How to Use a Medicare Set-Aside Allocation (and, how NOT to)
Administering Medicare Set-Aside (MSA) funds properly is a daunting task for most. Nuance in the Medicare formulary, ignorance about MSAs in the provider’s billing department, and complexity in medical coding all conspire to frustrate even the most diligent and well-meaning of beneficiaries. Truly, the successful MSA custodian has to be part educator, part negotiator, part coding wizard, and part accountant.
Conflated Ideas
In this area of compliance, it is not surprising that misunderstandings abound. One common misconception involves what can actually be paid for from a MSA account. This mistake sometimes has its origin in the failure to understand the MSA allocation report’s actual purpose. It probably does not help that the term “MSA” is sometimes used to describe both the funds in a MSA account and a MSA allocation report (“MSA allocation” or “MSA report”).
The properly prepared MSA report’s value lies in its final dollar amount. Medicare is given consideration through the establishment of an amount of money to be used to treat the injury, thereby shielding Medicare from premature payments on behalf of the beneficiary. This is necessitated by the fact that, by law[1], Medicare is secondary to workers’ compensation and liability injuries, pre and post-settlement. The amount established in the MSA allocation is intended to be spent prior to Medicare becoming primary. But also, the settlement is able to establish a limit to how much of the settlement proceeds must be isolated for the sole purpose of stepping in front of Medicare. According to the latest version of the Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) Reference Guide, where no arrangement is made for how future medicals shall be paid, Medicare may consider the entire settlement as primary[2].
An Estimate, not a Formulary
The mistake is in a literal application, not of the MSA report’s final dollar amount, but of the itemized detail of medical services and medications. It is common for a beneficiary, those counseling them, or those settling with them, to believe that only the specific items listed in the MSA report are covered by the MSA funds. It’s imagined that the beneficiary, when paying their bills, will reference the MSA allocation to determine whether a given medical expense is listed there, and if not, arrange to have it paid by other means. But, the MSA allocation is not an injury-specific formulary of allowed items any more than it is a prescription for care.
In actuality, anyone who has written a MSA allocation or administered MSA funds for a relatively short period of time knows that, at its best, the MSA allocation report is an educated guess. Moreover, the stock MSA allocation, if written to the government’s review standards, may project treatments in frequencies that would not ordinarily be expected, ballooning its amount, or completely ignore the inflationary nature of healthcare costs over time, deflating the final amount below reality’s expectation of the future. (That back x-ray costs $65 today. Do you imagine it will cost that in 10 or 15 years?) In the end, the final number is recognized as an adequate consideration of Medicare’s interests, but a supposition unlikely to hit future costs with absolute accuracy.
Consider all of the ways that actual injury expenses could differ from those in the MSA allocation report. Take prescription drugs as an example. A drug priced into a MSA report references a single NDC (National Drug Code), but that particular drug may have dozens of codes, representing different manufacturers, doses, forms, etc. It’s very likely your corner store pharmacy is going to fill your drug under a different code, and different price. The other corner store pharmacy right across from your corner store pharmacy may use still another code and price. A drug prescribed to treat a condition may become ineffective or create side effects undesired by the beneficiary and/or the prescribing physician. It is not uncommon for a physician to drop one medication in favor of another, or add or remove medications. This all changes the spend.
Also, the Medicare formulary changes annually. Something covered by Medicare today may not be covered in the future, and just because an expense was contemplated in a MSA report, it does not mean that the MSA funds should continue to cover it if that particular expense is no longer covered by Medicare. In summary, a beneficiary’s needs may change over time and the MSA allocation report is not designed to and cannot contemplate all of those changes at the time it is prepared.
What to Pay
So, what is actually to be paid from MSA funds? The answer is any and all Medicare allowable, injury-related expenses incurred on or after the date of settlement until the MSA funds are properly exhausted. Administration is all about stepping in front of Medicare to prevent any payment by it for injury-related expenses until MSA funds are gone. This is not accomplished by checking expenses against the list in the MSA allocation report. It is about identifying injury related expenses that Medicare would otherwise pay for and paying them at rates consistent with or below the applicable fee schedule. It is inaccurate to say that Medicare is responsible for any injury-related expenses not specifically contemplated by the MSA allocation. Such an assumption (though made more frequently than you may expect), if resulting in payments by Medicare for the injury while MSA funds still exist, represents an unlawful shift of burden to Medicare that may prompt a request for reimbursement if discovered.
In the event that real life is more expensive than the MSA report expected, what then? Medicare will assume primary responsibility for the injury’s Medicare allowable expenses once the MSA funds have been spent, provided those funds are spent properly. They will do this annually, in the case of temporary exhaustions, or from the point of permanent exhaustion onward. The key is the ability to demonstrate that the funds were spent according to the Centers for Medicare & Medicaid Service’s (CMS) guidelines. And what if the MSA report seems to have expected more expense than is actually realized? CMS wants those funds to remain in the MSA account in the event one of those unforeseen complications, hospitalizations, or changes in treatment comes along.
In conclusion, a MSA allocation is a valuable resource to any administrator of MSA funds to understand at a glance the nature of the injury and any co-morbid conditions that are specifically excluded. However, it should be used for what it was intended, namely, to arrive at an amount. Understanding the proper use of the MSA funds is critical to administering the funds correctly. A beneficiary who uses their MSA allocation report as a litmus test for what the MSA account can and cannot pay for may end up draining other settlement funds unnecessarily or end up shifting the burden to Medicare prematurely. Ultimately, improper administration places the beneficiary’s Medicare benefits at risk, as Medicare has the right to suspend benefits until it has recovered payments that should have been made by other primary funds.
[1] Medicare Secondary Payer Statute, 42 U.S.C. §1395y(b) a/k/a the MSP.
[2] See Section 8.1 titled Review Thresholds, Example 2 –“Not establishing some plan for future care places settling parties at risk for recovery from care related to the WC injury up to the full value of the settlement.”
