PRINTER FRIENDLY

The Medicare Secondary Payer (MSP) program is designed to assure that Medicare does not pay for health care that should be covered by another insurer.  If a Medicare beneficiary suffers an injury that might be covered by liability or workers' compensation insurance, Medicare will pay for services up front and then recover its "overpayments" from the beneficiary when the insurance claim has been resolved.[1] 

However, reimbursement to Medicare from insurance payments can sometimes cause hardship for beneficiaries.  Many Medicare beneficiaries are low income individuals[2] who may need their insurance proceeds to meet normal living expenses or pay for injury-related care that is not covered by Medicare.  MSP recovery is particularly difficult for the beneficiary when, as is often true, the insurance proceeds are less than actual damages because of policy limits or disputed liability. 

This Alert will describe the Medicare Secondary Payer program and its provisions that permit waiving collection of payments in certain situations where beneficiaries demonstrate that hardship or other factors are present. The Alert will also describe various obstacles in both the process and standards for waiver of collection that result in few waivers being granted.

The MSP Program and Waiver Provisions

Medicare is authorized to recover its conditional payments for accident-related medical expenses when a personal injury or workers' compensation case has been resolved.  In general, "CMS [Centers for Medicare & Medicaid Services] may recover an amount equal to the Medicare payment or the amount payable by the third party, whichever is less."[3] CMS has contracted with a private entity, the Medicare Secondary Payer Recovery Contractor (MSPRC) to handle MSP collections from beneficiaries.[4]  Beneficiaries (often through their attorneys) are required to contact the MSPRC within 60 days of resolution to arrange for recovery of the "overpayment."

The law does provide that MSP recovery of overpayments can be waived or compromised under certain circumstances.  There are different criteria for compromise and waiver that can be difficult to distinguish.  Not directly relevant to beneficiary hardship is the provision for waiver of recovery or compromise of claims in the "best interests" of the Medicare program, as when the probability of recovery by the government is slim.[5]  Further information about waiver or compromise to serve the fiscal interests of CMS is set out in federal regulations.[6] Decisions about compromising MSP claims under these provisions are made by CMS, usually through its regional offices.

More importantly for beneficiaries, Medicare law also provides for waiver of recovery when it would cause economic hardship to the beneficiary.[7]  Unfortunately, it appears from anecdotal evidence that few hardship waivers are actually granted to beneficiaries under the procedures and standards adopted by CMS.

The Application Process and Standards for Hardship Waivers Under 42 U.S.C. § 1395gg(c).

The legal authority for a hardship waiver is found in the Medicare statute and regulations, which are elaborated on in the CMS MSP Manual.  The statute provides that CMS can waive recovery of an overpayment when it would defeat the purposes of the Medicare and Social Security programs or when recovery would be against equity and good conscience.[8]  Regulations interpret the provisions for terminating collection based on an individual's inability to pay.[9]

The MSP Manual sets out detailed procedures and standards for granting waivers of MSP recovery.[10]    Beneficiaries are supposed to be given notice of the right to request waiver in the standard MSP repayment request.[11]  They must then request a waiver in writing, and will be sent a standard letter and a form SSA-632-BK.  This form must be filled out by the beneficiary and submitted together with supporting documentation.[12] Decisions on requests for hardship waivers are to be made by the MSPRC rather than the CMS regional or central office. 

A number of factors are to be considered  by the MSPRC contractor in deciding whether to grant a waiver under § 1395gg(c) on the grounds that recovery would defeat the purpose of the Social Security or Medicare Act by causing financial hardship.  [13]  A key fact is whether the beneficiary has an income or financial resources sufficient for more than ordinary and necessary expenses.   Such expenses include food, clothing, rent, mortgage payments, utilities, maintenance, insurance, taxes, and installment payments.  Other considerations include the cost of medical expenses not covered by Medicare or other insurance, legal support of others, and miscellaneous expenses to maintain the beneficiary's current standard of living.  In examples, the MSP manual explains that waiver may be granted: if the beneficiary has no discretionary income after payment of monthly expenses (but if she has discretionary income of $25 or more per month any waiver would be partial); if there is the existence of poverty, shown by receipt of SSI benefits, among other considerations; and if there are sudden, unforeseen financial expenses such as unexpected responsibility for grandchildren.[14]

The manual also spells out separately the criteria for granting waiver under § 1395gg(c) because recovery would be "against equity and good conscience."  The factors are similar to those for a waiver based on economic hardship, although fault is also a consideration.[15]   Collection can be found to be "against equity and good conscience" based on the "totality of circumstances" including the degree to which the beneficiary or the contractor contributed to the overpayment; undue hardship or undue enrichment of the beneficiary; and detrimental reliance by the beneficiary.  The manual further indicates that waiver is more likely to be granted where the insurance settlement was small.[16]

Obstacles to Obtaining Waiver of MSP Recovery

Anecdotal evidence suggests that waiver of MSP recovery is not frequently granted, which is somewhat surprising given the modest economic circumstances of many Medicare beneficiaries and the predictable harm of their injuries.   On closer examination, however, it appears that elements of both the CMS procedures for requesting waiver and the agency's standards for granting waiver tend to discourage waivers of recovery.

The procedure for requesting waiver of MSP recovery begins after the conclusion of a liability or workers' compensation case, when the MSPRC sends the amount of the MSP recovery claim to the beneficiary or her attorney.  At this point all parties would like to distribute the proceeds and be done with the case, but cannot do so if waiver of recovery is requested.  Instead, the waiver application process, described above, imposes new delays and substantial burdens in submitting multiple communications and gathering requisite documentation such as evidence of SSI eligibility, lost wages, and specific costs of anticipated future medical expenses.   

The standards for granting hardship waiver are similarly disadvantageous to beneficiaries.  Most discouraging is the CMS policy that a hardship waiver will not be granted to a low-income beneficiary if the individual was already living below the poverty level before the accident.  Furthermore, waiver will not be granted if the detailed financial statement form completed by the beneficiary indicates that her monthly expenses do not exceed her monthly income, regardless of how destitute they show her to be.  Although waiver is possible if the beneficiary has spent settlement proceeds on living expenses, CMS form letters to the beneficiary's attorney make this unlikely by prohibiting distribution of the proceeds until after Medicare has been paid.  Finally, the decision whether to grant waiver of collection is made by the MSPRC, a private entity whose primary task of acting as collection agent would not predispose it to be generous in relinquishing claims.

The Center for Medicare Advocacy is very interested in beneficiaries' experiences in seeking waiver of MSP repayment of Medicare benefits. Information about such experiences or questions about the MSP waiver process can be directed to attorney Sally Hart at shart @ vanosteen.com.