FAQ - Medicare Secondary Payer Program

The Center for Medicare Advocacy receives many inquiries about the Medicare Secondary Payer program from Medicare beneficiaries and attorneys. This article explains some basic facts about the Medicare Secondary Payer (MSP) law to help individuals understand their rights and obligations under it.[1]

The Medicare Secondary Payer (MSP) program is designed to reduce costs to the Medicare program by requiring other insurers of health care for beneficiaries to pay primary to Medicare. It applies in three situations: where there is liability insurance,[2] e.g. for an accident; where there is workers compensation coverage,[3] e.g., for a job related injury; and where there is an employer’s large group health plan (EGHP).[4] We will focus here on the liability insurance and worker’s compensation insurance programs.[5]

When Does MSP Recovery Occur?

If an injured Medicare beneficiary's medical expenses are covered by liability insurance, (including self-insurance, no-fault and med-pay insurances), Medicare will pay for medical services only when the third-party insurance payment will not be "prompt."[6] Such Medicare payments are described as "conditional" and the program expects to recover them when the private insurance payment "has been or could be made." When a health care provider seeks conditional Medicare payment, it must accept payment at the Medicare rate and cannot obtain additional payment from subsequent a liability insurance award.[7]

Congress has given the Medicare program specific collection powers with respect to its conditional payment recovery claims. The Center For Medicare Services (CMS) has both subrogation rights and the right to bring an independent action to recover its conditional payments from any entity that is "required or responsible . . . to make payment". [8] CMS is further authorized to bring actions against "any other entity that has received payment from a primary plan." The Medicare program does not frequently exercise any of these collection powers.

How Does Medicare Collect The MSP Overpayment?

Typically, although not always, Medicare initiates collection procedures when a beneficiary's personal injury attorney notifies it that a settlement is expected. Beneficiaries are required to notify and pay Medicare within 60 days of receiving a liability payment.[9] Medicare also may learn about the existence of third-party liability claims through questionnaires to beneficiaries, contractor and insurer screening of claims for injury-related services, and information-sharing with the Internal Revenue Service. CMS sends a collection letter that sets out the amount claimed as an MSP "overpayment" by Medicare. This amount is determined by its Coordination of Benefits (COB) contractor, based on claims for health services paid by Medicare. The letter should also describe the repayment process, and the procedures for seeking waiver and appeal of MSP recovery claims. The collection letter pressures beneficiaries to pay Medicare immediately by asserting a right to interest accruing on unpaid claims even during the pendency of unsuccessful beneficiary requests for waiver and/or appeals. It further states that Medicare may arrange for the amount of an overdue MSP claim to be deducted from the beneficiary's Social Security or Railroad Retirement check.

Beneficiaries can respond to the collection letter by simply paying the amount claimed, or by seeking a reduction of the MSP claim through the appeal and waiver procedures described below.

How Much Can Medicare Recover?

In general, CMS may recover an amount equal to the Medicare payment for injuries covered by the liability insurance, up to the full amount payable under the insurance.[10] However, there is no MSP recovery for services covered by Medicare after the date of settlement unless the settlement included a specific allocation for future medical services.[11] Importantly, Medicare reduces its recovery to take account of "the cost of procuring the judgment or settlement. . . ." Thus, if payment is the result of a judgment or settlement, a proportionate share of attorney's fees and costs can be subtracted from the amount recovered by Medicare.[12]

Example: Ben Beneficiary received a settlement of $50,000 following an accident. His medical expenses were $40,000, of which Medicare paid $25,000; his pain and suffering were valued at $10,000; lost wages were $20,000; and his permanent loss of limb was valued at $30,000.

Despite the fact that Ben's settlement was only 50% of his $100,000 damages, Medicare will demand recovery of its entire $25,000 outlay, reduced only by its proportionate share of the procurement costs. Assuming a 30% contingency fee arrangement, Medicare will claim $17,500, Beneficiary's personal injury attorney will receive a fee of $15,000, and Ben will receive only $17,500, leaving him with $82,500 in uncompensated losses.

There are several ways that the amount claimed by Medicare can be reduced. First, MSP recovery is limited to Medicare outlays for health services resulting from the accident or other incident that gave rise to liability.[13] A beneficiary should carefully look over the itemized list of health services for which Medicare claims recovery to be sure it does not include care due to, or aggravated by, for example, a preexisting condition. If the costs of such unrelated care are not excluded, or if the amount claimed is incorrect for some other reason, the beneficiary has the right to appeal.[14]

Second, a beneficiary can ask Medicare to compromise its claim for MSP recovery before a settlement is reached. Compromise is appropriate when the amount of recovery is too small to merit pursuit of the claim, and it is in the best interests of the Medicare program.[15] The CMS Regional Offices handle requests for compromise, which usually come from the attorney handling a liability claim.

