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Medicare Set-Asides in Liability Lawsuits?

MSAs are (Usually) Unnecessary in Liability Cases

There is no real positive authority stating Medicare Set-Asides (MSAs) are unnecessary in liability cases; however, there are comments and guidelines that have been provided over the years by CMS agents.

For instance, during an October 29, 2008 question/answer session with CMS director Barbara Wright, an attorney asked whether MSAs are required in liability cases, Ms. Wright replied, “we, in brief, we have a very informal, limited process for liability set asides. We don’t have the same extensive ones we have for Worker’s Comp.  In either case CMS approval of a set aside amount is not required. It is a voluntary process.”

Then on March 29, 2009, Ms. Wright again noted, liability “does not have the same formal review process although our regional offices will consider review of proposed liability set-aside amounts depending on their particular work load and whether or not they believe significant dollars are at issue.”

Sally Stalcup, CMS Region VI MSP Regional Coordinator similarly has said, “[t]here is no formal CMS review process in the liability arena as there is for worker’s compensation. On rare occasions, when the liability is large enough or other unusual facts exist within the case, the CMS Regional Office will review the settlement and help make a determination on the amount to be available for future services.”

Of course, these aren’t the clearest answers.  It is a common belief that MSAs could be required if certain criteria are met; however, CMS is less likely to review that MSA unless it is an extensive and significant recovery.  First, you should look to the normal MSA guidelines for Worker’s Compensation MSAs.  An MSA is required for WC where:

  • The claimant is currently a Medicare beneficiary and the total settlement amount is greater than $25,000; OR
  • The claimant has a “reasonable expectation” of Medicare enrollment within 30 months of the settlement date and the anticipated total settlement amount for future medical expenses and disability/lost wages over the life or duration of the settlement agreement is expected to be greater than $250,000.

If neither of these criteria is met, no MSA is required.  Similarly, if there will be no future medicals as a result of the sued-for injury, then no MSA is required. But note, a beneficiary may not waive his right to future Medicare to avoid the need for an MSA.  Additionally, to determine whether the $250,000 threshold is met in a structured settlement situation, you must look to the value of the structure and not its cost.  Even your attorneys’ fees and costs will count toward the threshold.

How Can I Protect Medicare’s Interest?

There is no easy answer to whether you need an MSA.  The one true obligation is to protect Medicare’s interests.  There are many options to satisfy this obligation.  Below are five options when discussing a liability MSA:

1.  Do nothing.  Considering there is a total absence of positive authority or requirements for MSAs and Ms. Wright’s comments, this is a viable option.  (More guidance on this option below).

2. “Set aside” a portion of the settlement.  This idea comes from a personal injury attorney I once met – not from an expert.  This is not a true MSA; however, it does show an attempt to protect Medicare’s interest by simply creating a second payment to the client.  The client should be given instructions to hold the money in an interest-bearing account for some time to be used in case of future treatment.  Unfortunately, this can look like, and often ends up as a way of circumventing the obligation, where the attorney simply gives his client two checks and lets the client run away with both.

3. Allocate a portion of settlement for future costs – do so explicitly.  You must make sure this is a reasonable allocation.  This idea is similar to number two above; however, more math is involved.  Again, you must be concerned with the client simply ignoring the allocation if nothing more is done.  At least here you have paperwork and notes to prove your investigation into future costs.

4. Plan an MSA and create an account for the MSA.  There are plenty of companies who will do this for you, usually through an annuity, but sometimes utilizing cash funding.  MSA accounts can be self-administered or professionally administered.

5. Create an MSA and submit it for CMS approval. This is the ultimate showing of good faith in protecting Medicare’s interests.  CMS is unlikely to review and approve the MSA.  But you have created a paper trail showing you attempted to protect Medicare’s interests.  Other than the letter to CMS requesting approval, this is really no different than number 4 above.

More than likely you do not need an MSA.  The most important item to look to in your settlement is the allocation (if there is one).  If the settlement language includes clear language allocating future medical expenses – an MSA will be necessary.  If no such language exists, an MSA is more than likely unnecessary.  To take it a step further, you can include language specifying that you took into account Medicare’s interests and how you do so.

Can I be Certain?


There is no sure answer to the MSA in liability cases question.  CMS wants to keep open the option of one day using MSAs in liability cases.  However, they refuse to give a timeframe of when or explain how the process will work.  If the defense claims the MSA is necessary, you can show them Ms. Wright’s comments.  You can also explain that MSAs aren’t even part of the law, but simply a work comp. attorney’s invention designed to protect Medicare’s interests.

I believe CMS and attorneys alike would benefit from a CMS memorandum stating it will not accept liability MSAs for one year.  It could then review that policy every year at the same time – until it finally decides to use MSAs (which it will do, one day – after all, Medicare is losing money).  Until CMS gives a definitive answer – pick a method and do your best to protect Medicare’s interests.

Please contact us if you have any questions regarding MSAs, liens, or subrogation.

Ryan J. Weiner
Co-Founder Lien Resolution Services
This Blog/Web Site is made available by the publisher for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

About Ryan J. Weiner

Co-Founder of Lien Resolution Services, LLC, a national healthcare lien resolution firm. Our goal is to assist in the fair administration and resolution of healthcare liens on personal injury cases. Please visit our website for more information: www.lienresolutionusa.com.

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