MSA Confusion Reigns in Third-Party Liability Cases
The confusion caused by gaps in CMS regulations regarding Medicare Set-Asides (MSAs) continues to grow. An aging population ensures that more people will become potential Medicare claimants if they are injured for any reason. While CMS has provided clear guidelines around the development of MSAs when injuries occur on the job, it has not been so forthcoming when those injuries occur in a third-party liability setting. Without such guidelines, both applicants/claimants and their legal representatives face potentially devastating consequences if they fail to ‘guess correctly’ about the appropriate use or non-use of an MSA in a third-party liability case.
What’s the difference? WCMSA versus LMSA
Fundamentally, an MSA holds the funding necessary to cover the current and future medical costs of injuries sustained by Medicare beneficiaries (or soon-to-be beneficiaries). The theory behind the account is to protect Medicare (and Medicaid) from making medical payments for injuries that are the legal responsibility of another entity (the primary payor).
- In Workers’ Compensation (WC) cases, that primary payor is a WC insurer or perhaps the employer directly.
- In a third-party liability case, that other entity might be the defendant in the legal case, their insurer, or another party to that case.
Federal law requires that the primary payor is deemed liable (responsible) for paying the costs of those injuries and must provide 100% of the current and future medical coverage for their treatment.
The distinction between a workers’ compensation MSA (WCMSA) and a liability MSA (LMSA) is the location of the incident that caused the injury.
- In workers’ compensation (WC) cases, the injury occurs at the workplace, and the WC insurer or the employer provides healthcare coverage to treat that injury both immediately after its occurrence and for ongoing treatment until the injury heals completely.
- In a third-party liability case, there are as many causes and locations of injuries as there are circumstances in which people are injured, such as car crashes, slips, falls, crushes, or any event that causes injury. In these cases, there is usually a legal determination of who is responsible for the damages and who the primary payor should be.
In both cases, when the injuries will take time to heal fully and require ongoing medical coverage, the primary payor is also responsible for covering those future costs that accrue after the legal case has closed. The MSA is the account used to sequester the funds needed for this purpose.
The present challenge arises because the Centers for Medicare and Medicaid Services (CMS) has issued guidance for handling MSAs based in WC cases, but not for MSAs based in third-party liability cases.
Why does guidance matter?
From a legal perspective, not having official governmental guidance for setting the parameters of legally binding agreements (like an MSA) can open liability and other vulnerabilities for everyone involved in the liability case:
- From the CMS perspective, with no guidelines available to direct MSA development within a liability case, the agency may make inappropriate Medicare payments to cover treatments that are, by law or contract, the obligation of the legally designated primary payor. Without guidelines preventing that occurrence, CMS may then be forced to declare the payments it did make as conditional only and pursue their collection through sometimes expensive legal proceedings.
- With no mandate requiring the establishment of an MSA in any liability case, Medicare beneficiaries who elect to forego the MSA opportunity in their case may:
- have CMS deny future claims;
- be forced to prove that they have spent the equivalent of 100% of the settlement on injury-related medical costs before further Medicare benefits are made available, or
- lose their Social Security disability benefits until the full value of the MSA claim is satisfied.
- Attorneys also face challenges. As fiduciaries, they are obligated to follow the law but when the law is unclear, ambiguous or, as in this case, absent, the lawyers made may be held liable to their Medicare-beneficiary clients for failing to appropriately counsel them about the risks of not considering establishing an MSA in the settling phase of their liability case.
How to handle the void of regulation
While all MSAs are voluntary, including WCMSAs, not all cases should have one, not even LMSAs, even when the guidelines for its establishment are clear.
The main determiners for creating an MSA are:
- the need for funding for future medical care costs for a particular type of injury, and
- the status of the particular injured person.
Future versus current medical care costs
As in a WC injury, injuries sustained in a liability case don’t always require long-term medical care. Broken bones, for example, that don’t also have co-occurring nerve or muscle damage will often heal back to their pre-break state and require no additional medical coverage after that process is complete. When those injuries also include ongoing or irreparable nerve damage, muscle damage or other long-term health concerns, an MSA might be the best option to ensure that the appropriate funding is available to cover the costs of that care.
The type and duration of the injury are relevant factors regardless of whether it happened on the job site or in a liability scenario.
The status of the injured person
Medicare coverage is only available for people who are already eligible to receive it (currently age 65 years), or who will become eligible within a reasonable period (during which ongoing treatment for the injury is expected). Ergo, if the injured person is only 45 years old and the injury is expected to heal completely within two years, then the MSA is unnecessary.
On the other hand, if the injured person is 64 years old at the time of the incident, and the injury is expected to take two years to heal, then setting up an MSA to cover the costs of care after Medicare kicks in might be a wise choice.
Prudence is the best course
Whether an injury occurs because of a workplace incident or through the fault of another party, having access to appropriate medical care is critical for the injured person to recover fully and regain their previous lifestyle. Despite having no direct guidance as yet from CMS about the necessity or appropriateness of an MSA in a third-party liability case, every person should perform a careful evaluation of both the cause of their injury, its short- or long-term prognosis, and the costs of its medical care before deciding an MSA is not for them. While there’s no drawback to setting up the account as a prudent act of self-care, there may be significant drawbacks if it turns out that CMS will indeed have an interest in payouts for that injury and that interest wasn’t considered when the financial resolution of the liability case occurred.