Workers Compensation Medicare Set Aside Arrangements (WCMSAs) have become a strategic subset of the structured settlement market. For this reason, structured settlement and settlement planning professionals should not only maintain up-to-date knowledge of current CMS WCMSA structured settlement rules but also be cognizant of both WCMSA history and current WCMSA structured settlement industry developments.
This article, the first of two Independent Life articles focusing on WCMSAs from a structured settlement perspective, provides an overview of WCMSA history and highlights some important current WCMSA industry developments. A second WCMSA article will summarize key structured settlement provisions in the most recent CMS WCMSA Reference Guide. A third article about liability MSAs will conclude this Independent Life series about Medicare Set Aside (MSA) Arrangements.
Medicare, MSP and MMSEA
Medicare is a national health insurance program that originated in 1965 as part of the Social Security Act and is now administered by the Centers for Medicare and Medicaid Services (CMS ). Until 1980, Medicare paid medical benefits for its beneficiaries without specific regard to whether or not the beneficiary had other sources of payment for medical needs.
Recognizing that the Medicare Trust Fund established by the Social Security Act was eroding, in part because Medicare recipients were living longer than expected, Congress enacted the Medicare Secondary Payer (MSP) Act in 1980. The MSP Act requires certain insurers, including liability, automobile, no-fault and workers compensation insurers, to make payment first for services to Medicare beneficiaries regarding claimed injuries, with Medicare responsible only as a “secondary payer.”
An important, subsequent MSP legislative development occurred in 2007 when Congress enacted the Medicare, Medicaid, and SCHIP Extension Act (MMSEA). Section 111 of MMSEA added mandatory reporting requirements with respect to Medicare beneficiaries who have coverage under group health plan (GHP) arrangements as well as for Medicare beneficiaries who receive settlements, judgments, awards or other payment from liability insurance (including self-insurance), no-fault insurance, or workers’ compensation.
The Patel Memo
CMS failed to take practical steps to enforce the MSP rules until 2001 when it issued the Patel Memo, the first of several policy memorandums addressing WCMSAs.
Patel Memo remains historically important today for several reasons:
· The memo represented the first time CMS codified MSA rules although these rules were, and remain, limited to workers compensation MSAs.
· The memo set forth its own regulatory authority based upon 42 CFR 411.46 – an MSP Regulation under the Subpart “Limitations on Medicare Payment for Services Covered under Workers Compensation.”
· 42 CFR 411.46 includes the requirement that “employers, carriers, workers, and attorneys must always protect Medicare’s interests in all workers compensation claims.”
· The Question & Answer Section of the memo established important MSA foundational concepts including that Medicare would not pay until there was temporary (annual) depletion in a structured MSA or a permanent depletion in a lump sum MSA.
Taken together, the Patel Memo and a series of follow-up CMS policy memorandums not only defined WCMSAs but also created a format, checklists and procedures for seeking approval for WCMSAs to “protect Medicare’s interests” when workers compensation cases are settled – including references to and initial rules for structured settlement annuities.
WCMSA Definition and Legal Authority
CMS now defines a WCMSA in its Reference Guides as “a financial agreement that allocates a portion of a workers’ compensation settlement to pay for future medical services related to the workers’ compensation injury, illness, or disease. These funds must be depleted before Medicare will pay for treatment related to the workers’ compensation injury, illness, or disease.”
Note: although WCMSAs are now recognized as an industry standard and represent a strategic structured settlement submarket, some MSP experts question the legal authority by which CMS insists WCMSAs represent “the only process that offers both Medicare beneficiaries and employers/carriers finality with respect to obligations for medical care required after a settlement, judgment, award, or other payment occurs.”
Structured Settlement WCMSA Cost Advantage
For structured settlements, arguably the most important CMS WCMSA memo was issued October 15, 2004. In it, CMS identified the methodology by which it required (and presumably still requires) WCMSA stakeholders to calculate present value as follows:
“Effective with the issuance of this memorandum, CMS’s position is that the WC Medicare Set-aside Arrangement does not need to be indexed for inflation and may not be discounted to present-day value.”
