Debunking MSA Myths…
Jennifer Jordan, attorney, counsel for Louisiana Association of Self Insured Employers (LASIE), editor-in-chief of The Complete Guide to Medicare Secondary Payer Compliance, published annually by
Lexis-Nexis since 2010.
I recently read an article strongly recommending professional administration of MSAs that left me with one thought – when are we going to stop the doom and gloom nonsense associated with Medicare Set-Asides? Over 17 years ago, the infamous Patel Memo launched an entire multimillion dollar cottage industry based solely upon invoking fear that the federal government somehow had rights in state workers’ compensation settlements. Mind you that this was an interoffice memo addressed from the CMS central office to its regional offices and was not addressing the public at large. Also, note that to this day that not a single bit of legislation or regulation governing MSAs has ever been enacted. Yet considerable misunderstanding continues to surround the concept so let’s see if we can debunk a few MSA myths…
1. We are not required to protect Medicare’s interests in an insurance settlement
There is no legal requirement found in state or federal law that mandates “Medicare’s interests be protected.” The Medicare Secondary Payer Act (“MSP”) addresses Medicare, stating that it is prohibited from making payments when another entity is responsible for the same payments. And should payment be made, Medicare is statutorily entitled to reimbursement. If there is a reimbursement obligation, it is because of some underlying legal obligation, not the MSP. By meeting that legal obligation, compensation is provided for future medical expenses which in theory would prevent Medicare from making prohibited payments (so long as the money is used for that purpose), thus leaving Medicare indirectly protected. It was the practice of not providing adequate future medical compensation to Medicare beneficiaries because they didn’t need it because it was well known that CMS did not enforce the MSP before the turn of the century that led to this memo being released. That’s a lot different from today’s fears that an MSA may be inadequate if not approved by CMS.
2. State law will trump federal law in this particular situation
Federal preemption cannot supersede the state workers’ compensation law that determines the legal obligation to make payment, no matter how many threats CMS or MSA company marketing can infer. Because CMS has not sought legislation nor regulated anything to do with MSAs, the 10th Amendment of the United States Constitution will protect determinations made under state workers’ compensation law. Because the federal government does not regulate workers compensation, control lies exclusively with the states. Therefore, the amount of compensation provided in a workers’ compensation settlement is governed by state law and enforced by the state’s administrative body, not CMS or the MSP. We have no greater or financial legal obligation in a settlement involving a Medicare beneficiary unless of course the parties voluntarily agree to seek CMS’ opinion as to the adequacy of the future medical compensation as a component of the settlement agreement. Ironically the obligation to fund whatever CMS recommends would still then be governed by state contract and workers’ compensation laws and not the MSP.
3. Double damages and interest for MSA transgressions only occur after benefit determinations and/or collection attempts
The biggest threat to all things considered an MSP noncompliance is double damages and interest. The most important thing to understand is about any punitive threats related to MSAs is that a benefit determination must be made by CMS to deny payment or seek reimbursement. Assuming future medical compensation was provided pursuant to state settlement law and spent on related treatment, CMS will need a legal basis for either of those threats to apply. And unlike voluntarily seeking CMS’ opinion as to the amount to be funded, denial of entitlement such as Medicare benefits or demand for monetary reimbursement is subject to an official administrative appeal in which that legal basis would be scrutinized. If there is a sound legal reason for the amount of future medical compensation provided in accordance with state settlement laws, concerns about double damages and interest should not be a concern. And even if the appeal were to fail, those threats would only apply to the amounts sought in reimbursement by CMS for actually related payments made by Medicare. It does not attach to the entire MSA funded or any perceived inadequacy. And interest does not attach until 60 days after the demand is made and nothing doubles unless suit filed in federal court.
Furthermore, MSP recoveries are no different than any other federal debt. While the MSP does address when interest will attach and double, rather than say treble, in the event of litigation, everything else about the collection effort is governed by other federal debt collection laws. The interest attaches at the federal rate of about 10% and the interagency referrals to the Departments of Treasury and Justice are governed outside the MSP. The same ramifications would apply if back taxes were owed or social security made an overpayment.
While these are but a few of the misunderstandings associated with MSAs, understanding these fundamental concepts should help put some of the fears associated with the process aside so that rational decisions can be made about the true MSP risks. Fear of the unknown can be daunting, but fears associated with MSAs are irrational. While CMS could impose double damages and interest, it cannot do so without a sound legal claim for reimbursement of overpayment actually made and such claims will be entitled to an administrative remedy in which all defenses not heard at the time of settlement can finally be presented. If it wasn’t owed under the state workers’ coemption law, then it does not need to be funded simply because the clamant is a Medicare beneficiary. It is commendable that we are trying to preserve the Medicare trust for the benefit of future beneficiaries, but it is unfair to manipulate the private sector to pay more than it is obligated to make up for the program’s shortfalls.