As a general rule federal law requires parties involved in workers’ compensation claim to consider Medicare’s interests in the event of a settlement. 42 CFR 411.46. However there is one major exception to this rule. According to the October 15, 2004, policy memorandum issued by the Center for Medicare and Medicaid Services (CMS) workers’ compensation parties need not consider Medicare’s interest when the medical aspects of a claim are to remain open.

In layman’s terms leaving medical open simply means that the employer will continue to pay for an injured worker’s medical treatment long after the settlement funds are dispersed.   There are many reasons an employer might choose to keep medical open. In my experience this usually happens when the injured worker’s medical treatment is extremely costly or his medical condition indicates a possible shortened lifespan.  In any case, parties involved in a compensation case where the employer has agreed to continue to pay medical bills do not need to worry about Medicare or creating a Medicare set-aside.

As April 15^th draws nearer and my mailbox starts to fill with W-2 and yearly interest statements I am reminded of the old adage, only two things in life are certain; Death and Taxes.  Oddly enough my recent dealings with Medicare Set-Asides (MSA) also remind me of this old adage.

When a workers’ compensation claim settles the injured worker often receives funds to pay for future medical care related to his workers’ compensation injury. When the injured worker is a Medicare beneficiary federal law requires that the funds for medical treatment be set-aside in an account called a workers’ compensation Medicare Set-Aside account (WCMSA).   The WCMSA can take the form of a lump sum payment or a structured settlement annuity.  In either case, the injured worker places these funds with a bank or insurance company for safe keeping.  The financial institution in return rewards the injured worker with interest.  At the end of the year the Internal Revenue Service (IRS) considers this interest a form of income and taxes the MSA beneficiaries accordingly. To alleviate some of this tax burden, The Centers for Medicare and Medicaid Services (CMS) makes exceptions in its normal policy which requires that all set-aside funds be used solely for medical treatment.

According to CMS’ July 11, 2005, policy memorandum a claimant or his Medicare Set-Aside administrator may withdraw enough money from a WCMS account to pay for taxes.  However, CMS requires that the administrator of the account, be it the injured worker or a professional administrator, account for the removed by submitting documentation of the taxes imposed along with the annual WCMSA accounting statement.

Congress enacted the MSPA to mitigate and recoup the benefit payments CMS was paying to beneficiaries involved in work related accidents. The Act requires insurers to be the primary payers of medical costs arising from work related injuries and says that Medicare benefits can only be used as a secondary source of payment. MSPA mandates that during the settlement of a workers’ compensation claim insurers consider CMS’s interests. SCHIP works to extend the principals of the MSPA.

When SCHIP takes effect insurers will be required to gather the injured person’s personal information, such as, full name, address, date of birth, gender, social security number, and health insurance claim number. In addition, insurers will need to provide CMS with insurance type information, the name and address of the insurance carrier, the policy number, claim number, and policy limits. CMS is currently developing the Coordination of Benefits Secure Website (COBSW) so insurers can submit this data electronically. CMS forecasts that insurers will be able to register on the site beginning May 1, 2009.

Insurers failing to comply with SCHIP’s reporting standards can be penalized $1,000 per day per claimant. This could equate to large financial losses for insurers caught unaware or unprepared for the July 1 deadline. The act provides little reprieve for violators, therefore, it is imperative that insurers organize their files prior to May 1, and promptly enter their data into CMS’s database once it is functional. The act allows insurers to engage third party agents, such as attorneys, to assist them with compliance. Insurers who are unclear about SCHIP’s mandates or overwhelmed by the process should seek legal counsel.