Need for Medical Set Asides (MSA’s) in Settlements

If a claimant who wants to settle his case has applied for social security disability benefits, or will be entitled to Medicare benefits within 30 months of the date of the settlement of a workers’ compensation claim, or intends to become a beneficiary of Medicare within 30 months to the date of the settlement of the claim, and if the settlement is for $250,000.00 or more, the federal law requires that the interests of Medicare must be taken into consideration in settling the case. Simply stated, if there are future medical needs that are reasonably anticipated at the time of settling a case, including the cost of prescriptions that the claimant will need in the future, then these are costs that must be set aside in an MSA. Further, the parties should submit to the administrator for Medicare, namely CMS, the proposed MSA prior to stipulating the case by way of a final settlement.

If the parties fall to make any provision for the future medical treatment of the claimant who could reasonably expect to become a beneficiary of Medicare within 30 months or the date of the settlement, CMS can assume that the entire amount of the settlement should be used for future medical treatment, and effectively require the claimant to pay out the total amount of his or her settlement before Medicare will pay dollar one on any future medical treatment related to the body parts from which the settlement was derived.

There are a number of vending companies and attorneys within the State of Connecticut who specialize in pricing out medical set asides. The typical cost of hiring such company to do so is between $1,000.00 and $2,000.00. Once the proposal has been submitted to CMS, it typically takes between three and four months for CMS to respond. In the event that it accepts the proposal, the parties can then proceed to a final settlement. In the event that CMS puts a higher value on the amount of the proposal, then the parties will have to see whether they can renegotiate the settlement.

In the event that the parties do settle the case, an MSA can be self-administered, meaning the workers’ compensation carrier sends the claimant a check for the amount of the medical set aside that CMS has approved, which the claimant shall keep a discrete interest-bearing account that is to be used exclusively for any medical treatment and/or prescriptions arising out of the specific body part that is the subject of the final settlement. The claimant is expected to keep records of each such expenditure and, on an annual basis, to provide a summary to CMS of any such expenditure. Again, to the extent that the claimant cannot substantiate such expenditures, or uses the proceeds from the MSA for some other unrelated purpose, Medicare will treat any such amounts as a future deductible on that body part.

There are some insurance companies which annuitize the MSA proceeds so that they pay a seed amount to start the MSA, and then will pay an annual amount each year thereafter for the expected life (in accordance with the mortality tables,) of the claimant. For example if the parties agree to a $40,000.00 MSA which CMS approves, and the claimant has a 30 year life expectancy, the insurance may seed the initial MSA amount with $10,000.00, and then pay the claimant $1,000.00 for each of the successive 30 years in order to fund the total amount of $40,000.00. Often the insurance carrier will state that in the event that the claimant dies before the 30 years of his expected life, there will not be any monies paid to his estate and the insurance company will have to make no further payments. In that case, if there was any money in the account when the claimant died, that would inure to the claimant’s heirs.

Also, some MSA vendors are willing to guarantee that the amount that they have allotted for the MSA proceeds will be approved by CMS, without having to wait the three to four months for CMS approval. In the event that the MSA vendor is incorrect and CMS comes back with a higher number required to fund the MSA, the vendor will agree to pay the extra amount.