aside a portion of a settlement to cover future medical costs related to the injury. Once the funds in the MSA account are exhausted, the plaintiff can resume receiving Medicare payments. 

The allocation amount for an MSA is determined by reviewing your estimated total cost of future medical care, medical history, pre-existing conditions, current treatments, physician statements, life expectancy, and other relevant factors relating to the lawsuit and settlement amount.

Criteria for Reviewing a Proposed Medicare Set-Aside

A proposed Medicare Set-Aside (MSA) must meet certain criteria for review by the Centers for Medicare and Medicaid Services (CMS). 

Currently, CMS has only released guidelines for Workers' Compensation Medicare Set-Asides (WCMSAs).

WCMSAs will only be reviewed by CMS if: 

1. The plaintiff is a Medicare beneficiary with a settlement amount greater than $25,000 or 

2. The plaintiff is not a Medicare beneficiary but is expected to enroll in Medicare within 30 months of the settlement date with a settlement amount greater than $250,000. 

Although no official guidelines have been released for Liability Medicare Set-Aside (LMSA), CMS has indicated that Medicare Administrative and Recovery Contractors may deny payment for items and services that should be paid from an LMSA, and Medicare may seek reimbursement for expenses if they should have been paid by the settlement or another payer. 

It's absolutely crucial for plaintiffs and their attorneys to work with a settlement planning expert to ensure compliance with Medicare Secondary Payer provisions and avoid consequences.

Funding a Medicare Set-Aside

Funding a Medicare Set-Aside (MSA) can be done through two options: a lump sum or a structured settlement.

Method 1: Lump Sum

If you go with this option, all funds in the MSA must be spent before Medicare steps in as the primary payer. You place all of your MSA money into the MSA account at once, at the time of settlement.

Method 2: Cash + Structured Settlement

For this approach, a smaller initial lump sum payment is used to establish the MSA, covering the cost of the first procedure and two years' worth of annual payments. The MSA is then replenished annually through structured settlement payments, with any leftover funds being added to the next deposit. The net effect of this more efficient process is a present-day savings to the claimant. By using a structured settlement, you can place fewer present dollars into the MSA at the time of settlement.

Why is the Cash + Structured Settlement Option Financially Smart?

Consider the scenario where your MSA funds run out nine months into the annual period. In this case, Medicare will cover medical expenses for the remaining three months of the year. The next annual deposit from the structured settlement annuity will then refill the MSA to cover medical costs once again.

By using a structured settlement annuity, claimants typically save an average of 25% on their settlement, maximizing the value of their settlement proceeds. 

In short: you get more money in your pocket and stay Medicare eligible!

Medical Custodial Accounts (MCA)

For clients facing medical expenses not covered by insurance or Medicare, a Medical Custodial Account (MCA) can be established to collect and distribute settlement funds for these costs. This type of professionally administered trust account is often used for injured parties who want to make sure they have funds to pay for services not covered by Medicare.