Most people, with any luck, will never need to concern themselves with a Medicare Set-Aside (MSA), also called a Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA). But if you ever injure yourself at work, or you find yourself on the receiving end of a personal injury settlement, you may become well acquainted with the term.
If you need to do a Medicare Set-Aside, read on to learn about how they work, what to expect and whether you should do it (in some cases you may be required).
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What Is a Medicare Set-Aside?
It is a financial arrangement that allocates money that comes from a personal injury or workers’ compensation settlement and is “set aside” into an interest-bearing account to pay for the individual’s future health care costs that are related to their injury and would otherwise be covered by Medicare.
Medicare Set-Asides are generally required by federal law in a workers’ comp settlement and not in a personal injury case — though they tend to be recommended.
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How Does a Medicare Set-Aside Work in a Settlement?
A Medicare Set-Aside has to pay for those injury-related health care costs, and ensures that Medicare is the secondary payer. This means settlement funds must be exhausted before Medicare begins paying for injury-related care. Once the money in the MSA account has been spent, then Medicare takes over paying those medical expenses.
MSAs are required if you’re a Medicare beneficiary — or if you’re expected to enroll in Medicare within 30 months of the workers comp settlement.
Medicare Set-Asides are designed to protect the beneficiary, says Yosi Yahoudai, a managing partner at J&Y Law, a personal injury law firm in Los Angeles.
If you are required to have one and don’t, you could run into problems, Yahoudai says.
“Without a structured MSA, Medicare could deny coverage for injury-related treatment or require proof that the settlement funds were appropriately used,” Yahoudai says. “If the MSA is underfunded, that’s when people end up paying out of pocket or dealing with delays in getting treatment. That’s why it’s so important to structure them correctly from the start.”
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How to Set Up a Medicare Set-Aside
Setting up a Medicare Set-Aside can be complicated, which is why it’s a good idea to enlist help from a professional.
Steps to create a Medicare Set-Aside
1. Assessment: Estimate future medical costs related to your injury
2. Submission: Submit the proposed MSA amount to the Centers for Medicare & Medicaid Services (CMS) for approval
3. Funding: Set aside the approved amount in a dedicated account
4. Use and reporting: Use the funds only for injury-related medical expenses, keeping detailed records
While there are no provisions requiring that a MSA proposal be submitted to CMS for review, submission is a recommended process. CMS will only review proposals that meet the following criteria:
— The claimant is a Medicare beneficiary and the total settlement amount is greater than $25,000
Or
— The claimant has a reasonable expectation of Medicare enrollment within 30 months of the settlement date and the anticipated total settlement amount for future medical expenses and disability/lost wages over the life or duration of the settlement agreement is expected to be greater than $250,000
You don’t have to submit a Medicare Set-Aside if you meet either criteria above. But it won’t be advised, because you do run the risk that down the road, Medicare could deny an injury-related claim.
Some of the documentation you’ll need includes:
— A referral form (generally filled out by an insurance carrier, a third-party administrator or your employer)
— Two years of medical records, including prescriptions drug history
— Court documentation, related to the injury
— Denial letters, denying coverage for injuries
— An IME (independent medical evaluation), showing that a physician who doesn’t have a relationship with you has also weighed in on your injuries.
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How to Fund a Medicare Set-Aside Account: Lump Sum vs. Structured Settlement
You have two choices for funding a Medicare set-aside. Yes, the money comes from a workers compensation or personal injury settlement, but it can be funded with a lump sum settlement or with a structured settlement, which involves getting money every year for the MSA.
If you receive a lump sum of money, once that is all paid, then Medicare takes over.
If you have a structured settlement, if the fund is empty before the year is up, then Medicare takes over. The process begins anew the following year, with the MSA funds paying for your injury-related care.
Often, depending how state law interacts with the federal law, you may be required to take a lump sum. That may be for the best. There’s far more paperwork involved with a structured settlement, where you or your MSA administrator will be tasked with giving Medicare an annual report.
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What happens to Medicare Set-Aside you don’t spend?
And if one day your injury is healed and you don’t need care for your injury, what happens to the money? It remains in the account. You can’t use it (unless your injury resurfaces and you need more medical care). The money can only be used to cover medical expenses due to your injury as set out in the MSA agreement.
If money remains in the account after you die, your estate administrator can distribute funds according to state law once all other claims have been satisfied. Money may go to beneficiaries named in the settlement agreement after a period of 12 months. During this time, providers, physicians and other medical suppliers can submit bills to Medicare for reimbursement first.
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Common Mistakes to Avoid With Medicare Set-Asides
Making errors with an MSA can lead to financial and legal complications.
