For years, I had heard about Medicare Set Asides (“MSA’s”), without really quite understanding what they were or whether I needed to pay any particular attention to them. It seemed that MSA’s were something that workers’ compensation lawyers dealt with and that, at least for the time being, I could safely ignore them. Well, that time of blissful ignorance has come to an end.
An MSA is actually quite simple. You start with the concept that, where a negligent third party has caused a plaintiff to suffer an injury and that plaintiff is a Medicare recipient (or will soon become one), Medicare is considered a “secondary payer” with respect to any medical expenses incurred by the plaintiff. In other words, federal law requires that the negligent third party pay the plaintiff’s medical expenses, as much as possible, without requiring that taxpayer money be spent. This applies to both past medical expenses and future medical expenses caused by the third party’s negligence.
As a result of recent statutes and regulations, there are harsh penalties for parties (including insurance companies) who fail to take appropriate steps to protect Medicare’s interests, i.e., ensure that the third party (not Medicare) pays the medical expenses caused by the subject incident. With respect to past medical expenses, Medicare’s interests are protected by its assertion of a lien against the settlement amount. With respect to future medical costs, Medicare’s interests are typically protected through an MSA.
An MSA is an amount of money that is carved out of a settlement and placed into a separate account to pay for the plaintiff’s future medical care that would otherwise be covered by Medicare. There are private firms (we have used Gould & Lamb, based in Florida) that are in the business of preparing MSA’s. The process is much like preparing a life care plan. The person preparing the MSA (typically a nurse) reviews the plaintiff’s medical records and estimates the type of medical care (and the cost of that care) that the plaintiff will require throughout his lifetime. The next step is to determine how much of that care would be covered by Medicare. Finally, an estimate is made of the plaintiff’s life expectancy. The amount of the MSA then consists of the total of the Medicare-covered medical expenses that are expected to be incurred by the plaintiff over his lifetime.
Once the MSA is set up, it must be administered, typically by a private firm (such as Gould & Lamb). Administration essentially consists of investing the MSA fund, paying for applicable medical care and keeping detailed records of those expenditures. While MSA’s are not technically required in personal injury settlements, the risk of not doing one is that Medicare will take the position that its interests were not adequately protected in connection with the settlement. It could then go after the plaintiff’s entire net settlement funds, or go after the defendant or its insurer, to seek to recover any medical expenses that Medicare has paid that, in its opinion, should have been paid from the settlement funds. That could result in a real disaster if funds that a plaintiff is relying on to pay necessary living expenses are suddenly required to be paid to Medicare.
In cases in which the size of the settlement far exceeds the size of any MSA that would reasonably be required, the MSA can perhaps safely be dealt with after the case settles. However, where there is a concern that the MSA could swallow up most or all of the plaintiff’s net settlement proceeds, it would be prudent to have an MSA prepared before mediation, or other settlement discussions, so that the plaintiff’s attorney can ensure that any settlement is large enough to encompass the MSA, attorney’s fees and litigation costs, and a reasonable net settlement to the plaintiff.