Medicare set-aside trusts were the subject of a session at the 2008 National Academy of Elder Law Attorneys Symposium in Hawaii. Giving the session was Denver, Colorado, ElderLawAnswers member attorney John Campbell, who is also a certified Medicare set-aside consultant.
In general, a Medicare set-aside is needed any time you have a client with a workers' comp or other personal injury settlement. Medicare set-asides are a way to administer settlement money for future medical expenses in compliance with the Medicare Secondary Payer Act. Campbell stressed that there is "no Medicare set-aside trust form" because each set-aside arrangement must be different based on the individual circumstances of the case.
The Medicare set-aside trust developed in conjunction with workers' compensation claims, Campbell said. The Medicare Secondary Payer statute provides that Medicare will not pay for any item or service where payment has already been made by workers' compensation or other insurance. When a claim is settled, the settlement represents payment for a service that has been provided. Therefore, Medicare becomes the secondary payer.
Campbell explained that under the regulations pursuant to the statute, Medicare will not pay any post-settlement injury-related expenses until the portion of the settlement devoted to future medical expenses is exhausted. If Medicare believes the settlement is an attempt to shift responsibility from the insurer to Medicare, then Medicare will not recognize the settlement at all. If there is no allocation of the settlement to future medical expenses, then Medicare will not pay any expenses until the entire settlement is exhausted.
This is where the Medicare set-aside trust comes in. The claimant can take a portion of the whole settlement and allocate it to future expenses. The allocation has to be reasonable, Campbell cautioned, or Medicare won't recognize it. The attorney's goal is to work with clients to minimize the amount allocated to future expenses.
The Centers for Medicare & Medicaid Services (CMS) previously asserted its secondary payer status only in workers' comp claims, but it recently began claiming it has secondary payer status on all third-party personal injury claims. Campbell believes that even though the regulations regarding set-asides currently apply only to workers' comp settlements, CMS will soon begin to enforce its status on personal injury settlements. Campbell warned that attorneys should treat all personal injury settlements as though CMS was going to review them. According to Campbell, some regional offices have agreed to a discretionary review of set-aside arrangements for personal injury settlements.
CMS has issued ten policy memoranda on Medicare set-asides. Campbell stressed that if you are going to do anything with regard to a Medicare set-aside, you need to "know the memoranda backwards and forwards." The memoranda, which can be found online at www.cms.hhs.gov/WorkersCompAgencyServices, cover a variety of topics, including criteria for submission and review of Medicare set-asides, what information is required with a Medicare set-aside submission, the self-administration of Medicare set-asides, the procedure to get CMS approval for a reduction in the Medicare set-aside, the payment of taxes out of the Medicare set-aside, and a requirement that the Medicare set-aside amount include an allocation for future prescription drug costs.
CMS requires submission and review of the settlement agreement and the Medicare set-aside arrangement proposal for a workers' compensation settlement if the injured person is currently eligible for Medicare and the value of the entire settlement exceeds $25,000. If the injured person is not currently on Medicare, but is reasonably expected to become eligible within 30 months and the entire settlement is more than $250,000, then the Medicare set-aside proposal must be approved by CMS. Campbell stressed that if your client doesn't meet these requirements, you still have to comply with the law, but CMS won't review your proposal.
Set-asides are submitted through a central benefit coordinator and the proposals must include a "laundry list of documentation," according to Campbell, including a cover letter, life expectancy information, a medical analysis and cost projection (called a life care plan). The plan must project the reasonable and necessary future expenses for your client's injury. It includes only medical services and prescription drugs that Medicare covers. Campbell stressed that you want the smallest amount possible "because it is basically a deductible." Determining the set-aside amount is an "art form, not an exact science," Campbell said, explaining that it should be done by someone with training and experience. In addition, you need to submit the final workers' comp settlement and a signed approval order (in states that require approval of workers' comp settlements). Campbell noted that you do not have to submit the final settlement -- you can submit an estimate -- so it is possible to get approval before a settlement is finalized.
Administering the Set-Aside
The purpose of a set-aside, according to Campbell, is to "get closure" on the settlement. A set-aside can be in one of three arrangements: a trust; a custodial account that is managed by a professional, non-trustee custodian; or self-administered. Though Campbell believes letting a client self-administer a set-aside is a bad idea, 80 percent of all set-aside arrangements are done this way.
A set-aside trust is administered by a professional trustee. Campbell stressed that a professional trustee may not be familiar with Medicare law, so she will need to hire a professional medical claims administrator who can advise the trustee on whether medical bills are covered by Medicare. All state and fiduciary laws apply to the trust and annual accountings are required. A trust is expensive, and Campbell said it is usually only used for settlements of $100,000 or more. Custodial agreements are less expensive than trusts. The custodian does not need to be licensed as a trustee, but other fiduciary laws apply, and accountings are required on a regular basis. Custodial agreements are usually used for settlements between $50,000 and $100,000.
Self-administered set-asides are very popular, but Campbell noted that it is very easy for clients to make mistakes. Campbell warned that if there is an improper distribution, Medicare will not cover future medical expenses until that amount is put back into the Medicare set-aside and properly spent. CMS provides instructions, but the instructions are very difficult for a layperson to understand. While clients are required only to do an annual attestation, CMS reserves the right to do a full accounting, so the client must keep records just as if he is a formal trustee. Campbell stated that if his client is doing a self-administered settlement, he has the client sign a formal agreement stating that he has read the instructions and agrees to follow them. Campbell also tries to get the client to consult a professional claims administrator and a certified financial planner.
Campbell warned that one drawback of all self-administered and custodial arrangements is that they are considered resources for purposes of eligibility for SSI and Medicaid. According to Campbell, the only thing that will protect assets is a Medicare set-aside special needs trust. Such a trust must be irrevocable; be created by a parent, a grandparent, or the court; have a state payback provision; and have a third-party trustee.
Campbell noted that set-aside arrangements only cover a portion -- usually one-fifth or one-tenth -- of a settlement. The remaining settlement can be put into a regular special needs trust or pooled trust so that all the benefits are preserved.
In conclusion, Campbell touched on other claims and liens against the settlement. Campbell stressed that whenever you are dealing with a client with a settlement, you need to notify Medicare, Medicaid, and the Veterans Administration so that their liens can be known. Both state Medicaid agencies and the Veterans Administration can assert liens against a settlement. With regard to Medicaid liens, pursuant to Ark. Dep't of Human Servs. v. Ahlborn, 547 U.S. 268 (2006) the state can recover only the portion of the settlement that is for past medical expenses, but the state has the right to participate in the negotiation of the settlement.
Campbell's materials, found in the Symposium's manual, includes his 21-page paper on Medicare set-asides. The Symposium's manual is available in hard copy or on CD for $146.25 (members) or $195 (non-members). Contact Terri Anthony at NAELA, 1604 North Country Club Road, Tucson, AZ 85716; (520) 881-4005, ext. 107; info@naela.com
Audio tapes or CDs of Symposium sessions are available in a variety of formats from ADC Services, 69013 River Bend Drive, Covington, LA 70433; ADCTape@aol.com
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