Are insurance companies exempt from having to set up Medicare Set Asides?

Question: A settlement has been reached in a §1983 claim against a municipality, its police department, and others. The insurer is claiming that it is not required to set up a Medicare Set Aside. Is there a law or regulation which specifically exempts an insurer from having to set up a Medicare Set Aside or trust?

Answer: There is no provision exempting a municipality from having to set up a Medicare trust, but then again, there are no provisions about Medicare trusts or Medicare Set Asides (MSA) specifically.

When contemplating the MSA issue, it’s important to remember the context in which it arises. Under 42 U.S.C. Sec. 1395y(b)(2), Medicare will not pay for an injured person’s medical expenses where payment either has been made or can reasonably be expected to be made under a workers’ compensation policy or plan, an automobile plan, a liability insurance policy or plan or a no-fault plan. While Medicare has promulgated rules and regulations about addressing future medical costs in workers’ compensation matters, it has not yet promulgated regulations about how to address those issues in liability settlements.

Currently, with respect to liability settlements, Medicare has issued an Advanced Notice of Proposed Rulemaking that contains a proposed general rule stating the following:

“If an individual or Medicare beneficiary obtains a “settlement” and has received, reasonably anticipates receiving, or should have reasonably anticipated receiving Medicare covered and otherwise reimbursable items and services after the date of “settlement,” he or she is required to satisfy Medicare’s interest with respect to ‘future medicals’ related to his or her ‘settlement’ using any one of the following options.”

While this appears to be where Medicare regulators are heading on this issue, it cannot be said, at the present time, that MSAs are required. However, best practices would dictate that you conduct proper due diligence on the issue (determining whether an MSA is needed based on your case-specific facts). A conservative approach may yield a conclusion that an MSA is warranted (though not technically “required” presently). An aggressive approach may yield a conclusion that an MSA is not warranted. The important thing to keep in mind is that you should have a reasonable interpretation of the Medicare Secondary Payer Act with respect to this issue, and be able to present that reasonable interpretation to a Medicare official upon request. We would be happy to work with you in crafting that reasonable interpretation and analysis.