Some frequent mistakes include:
— Incorrectly estimating future medical expenses related to the injury
— Not setting aside enough funds to cover future medical expenses
— Using MSA funds for non-injury-related costs, which is prohibited
— Failing to keep detailed spending records
— Skipping the formal submission to CMS when required
— Assuming that it isn’t difficult to run an MSA and that you don’t need a professional administrator
On that last point, sure, there may be some detail-minded individuals out there, who may enjoy running their own MSA. If that’s you, great. But this is not easy. For instance, once you have a MSA account, you’ll need to track what expenses are being paid — including the dates they were paid — and share that every year with the CMS. You also need to pay bills adhering to your state’s specific workers compensation fee schedule. There are also ICD-9 and ICD-10 billing codes that you need submit to Medicare. It’s a lot.
You also need to hang onto your receipts, says Cynthia Pruemm, founder and CEO of SIS Financial Group, a financial planning firm in Hoffman Estates, Illinois. This way you can prove the expenses. It’s also important to make sure the funds are only used to pay for qualified treatments and prescriptions directly related to the injury.
If it’s discovered that you used the funds for something else, unrelated to your injury, you could wind up owing Medicare money — or have future claims denied.
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Pros and Cons for a Medicare Set-Aside
Pros
— A Medicare set-aside protects you from Medicare refusing an injury-related claim. Having coverage denied sometimes happened — maybe due to a billing code or because Medicare deems coverage not being medically necessary. With a Medicare set-aside, you, at least in theory, shouldn’t have that happen.
— It protects your Social Security disability insurance (SSDI) benefits. Without an MSA, you could wind up with a settlement that suggests you have more money than you really do (since much of that money is going towards treating your injury). If you collect more than 80% of your average earnings before you became disabled when you add your workers compensation money and SSDI benefits, you could see your SSDI benefits reduced. But the MSA prevents that from happening.
— Possible peace of mind — you’ll know going forward that there’s a plan, and money, set aside, for your injury-related health care.
Cons
— The money you make off interest in your MSA account will be taxed. The money you get from the settlement that goes into the MSA, however, will not be taxed.
— The administrative paperwork associated with an MSA can be onerous and complicated, which means either you’re going to be swamped in red tape, or you’ll pay a professional to manage it. Typically, those details are worked out when the settlement details are being hammered out; administrative fees aren’t allowed to come out of the money in the Medicare Set-Aside.
— The money is set aside solely for your injury-related health care. If you recover, you’ve got money in an account that you can’t touch (though your heirs may be entitled to it).
While there are a lot of restrictions on an individual with a Medicare Set-Aside, there may be a certain freedom too, says Pruemm.
“Since Medicare Set-Asides are set up for a workers’ compensation injury, they benefit the Medicare beneficiary for future medical costs that may not be covered by Medicare. Maybe you need a specialized surgery, and you’ve found a surgeon that is 1,000 miles away,” Pruemm says. “You could use your Medicare Set-Aside for the airfare and lodging if the surgery is directly related to your injury.”
Is a Medicare Set-Aside worth it?
Whether it’s worth it or not, and whether you like the idea or not, you may realistically have no choice but to set up a Medicare Set-Aside. But if you’re somebody who isn’t required to set up an MSA, you may wonder if you should, since it doesn’t just protect Medicare, it protects the Medicare beneficiary as well.
“Thirty months is just usually where the review cutoffs are,” Yahoudai says. “If someone is younger than that and dealing with a serious injury, it’s still something they’d want to think about, though. They might not need a formal MSA, but you’d want a clear plan for how future medical treatments are going to be taken care of.”
One way to look at it — if you’re 40 years old and were injured enough for a personal or workers comp settlement, but you’re confident by the time you get to your Medicare days, you’ll be well, you may feel like a Medicare set-aside is the last thing you need. After all, when you put money into an MSA, you can’t use it for anything else.
But if you’re 40 at the time of your settlement, with a serious injury that will have complications for the rest of your life and you’re not confident you’ll be in the peak of health when you enroll in Medicare and worried that Medicare may not pay for some of your injury-related expenses, in that case, an MSA might be a good idea.
“So it’s less about how old someone is and more about their health and the likelihood that they’ll need long-term care,” Yahoudai says. “The more serious the injury, the more important it is to have those future medical expenses calculated, like we do with settlement negotiations.”
Smart strategy or not, that’s really a conversation between you and your attorney or financial advisor. Everybody’s monetary needs and health situation is different. Still, planning ahead for long-term health care in your senior years is never a bad idea.
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Medicare Set-Aside: What It Is and How It Works originally appeared on usnews.com