Finally a beneficiary can ask Medicare to waive recovery of some or all of the amount of its MSP claim on the ground of hardship.[16] The MSP Manual, which can be found online at www.cms.hss.gov/manuals/105_msp/msp105.index.asp, sets out factors to be considered in granting waivers.[17] They include out-of-pocket expenses incurred by the beneficiary, his age, assets, income and expenses, and impairments of the beneficiary. All of these factors must be documented by specific information. Medicare’s decision about whether to waive recovery in whole or in part is not an appealable initial determination .[18]

Medicare Recovery From Workers’ Compensation Awards

The Medicare Secondary Payer law also makes Workers' Compensation programs primary payers of medical expenses for persons receiving Workers' Compensation benefits for health care.[19]

In many respects, MSP recovery from Workers’ Compensation payments is the same as Medicare recovery from liability insurance. For instance, the amount recoverable can be reduced through the waiver and appeal processes described above. However, unlike its policy with respect to liability insurance settlements, Medicare may also reduce the amount of its recovery by an apportionment in the Workers’ Compensation settlement agreement between medical expenses and other damages (e.g., lost wages). It will do this when it has determined that the settlement represents a compromise of disputed claims, and the specified apportionment is fair to Medicare.[20]

Workers' Compensation claims for future losses may be settled by a lump sum payout rather than continuing payments for the lifetime of the disabled worker. This is known as commutation of future benefits. Medicare will pay for the beneficiary's covered health care only after the portion of the commuted amount allocated to Medicare covered health expenses has been spent for such expenses.

In certain circumstances, the apportionments in the settlement and the arrangements for setting aside an appropriate amount of the settlement for payment of future Medicare covered health costs should be approved by the CMS Regional Office. Such approval is required when the individual will be entitled to Medicare within 30 months of the date of settlement, and when more than $250,000 is designated for future Medicare covered costs.[21]

Some attorneys recommend that a "Medicare set-aside trust" be established to keep records of expenditures for medical services from the designated portion of the Workers’ Compensation settlement so as to determine when it has been exhausted and Medicare should become primary payer. However, CMS does not require the establishment of a set-aside trust, and will allow a beneficiary to self-administer the fund by keeping records of her expenditures for Medicare covered costs until the amount set aside has been exhausted. At that time, full Medicare coverage of the beneficiary’s health care can be reestablished

Conclusion

The Medicare Secondary Payer law undoubtedly creates complications for Medicare beneficiaries who are injured in accidents or on the job. With an understanding of the rules and procedures for MSP recovery in such situations, elder law attorneys can minimize the uncertainties and costs for their clients.

[1] The MSP statute is found at 42 U.S.C. § 1395y(b), Social Security Act § 1862(b). The MSP regulations are at 42 C.F.R. §§ 411.20 et seq.

[2] 42 C.F.R. § 411.50 - 54.

[3] 42 C.F.R. § 411.40 - 47.

[4] 42 C.F.R. § 411.100 - 130.

[5] A series of court decisions interpreted the Medicare statute as not allowing MSP recovery from settlement funds in class action lawsuits. Thompson v. Goetzman, 334 F.3d 489 (5th Cir. 2003); Mason v. American Tobacco Co., 346 F.3d 36 (2d Cir. 2003); U.S. v. Phillip Morris, 116 F. Supp. 2d 131, 145 (D.D.C. 2000). In 2003 Congress overturned these holdings by amending the statute to expand the definitions of self-insured entities and primary plans from which MSP recovery is authorized. See 42 U.S.C. § 1395y(b)(2)(A) and (B).

[6] "Prompt" is defined as within 120 days of the earlier of the date of an insurance claim or the date of medical service. 42 C.F.R. § 411.50(b).

[7] Rybicki v. Hartley, 792 F.2d 260 (1st Cir. 1986); Holle v. Moline Pub. Hosp., 598 F. Supp. 1017 (C.D. Ill. 1984). However, a provider can choose not to bill Medicare but to instead bill a liability insurer or assert a lien on the beneficiary's insurance settlement. Medicare Program: Third Party Liability Insurance Regulations, 68 Fed. Reg. 43940 (2003), modifying 42 C.F.R. 411.54 and 489.20.

[8] 42 U.S.C. § 1395y(b)(2)(B)(ii) - (iv).

[9] 42 C.F.R. § 411.24(h).

[10] 42 C.F.R. § 411.24(c).

[11] Letter of July 3, 2002 from Thomas Bosserman, CMS Region IX Health Insurance Specialist, to Sally Hart.

[12] 42 C.F.R. § 411.37(a)(1) and (d).

[13] 42 C.F.R. §§ 411.21, 411.24(c).

[14] 42 U.S.C. § 1395ff; 42 C.F.R. § 411.28(c)

[15] 42 U.S.C. § 1395y(b)(2)(B)(v); 42 C.F.R. § 411.28(b)

[16] 42 U.S.C. § 1395y(b)(2)(B)(v); 42 C.F.R. § 411.28(a)

[17] MSP Manual, Pub. 100-5, Ch. 7, §§ 50.5.4.4. - 50.7.3.

[18] 42 C.F.R. § 405.926(h).

[19] 42 U.S.C. § 1395y(b)(2)(A); 42 C.F.R. §§ 411.40 - 47.

[20] MSP Manual, supra, Ch. 7, §§ 40.3.4 - 40.3.5.

[21] Procedures for obtaining CMS approval of a set-aside arrangement from the CMS Regional Office are described in the MSP Manual, supra, Ch. 7, at §§ 40.3.5 - 40.3.5.1.

ADDITIONAL RESOURCES

Caveat: we believe that these materials from CMS and its COB assert attorney obligations to hold client funds for MSP collection that are not found in the Medicare statute and regulations.

ARTICLES AND UPDATES

09/17/09 - Limits on Medicare's Recovery of Health Care Payments when the Beneficiary has Liability or Workers' Compensation Insurance
06/04/09 - Medicare Payment for Future Medical Expenses in Tort Cases: CMS Region IX Letter