The time has come to consider the long-term impact of the Medicare Secondary Payer Act on workers’ compensation claims. Five years ago, Medicare reinvigorated its focus on the Secondary Payer Act by imposing reporting requirements under Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007, which first became effective May 1, 2009. Section 111 added mandatory reporting requirements for liability insurers (including entities that self-insure), no-fault insurers and workers’ compensation insurers (nongroup health plan insurers or NGHPs) providing coverage to Medicare beneficiaries. Workers’ compensation insurers, including those employers that self-insure their workers’ compensation exposure, are obligated to notify Medicare about “settlements, judgments, awards or other payment from liability insurers (including self-insurers), no-fault insurers and workers’ compensation” received by or on behalf of Medicare beneficiaries. The Section 111 reporting requirements is an addition to the existing Medicare Secondary Payer law and corresponding regulations.
The Secondary Payer Act describes situations where another insurer has primary payment responsibility for care provided to a Medicare beneficiary or a potential beneficiary. Until 1980, Medicare was a primary payer for covered beneficiaries in almost all cases, except those involving workers’ compensation (and black-lung disease). Starting in 1980, the addition of the Secondary Payer provisions to the Social Security Act required that when the injured party is a Medicare beneficiary, Medicare is always a secondary payer to liability insurance (including self-insurance), no-fault insurance and workers’ compensation. The secondary payer provisions of the Social Security Act were enacted so that insurance carriers and self-insurers could not shift costs to Medicare.
Medicare’s reinvigorated focus on the Secondary Payer law threatens to significantly increase the cost of workers’ compensation for employers in two ways: (1) it will increase costs for employers by (a) delaying and (b) complicating the process of defining the extent of employers’ liability and/or settlement payment amounts; and (2) it may further increase costs because the Centers for Medicare and Medicaid Services (CMS) has stated that it will retrospectively review companies’ workers’ compensation claims history to see if, under previous settlements, the company has essentially shifted costs from a workers’ compensation claim onto the Medicare system.
Increase in Cost of Workers’ Compensation Settlements
Although the Medicare Secondary Payer law was enacted in 1980, for the 20-plus years that followed, the law lay essentially dormant. But as Medicare’s financial status became more stressed, the CMS began relying on the act to pronounce that employers who settle workers’ compensation claims that involve a potential Medicare insured should now seek pre-approval of the settlement from Medicare, and Medicare may require that an additional amount be set aside to address medical costs for treatment of the individual in the future. This, of course, has turned workers’ compensation settlements into a slow and unwieldy process.
Medicare requires that a settlement of future medical benefits of a workers’ compensation claim involving Medicare beneficiaries or those who are likely to become Medicare beneficiaries must take into account Medicare’s interests and set aside funds for the treatment of that injury after the worker begins receiving Medicare. Medicare must also approve the Medicare Set-Aside (MSA) if the claimant is currently a Medicare beneficiary and the settlement is for more than $25,000 or if the claimant has a reasonable expectation of becoming a Medicare beneficiary within 30 months of the settlement date and the settlement is for more than $250,000. These “review thresholds” only establish when the CMS will review and verify an MSA. They do not determine when an MSA is necessary.
The MSA requirements have made resolving claims with Medicare beneficiaries time-consuming and costly. The CMS’s approval of MSAs can take months. This is after the injured worker has agreed to the settlement, but the claim cannot close until Medicare has approved the set-aside amount. While the approval process is being navigated, the injured worker continues to receive benefits and the claim remains open. Too often the CMS approvals come back significantly higher than the agreed-upon settlement, which more often than not leads to failed settlements. Even more concerning is the fact that CMS approval does not protect an insurer or self-insured employer against liability. The idea that obtaining approval indemnifies the primary payer is a misconception in the MSA process. MSA funds are almost always paid directly to the claimant. Whether paid as a lump sum or in a structured settlement, when the claimant is handling the money, this is self-administration. If the claimant spends the money on anything other than claim-related, Medicare-eligible expenses and Medicare makes a conditional payment for treatment of the settled condition, the fact that there is approval of the maximum amount of anticipated expenses will not provide first-dollar protection to the primary payer. Pursuant to the law, the primary payer could be called upon to pay up to the amount of the set-aside again.
In an effort to improve the MSA process, the U.S. House of Representatives recently introduced HR 5284 — the Medicare Secondary Payer and Workers’ Compensation Agreement Act of 2012. The bill creates specific exemptions from the Medicare Secondary Payer law for certain workers’ compensation settlements. It also amends the law to provide that if a workers’ compensation settlement includes a qualified MSA, that settlement would satisfy any obligation with respect to present or future payment reimbursement obligation under the Medicare Secondary Payer law. However, relief to workers’ compensation insurers and self-insured employers through HR 5284 is anything but certain. And, for the time being, the MSA process continues to add to the overall costs of settlements and slow down the process to a level that will be unwelcome to employees and their attorneys who want rapid compensation.
Increase in Cost Due to Medicare Recovery Efforts
The Section 111 reporting requirement will facilitate recovery of Medicare payments when compensation has been paid pursuant to a workers’ compensation claim. In the past, although the Medicare Secondary Payer law allowed for recovery, the CMS had difficulty collecting payments because attorneys and their clients did not always notify the CMS of the payments. But now with Section 111′s reporting requirements, insurers’ payments to Medicare beneficiaries will be recorded and tracked. In light of the extent Medicare has gone through to create the myriad policies and procedures pursuant to Section 111, it is certain that Medicare is not collecting this information simply just to have it. The reported claims data through Section 111 reporting will significantly impact the CMS’s recovery of past medical payments demonstrated to be the responsibility of others, including workers’ compensation insurers and self-insured employers.
Section 111 reporting will likely make the initiation of Medicare’s recovery an automated process. Medicare will take the reported data, compare it to the data in its system and determine whether Medicare believes that some of the “true cost” of paying for the employee’s injury has been shifted onto Medicare. The most recent guidance from the CMS suggests that responsible reporting entities, such as workers’ compensation insurers and self-insured employers, are required to report any claims where an ongoing responsibility exists as of July 1, 2009, regardless of when the claim was initially settled. This will likely require a significant look-back period and cause an already onerous process to become more challenging. For example, Medicare may find that the person who received a workers’ compensation settlement for a back injury in 2002 has also been the recipient of $15,000 worth of medical care paid for by Medicare. In this scenario, Medicare may seek reimbursement from the insurer or the self-insuring employer for costs it believes were improperly shifted to Medicare which, under the Secondary Payer law, should always be a secondary insurer (i.e., secondary to the workers’ compensation carrier or self-insured employer’s self-insurance program as primary insurer against on-the-job injuries).
It is not yet known whether Medicare will begin looking backward in this manner to try to recover funds. But the potential that Medicare may do so counsels employers to take some practical steps, such as ensuring that workears’ compensation claim files and records are preserved. This will allow for an employer to defend itself against an argument from Medicare that the condition for which it paid for treatment was the same one the patient received on the job some years ago. ■