Over the last 10+ years, the workers' compensation (WC) claims community has reluctantly accepted the requirement of protecting Medicare's interests when settling a Medicare eligible claimant's entitlement to lifetime medical care. Unfortunately, the association between WC claims professionals and Medicare has been strained as each has tried to understand the complexities and requirements of the other. Tremendous effort has been undertaken by trade associations, like the American Insurance Association (AIA) and UWC-Strategic Services on Unemployment and Workers' Compensation (UWC), as well as law firms, carriers and individual companies in our industry to try and bring about better understanding and more streamlined work flows when attempting to settle cases where Medicare has an interest. While much has been written over the years on this topic, here we'll review the positive side of protecting Medicare's interests, and how doing so can actually help to settle more cases at less cost than if a Medicare approved set aside trust is not used.
First, a brief background to understand why our industry must protect Medicare's interests when settling a Medicare eligible injured worker's entitlement to lifetime medical care. Historically, it was common for injured workers to settle lifetime medical benefits (in States that allowed the settlement) and if they were Medicare eligible, the injured worker would also submit their injury related medical bills to Medicare. This "double dipping" did not go unnoticed and the Government Accounting Office (GAO) reported that the Centers for Medicare & Medicaid Services (CMS) had paid billions of dollars in Medicare benefits when other insurance (workers' comp) should have been primary. To enhance Medicare's solvency by avoiding this cost shifting from workers' comp (or any other primary coverage) to Medicare, Congress passed the Medicare Secondary Payer Act providing that Medicare be secondary to a private, primary insurance plan or coverage. As taxpayers, it is hard to disagree with this.
In response to the WC claims community's desire to continue to settle lifetime medical benefits, Medicare published a number of advisory memorandums about how workers' comp claims can settle lifetime medical costs, while still protecting Medicare's interests through the use of an approved set aside trust. The concept is simple. The claims community and Medicare agree on an amount of money representing the reasonably expected cost of injury-related treatment for the person's lifetime, and that amount of money is placed in a trust. The trust pays the injury-related medical bills so the bills do not go to Medicare. In return, Medicare agrees that it will pay injury related medical bills if the trust is ever exhausted, and not seek reimbursement from any of the parties to the claim.
While the idea is simple, the reality of implementing this concept is difficult given that in workers' compensation, claims often involve denied body parts, denied medical complications, apportionment and other issues in dispute, that result in compromise settlements for partial value. To have a set aside trust proposal approved by Medicare, those on the claims side have the difficult task of projecting lifetime medical treatment and costs and explaining how issues in dispute are resolved in the WC jurisdiction state. This has given rise to a multitude of companies that offer to project lifetime medical care expected for the work injury, separate out which costs are covered by Medicare, create and submit set aside trust proposals to Medicare and follow the set aside trust application through the Medicare review process until there is an approval.
To understand how protecting Medicare's interests can help settle more files at less cost, we must review the needs of the injured worker and carrier, and how these needs are actually met more easily when a Medicare approved set aside trust is involved. Here are three examples:
1. Guaranteed Payment of Future Medical Expenses
What injured workers want- first and foremost, to know for certain that their medical bills will be paid.
What those on the claims side want-to be sure that current reserves will be sufficient for the life of the claim, regardless of medical complications or inflation in the future. This is problematic given that while the overall Consumer Price Index (CPI) increased 63.2%, from January 1989 to January 2007, the medical component of the CPI increased 139.0% in the same period. In addition, new and invariably expensive treatments and medications are released.
Set aside trust solution- the Medicare set aside trust meets both needs. With the use of an approved set aside trust, the injured worker's needs are met because if the trust ever runs out of money, Medicare steps in as primary coverage and will not seek reimbursement from anyone. The claims community needs are met because the set aside's lifetime medical cost analysis is based on the injured worker's medical condition and treatment costs as of the date of the analysis. This eliminates from the analysis the cost of new treatments and unforeseen medical complications. There is a trade-off in completing an analysis like this however. A worker's medical treatment might diminish in the future and lifetime costs may be below the amount projected. Additionally, new and more expensive treatments and medications may be developed, or medical complications may occur, making future costs higher than expected. By funding a Medicare set aside trust, the claims community buys peace of mind and is able to close its file. This is the most important and positive use of a Medicare approved set aside trust: to close out an otherwise unlimited and partly unknown lifetime medical expense.
2. Closure of the WC Claim
What injured workers want-to settle the case. They are often motivated because they want to escape the workers' comp claim handling and adjudication system. In some states, WC law limits their choice of doctor, requires treatment plans to be processed through utilization review and may set other limits on their care. Additionally, many claimants become frustrated and angry with adjusters and may use them as an outlet for their frustration about being injured or their anger about how they feel they were treated by their former employer.
What those on the claims side want-to have a closed file so no more time and expense is incurred, and by having a closed file, the possibility of medically related disputes and litigation becomes moot.
Set aside trust solution- The Medicare approved set aside trust accomplishes the needs of both parties because the WC file closes.
3. Settlement Win/Win
What injured workers want-to have some money come to them when they settle their entitlement to lifetime medical benefits.
What those on the claims side want-to value lifetime medical costs as conservatively as possible, potentially saving more than they could if the settlement did not include a Medicare approved set aside trust.
Set aside trust solution- settling with a set aside trust meets both needs; the claims adjuster can offer the injured worker the monetary value of non-Medicare covered medical costs, and the value of Medicare expenses the worker will incur, such as meeting deductibles. They can value the lifetime medical cost for the set aside trust by taking the following into consideration:
- Brand name drugs going generic without worry about replacement drugs.
- Computations can be based on a rated age.
- Cost projections can be based on the assumption that medical care will occur as outlined in an independent medical examiner's report.
- Treatment cost projections can be based on the assumption that the worker will comply with utilization review approved treatment courses.
- Medication costs can often be projected assuming that medications, harmful when taken over long periods, will be diminished or eliminated in the future. Given the certainty of increasing medical costs in the future and knowing that as an injured worker ages the line between injury-related medical costs and medical care necessary due to age begins to blur, most claims professionals would settle lifetime medical costs if they could. The single best way to settle lifetime medical costs, on large exposure cases, is using the Medicare approved set aside trust. It meets the needs of both parties, costs the claims community less than paying medical costs for a worker's lifetime, and brings the file to a close.
While there is significant frustration with CMS' procedures and backlog, rather then wringing our hands in frustration, we should recognize that this is a small price to pay for the tremendous benefit to the settlement process. According to the National Council on Compensation Insurance (NCCI), in the last 20 years, from 1986 to 2006, the medical portion of losses climbed from 45 percent of the total, to 59 percent. On more serious injury losses, this percentage is usually higher. If this trend continues, the Medicare approved set aside will not only be seen as a help to settling lifetime medical cases, but a necessity.
Richard Schultz is workers' compensation claims technical director for Fireman's Fund Insurance Company. Shultz has 35 years experience in the workers' compensation claims industry and is current chairman of the American Insurance Association (AIA) Workers' Compensation Claims Committee. He can be reached at rschultz@ffic.com