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The Medicare Secondary Payer (MSP) program seeks to conserve funds by prohibiting Medicare payment for health care that could be covered by another insurer.  Thus, when a Medicare beneficiary experiences an injury that might be covered by liability, no-fault, or workers’ compensation (hereinafter “liability”) insurance, Medicare will pay conditionally for her medical services, but recovers its “overpayments” later when the beneficiary receives compensation from a liable insurer.[1] The MSP law imposes increasingly stringent obligations on insurers to aid in this recovery process.  Unfortunately, insurers and their attorneys have responded to these MSP obligations by imposing requirements on Medicare beneficiaries that interfere with needed protections.

Background

The MSP statute authorizes Medicare to “recover an amount equal to the Medicare payment or the amount payable by the third party, whichever is less.”[2] Thus, if the amount of the insurance compensation is less than the total cost of the beneficiary’s damages, Medicare will nevertheless claim it all, minus an allowance for the attorney.  The Center for Medicare & Medicaid Services (CMS) has contracted with a private entity, the Medicare Secondary Payer Recovery Contractor (MSPRC) to handle MSP collections from beneficiaries.[3] Beneficiaries, often through their attorneys, are required to notify the MSPRC within 60 days of resolution of a liability claim to arrange for payment of the MSP recovery claim.

When it learns of a beneficiary’s liability claim, the MSPRC asks the Medicare contractors to compile information about the amounts they have paid for medical services to the beneficiary since the injury that gave rise to liability.  Unfortunately, it is difficult for contractors to distinguish between services related to the injury and those that would have been provided in the absence of injury.  Error rates in the recovery amounts demanded by the MSPRC are of particular concern because many Medicare beneficiaries live on a limited income.[4]

Thus, the right of beneficiaries to appeal MSP recovery claims in order to reduce MSP recovery to the correct amounts is critically important.   However, the appeal rate is surprisingly low, perhaps because beneficiaries or their attorneys are required to pay the full MSP claim before errors can be corrected through the appeal process.  The statute does allow MSP recovery of overpayments to be waived when it would cause economic hardship to the beneficiary.[5] However, although waiver is another important protection for low income beneficiaries, the MSPRC grants few requests for waiver of recovery, and the procedure has been little used by beneficiaries.

Obligations of Insurers

Against this background, Congress has acted to enhance the effectiveness of MSP recovery by increasing the responsibilities of liability insurers.  The statute has long provided that if Medicare is not able to collect its MSP claim from a beneficiary, the insurer and perhaps also the attorney may be required to pay double damages, even though they properly disbursed liability proceeds to the beneficiary.[6] Additional legislation adopted in 2007 imposed new reporting requirements on liability insurers, mandating that they submit information about all claimants who are Medicare beneficiaries when a claim has been paid, whether through settlement, judgment or otherwise.[7] In addition, there has been much anguished discussion among insurers and liability attorneys concerning the possibility that CMS will begin applying MSP obligations to future medical expenses in tort cases, so that provision in at least some situations will have to be made for future injury related expenses.[8]

These developments have created a “perfect storm,” in which insurers (and attorneys) believe themselves to be exposed to indeterminate liability related to MSP claims.  As a result, many insurers are refusing to settle liability claims until the Medicare beneficiary accepts conditions that protect the insurer against liability by assuring that the MSP claim is paid.

One such condition is requiring that Medicare be named as joint payee with the beneficiary on the settlement check, so that the beneficiary cannot access her settlement proceeds until Medicare is satisfied.  Because both the beneficiary and her attorney will be eager to obtain their proceeds, this condition creates a powerful disincentive to pursue the lengthy appeal or waiver processes that could correct excessive MSP claims.

Another condition of settlement may be requiring the beneficiary to establish a “Medicare Set-Aside Arrangement” or trust (MSA) with a portion of the proceeds for payment of future medical expenses.[9] But the cost of setting up and administering a MSA must be borne by the beneficiary, as well as the loss of the funds deposited in the MSA.  The imposition of these costs is particularly unfair to the beneficiary in the case of future medical expenses in liability cases that may not be subject to MSP requirements.

To facilitate protections against potential liability for MSP claims for insurers and attorneys, legislation has been introduced (HR 4796) that would establish a procedure for timely advance approval by CMS of the correct amount of MSP reimbursement.[10] Under HR 4796, approval by CMS would relieve the insurer and attorneys of any potential liability.  However, the MSP claim recovery procedures that would be created by HR 4796 eliminate the beneficiary’s opportunity to obtain a hardship waiver, and the beneficiary would bear the burden of proof in appeals of the MSP claim amount. A separate proposal approved by the House of Delegates of the American Bar Association supports legislation that would establish CMS procedures for approval of MSAs and insulate insurers from liability with respect to future medical expenses.  However, the provision for standardized approval of MSAs suggests a greatly increased use of this device, despite its costs and questionable value to beneficiaries.[11] Both of these proposals would relieve insurers and attorneys of future MSP liability, but at a price to beneficiaries.

Conclusion

Potential liability has been imposed on insurers and attorneys under the MSP law in an effort to facilitate the government’s collection efforts.  This, in turn, has caused insurers and attorneys to seek immunity through procedures that threaten protections for vulnerable Medicare beneficiaries.  A better balance is needed to assure that the Medicare program continues to carry out its fundamental mission of providing medical care for Older and disabled people.

For more information, contact Center for Medicare Advocacy attorney Sally Hart at shart@medicareadvocacy.org.


[1] 42 U.S.C. § 1395y(b)(2)(B)(i).
[2]
42 C.F.R. §  411.24(c).
[3]
http://www.msprc.info/.
[4]
Almost half of Medicare beneficiaries have incomes below the 200% of federal poverty level.  “Medicare At a Glance, January 2010,” Kaiser Family Foundation, www.kff.org/medicare/upload/1066012.pdf.
[5]
42 U.S.C.  § 1395gg(c).
[6]
42 U.S.C. § 1395y(b)(3)(A).  CMS also asserts that attorneys are responsible to pay MSP claims that are not satisfied after disbursement to their clients, but neither the statute nor the regulations treat attorneys the same as insurers, so this obligation is not clear.  See “The Myth of the Superlien:  Medicare as Secondary Payer Law Clarified,” 5 NAELA Journal 95, 101-102 (2009).
[7]
42 U.S.C. 1395y(b)(8).
[8]
Until recently, the MSP law has been applied to medical expenses up to the date when a claim was resolved, but not for medical expenses after that date, except in workers’ compensation (WC) cases. There are many difficulties in applying the law the future medical expenses in tort cases, where unlike WC cases, there are often no specific findings with respect to future medical services.   See full discussion of this situation in Alert of 09/17/09 – “Limits on Medicare’s Recovery of Health Care Payments when the Beneficiary has Liability or Workers’ Compensation Insurance,” at www.medicareadvocacy.org.
[9]
A Medicare set-aside arrangement involves placing a portion of insurance proceeds in a special fund estimated to be adequate to pay for future accident related medical expenses.   CMS Medicare Secondary Payer (MSP) Manual, Chap.7, § 50.5, www.cms.gov/manuals/downloads/​msp105c02.pdf.
[10]
Medicare Secondary Payer Enhancement Act of 2010 (H.R. 4796).
[11]
The ABA Commission on Law and Aging declined to support the resolution.

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