Just how much money must I put into a Medicare Set Aside?

A federal court in Louisiana recently tackled this question in a liability case, and determined that a Medicare Set Aside (MSA) could be funded for less than the full amount of the plaintiff’s likely future medical costs. In Benoit v. Neustrom[i], the parties reached a $100,000 settlement, in which the plaintiff agreed to assume sole responsibility “for protecting and satisfying”[ii] Medicare’s interests. Subsequently, an MSA allocation report was prepared that showed the plaintiff’s future medical costs – for which Medicare would be responsible – would range from $277,758.62 to $333,267.02. Additionally, Medicare needed to be reimbursed for $2,777.88 for past medical care it had funded. After attorneys’ fees and Medicare’s past medical payments were deducted, only $55,705.98 of the settlement proceeds remained – meaning the potential cost of future medical care was more than five times the remaining amount of the settlement.

The plaintiff then asked the Court for a declaratory judgment approving the settlement terms, and establishing that the settlement amount could not fully fund the plaintiff’s future medical care, or the 100% valuation of a MSA. The plaintiff specifically asked the Court to declare that the settlement adequately protected Medicare’s interests, as the Centers for Medicare & Medicaid Services recognize a judicial allocation based on the merits of the case as a valid means of ensuring Medicare’s interests are addressed. Here, the Court held that Medicare’s interests were adequately protected, even though the MSA was not fully funded – although the Court did determine a different dollar amount was needed to fund the MSA. In trying to calculate how much money was needed to fund the MSA, the U.S. District Court, Western District of Louisiana first identified the portion of the settlement serving as compensation for past and future medical expenses. The Court then subtracted the procurement costs of obtaining the settlement, and the amount needed for reimbursement of Medicare’s past care from the gross $100,000 award. Next, the Court divided the remaining settlement proceeds against the mean MSA allocation – which amounted to an 18.2% ratio of funds available, in relation to total future care costs. The Court then applied that ratio to the net proceeds, which resulted in a calculation of $10,138 – which the court found was the appropriate amount needed to satisfy Medicare’s future interest.

Bottom Line:

This case shows that in liability settlements in which the parties determine an MSA is appropriate, the MSA often does not need to be established for the full value of the plaintiff’s expected future Medicare costs. In situations where, based upon the facts of the case, one or both of the parties determine an MSA is needed, how can you be sure you’ve determined the proper amount for the MSA, if you are not able to obtain judicial approval of your settlement?

In those instances, you may check out some tools available to you. Click here to see how GRG’s Decision Engine works. This web-based allocation tool allows parties who determine an MSA may be appropriate under the facts of their settlement to submit data and instantly receive a report which shows what portion of an award represents funds available for future medical care (while offsetting costs for procurement and conditional payments like the Court here). Depending on the specific facts of your case, this report could be generated for free.

For more information, please call John Cattie at (704) 559-4300 or email him at jcattie@garretsongroup.com.

[ii] Id., at *5.