Because structured settlement annuities incorporate their own discount rate, they almost always result in a lower cost for WCMSAs than a lump sum equivalent when using this CMS present value calculation methodology. Arguably, this structured settlement cost advantage, unique to WCMSAs, and set forth in the CMS October 15, 2004 Memo, has been primarily responsible for creating the WCMSA structured settlement submarket.
CMS WCMSA Reference Guide
Beginning in 2015, CMS began to supplement, and eventually replace, its WCMSA Memos by publishing a WCMSA Reference Guide which included more detailed references and rules for structured settlement annuities. The Reference Guide has since been updated multiple times – most recently in WCMSA Reference Guide Version 3.7 published June 6, 2022 and available for download on the CMS website.
It appears CMS still continues to follow the same methodology for calculating present value set forth in its October 15, 2004 Memo. That Memo, however, and any reference to the cost advantage of structured settlement funded WCMSAs disappeared from the CMS WCMSA Reference Guides and the CMS website on April 19, 2021 when CMS published WCMSA Reference Guide 3.3.
WCMSA Reference Guide Version 3.3 included the following statement: “The intent of this reference guide is to consolidate and supplant all historical memoranda in a single point of reference. Please discontinue the reference of prior documents.”
As a result, the current WCMSA Reference Guide Version 3.7 features multiple sections addressing structured settlements and many rules for structured settlements. It does not, however, specifically provide for, or address, the cost advantage set forth earlier in the CMS October 15, 2004 Memo which it now “consolidates and supplants.”
For the structured settlement market, the elimination of specific CMS authority (the October 15, 2004 Memo) defining the structured settlement cost-advantage creates an issue. So also does CMS’ failure to publish any comprehensive set of rules for liability MSAs. Even without any comprehensive set of rules, participants in liability cases must still “protect Medicare’s interests.”
The NSSTA MSPN Working Group
To address these and other MSA issues, the National Structured Settlement Trade Association (NSSTA ) recently formed a joint Structured Settlement MSA Working Group with the National MSP Network (MSPN).
MSPN, originally known as the National Alliance of Medicare-Set Aside Professionals (NAMSAP), was formed in 2005. MSPN “is the only non-profit association exclusively addressing the issues and challenges of the Medicare Secondary Payer Statute and its impact on workers compensation and liability settlements.”
The joint initiative began as a discussion, led by NSSTA Executive Director Eric Vaughn and NSSTA Past President Michael Goodman with MSPN Past Presidents Amy Bilton and Dan Anders, about how structured settlements could help ensure CMS’ objectives for liability MSAs are accomplished and also what possible future changes to the WCMSAs rules might impact structured settlements.
The leadership of NSSTA and MSPN have since established a Structured Settlement MSA Working Group with the following objectives:
· Establish regular dialogue with appropriate representatives of CMS;
· Learn the status of any forthcoming rule changes to WCMSAs or liability MSAs impacting structured settlement annuities;
· Help improve CMS MSA objectives;
· Communicate the results of these conversations to association members on a regular and timely basis.
NSSTA introduced this joint NSSTA MSPN Working Group during its 2021 Fall and 2022 Annual Conferences. A more detailed description can be heard on this 2021 National MSP Podcast (Structuring a Partnership) featuring Eric Vaughn, Michael Goodman and Dan Anders.
Fall 2022 Educational Conferences
MSP and MSAs continue to be featured topics at national structured settlement and settlement planning conferences. This Fall NSSTA, MSPN and the American Association of Settlement Consultants (AASC) have each scheduled educational conferences where Independent Life will participate:
· AASC’s Fall Conference in New Orleans September 12-14.
· MSPN’s Annual Conference in Hanover, MD. September 21-23.
· NSSTA’s CSSC Program in Austin October 11-14 and Virtual Fall Conference November 2-4.
WCMSAs have become part of a transitioning settlement landscape that has not only linked structured settlements to Social Security law and benefits but have also helping to transform structured settlements in other ways to become more of a strategic product within the larger and more complex settlement planning market. Independent Life’s next article will look specifically at the most recent CMS WCMSA Reference Guide from a structured settlement perspective.