Limits on Medicare’s Recovery Health Care Payments When the Beneficiary Has Liability or Workers’ Compensation Insurance
The Medicare Secondary Payer (MSP) law was enacted by Congress to assure that Medicare does not pay for medical expenses that could be covered by private insurance. When beneficiaries are injured, Medicare will pay for care related to the injury if payment by these private insurances cannot be expected promptly, but it expects to recover its costs when the insurance claim is resolved. MSP requirements apply to Medicare beneficiaries with Workers’ Compensation and to those with liability insurance, but the application of the law by the Centers for Medicare and Medicaid Services (CMS) differs significantly in these two situations. Check out your My Insurance Guide online to see what you qualify for.
1. Recovery for Past Medical Expenses
The Medicare statute states that Medicare will not pay for “any item or service to the extent that — … payment has been made, or can reasonably be expected to be made under a Workmen’s Compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance.” 
The statute requires reimbursement to Medicare when it has made payment for medical expenses that are covered by another insurer. The same provisions apply to workers compensation insurers and liability insurers, as follows:
A primary plan, and an entity that receives payment from a primary plan, shall reimburse the appropriate Trust Fund for any payment made by the Secretary under this title with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service… 
2. Payment for Future Medical Expenses in Workers’ Compensation Cases
In Workers’ Compensation (WC) cases where there is a lump sum payment of the WC benefit, the MSP law has also been implemented to preclude Medicare payment for future medical expenses as well as past expenses related to the injury until the amount of the payment has been expended on relevant future medical expenses. However, the MSP regulations address insurance payment for future medical expenses only with respect to WC insurance.  Although they make provision for reimbursement of Medicare for past injury-related medical expenses out of liability payments, the regulations are silent as to payment for future medical expenses in the liability situation.
The WC regulations distinguish between lump-sum commutation of future benefits and lump-sum settlements that are compromises of Workers’ Compensation claims. A compromise is a settlement in which the parties have negotiated for less than total compensation. For commutations of future benefits that stipulate payment is included for future injury-related medical expenses, the regulations provide that Medicare will not pay for future medical expenses until the lump-sum is exhausted.  For compromise settlements, the regulations first require a determination that a fair amount is allocated to future medical expenses. If not, Medicare will not pay such expenses.  If there has been a reasonable amount allocated for future injury-related medical services, Medicare will not pay for such services until that amount has been used up in payment for services. 
3. Medicare Set-Aside Arrangements in Workers’ Compensation Cases
Preclusion of future Medicare payments in some WC cases by designating an anticipated amount for accident related medical expenses is facilitated by creation of Medicare Set-Aside Arrangements. Neither the Medicare statute nor regulations discuss CMS approval of settlements or Medicare Set Aside Arrangements as a means to assure that a beneficiary’s future medical expenses will be paid from Workmen’s Compensation or liability insurance proceeds.
CMS policy guidance is the main source of practice information about how the agency has implemented its MSP statutory responsibility. It is primarily found in the CMS manuals, which are normally given deference if they are persuasive, but unlike the statute and regulations, do not have the authority of binding law. CMS also posts informal advice concerning Medicare on its website, but such postings have no legal authority.
CMS policy regarding its MSP program is set out in the Medicare Secondary Payer (MSP) Manual, CMS Pub. 100-05 (see www.cms.gov/Manuals/IOM). The manual states that when a beneficiary accepts a lump sum that represents a reasonable commutation including future medical expenses, there will be no Medicare payment for work-related medical expenses until medical bills equal to the allocation for medical expenses are presented. 
The MSP Manual provides that administrative mechanisms called “set-aside arrangements” can be used in WC commutation cases, but not in WC compromise cases which generally involve disputed liability.  It states that the use of these set-aside arrangements – sometimes called Set-Aside Trusts by attorneys – are helpful to Medicare in identifying MSP situations, but their use is not required. A beneficiary can also set monies aside for future medical expenses and self-administer this arrangement. 
Medicare Regional Offices will review and approve the adequacy of a WC settlement with a Medicare Set-Aside Arrangement upon request if (1) there is a reasonable expectation of Medicare enrollment within 30 months and (2) the anticipated total settlement amount for future medical expenses and disability/lost wages exceeds $250,000 over the duration of the settlement agreement. 
4. Payment for Future Medical Expenses in Liability Cases
In contrast to WC cases, Medicare does not look to the proceeds of liability cases for payment of medical expenses incurred after resolution of the claim. Presently there is a good deal of speculation about the possible extension of MSP requirements to deny payment for future injury-related expenses in liability cases. If this were to occur, it could expand the use of Medicare Set-Aside Arrangements from WC cases into the larger area of liability cases. However, considerable changes in Medicare law and policy would be necessary before such an extension could occur.
As noted above, there is no discussion in the existing Medicare regulations of future medical expenses in liability cases, unlike the regulations concerning MSP requirements in WC cases. Nor does the MSP Manual contain any requirements for payment of beneficiaries’ future medical expenses in liability cases. In fact, the manual states, “There should be no recovery of benefits paid for services rendered after the date of a liability insurance settlement.”  As would be expected given the lack of Medicare interest in denying payment for future medical expenses in liability situations, the MSP Manual also contains no discussion of the use of Medicare Set-Aside Arrangements in these cases.
Recent statements by CMS officials have clarified that Medicare does not anticipate changing its routine MSP recovery process in liability cases, and that the formal process for CMS review of Set Aside-Arrangements in WC cases is not used in liability cases.  CMS officials have also denied persistent rumors that Section 111 of the Medicare, Medicaid & SCHIP Act of 2007 imposed new reporting requirements on plaintiffs’ attorneys that would lead to the use of Set-Aside Arrangements in liability cases.  See AAJ communication reprinted at:
 S.S.A. § 1862(b)(2), at 42 U.S.C. § 1395y(b)(2).
 S.S.A. § 1862(b)(2)(B)(ii), at 42 U.S.C. § 1395y(b)(2)(B)(ii).
 42 C.F.R. § 411.46.
 42 C.F.R. §§ 411.22, 411.24,
 42 C.F.R. § 411.46(a).
 42 C.F.R. § 411.46(b).
 42 C.F.R. § 411.46(d).
 Id., Chap. 7, § 40.3.4.
 MSP Manual, Chap. 7, § 40.3.5.
 Id., Answer 1.
 MSP Manual, Chapter 7, § 50.5.
 Barbara Wright, CMS Acting Director of Medicare Debt Management, March 24, 2009.
 CMS Alert, February 23, 2009.