Medicare Set-Aside

What is a Medicare Set-Aside?

A Medicare Set-Aside is an account created in the settlement of a workers’ compensation case. The interest bearing account is created from a portion of the settlement proceeds to be used to pay future medical expenses that are (1) related to the job injury; and (2) would otherwise be payable by Medicare.

When are Medicare Set-Asides Required?

A Medicare Set-Aside (MSA) is required in the settlement of any workers’ compensation case in which future medical benefits are closed and either of the following exists:

  • Either the injured worker is, at the time of settlement, a Medicare beneficiary (regardless of the amount of the settlement). Or
  • The settlement amount is greater than $250,000 and the injured worker can reasonably be expected to become a Medicare beneficiary within 30 months of the settlement.

A Medicare Set-Aside should also be considered in Third-Party Liability cases, especially when the claimant is receiving either Medicare benefits or is expected to receive Medicare benefits within the next 30 months.

Who are the Medicare Beneficiaries?

Medicare is a federal insurance program that provides benefits for certain medical and hospital expenses for anyone who:

  • Is between the ages of 62 ½ and 65; or
  • Has applied for or been approved for Social Security Disability Income benefits; or
  • Has been denied Social Security Disability Income benefits but anticipates appealing the decision within 30 months; or
  • Has an end-stage renal disease but does not yet qualify for Medicare.

How is the MSA fund created?

Generally, four steps are involved in setting up the MSA fund

  1. Analysis of the claim and medical information in order to determine the amount of money needed to put in the fund;
  2. Negotiations of a tentative settlement and preparation of draft settlement documents to settle the workers’ compensation case, incorporating terms for creation and administration of the MSA fund;
  3. Obtaining approval from the Centers of Medicare and Medicaid Services (CMS) of the settlement, the MSA fund amount, and the proposed administration of the MSA fund;
  4. Finalizing the settlement and funding the MSA.

How is the Set-Aside amount determined?

Typically, the MSA fund amount is determined by expert analysis of the claim and medical information, considering many factors including:

  • Date of and basis for entitlement to Medicare
  • Type and extent of injury or illness
  • Age of the injured worker and impact of injury or illness on life expectancy
  • Extent of disability
  • Prior and future medical needs related to the job injury
  • Compensability period
  • Medical prognosis
  • Medical expense inflation
  • Reduction to present value
  • Medicare coverage limitations
  • Workers’ compensation fee schedules

How is the MSA funded?

The MSA can be funded either by a lump sum payment from the employer/insurer, by the employer/insurer purchasing a structured settlement annuity, or both.  Since the typical MSA is used to cover medical expenses incurred over a period of several years, it often is less expensive to fund the MSA with a structured settlement annuity. For example, to establish an MSA for a 60-year-old female with a life expectancy of 23 years and expected future Medicare-covered medical expenses of $2,000 per year would require a lump sum payment of more than $55,000. Alternatively, the MSA could be funded with a structured settlement annuity costing thousands of dollars less. A big advantage of funding an MSA with an annuity is that in any year in which the covered medical expenses exceed the balance in the MSA fund, Medicare will cover the medical expenses until the next annuity payment is received.

Who administers the MSA fund?

The fund can be administered either by the injured worker (“self-administered”) or by a third-party trustee, such as a guardian or a trust company. If a third-party does administer the fund, any administration fees will need to be considered in determining the amount to be set aside. In most cases, a third-party administrator is the best recommendation for the administration of the MSA.

What is involved in the administration of an MSA fund?

The money is deposited in an interest-bearing account, from which Medicare-covered medical expenses related to the job injury will be paid as of the date the injured worker qualifies for Medicare. The fund administrator receives the injured worker’s medical bills, makes sure the expenses are covered by Medicare and are related to the job injury, makes payment, retains copies of all bills and proof of payment, makes annual reports to CMS and makes a final accounting when the funds are exhausted or when the fund is no longer needed.

Ferlisi Jolley Services

Personal Physical Injury or Wrongful Death

Determine the client’s financial needs, design the proper Structured Settlement plan to deliver those funds, and select the most competitive and secure life insurance companies entrusted to provide those funds.

Attorney Fee Structures – Deferred Compensation

An excellent opportunity for attorneys to take advantage of deferring current year income tax liability and creating an income stream for a secure future. This option is available even if you client accepts a cash settlement.

Medicare Set-Asides (MSAs)

Protecting Medicare’s interest as secondary payer in Worker’s Compensation and/or Third-Party Liability cases.

Qualified Settlement Funds {IRC Sec. 468(B)}

Established to resolve or satisfy one or more contested or uncontested claims — a court ordered “safe harbor” advantageous to the plaintiffs and their attorneys, giving them control in the selection of various funding vehicles available to them, including structured annuities.

Non-Qualified Annuities

Settling employment or other non-physical injury claims by providing the client the benefit of a stream of guaranteed periodic payments instead of an upfront, lump sum payment which may cost them money.

If you would like more information about how Ferlisi Jolley Associates, Inc. can help you, call us at 205.803.6200.