Backing an Alternative Medicare Set Aside Strategy
Most employers and insurers limit the risk of one day facing an open-ended medical claim by obtaining federal approval for their Medicare set aside (MSA) arrangements for workers’ compensation settlements.
But some experts point out that obtaining the approval from the Centers for Medicare and Medicaid Services (CMS) is not required by law and can unnecessarily inflate the amount of funds workers’ comp payers allocate for an MSA.
They advocate foregoing CMS approval and self insuring the risk that Medicare may allege one day that an MSA was inadequately funded and demand more money than the payer originally set aside for a worker’s comp claimant’s future medical expenses.
Now IronHealth, a unit of insurer Ironshore Inc., has stepped into that discussion by offering a new insurance policy covering self-insured employers and insurers foregoing CMS approval of the amount allocated for an MSA.
A workers’ comp MSA allocates a portion of a claim settlement to pay for a claimant’s future medical expenses. MSAs satisfy Medicare Secondary Payer (MSP) laws adopted to protect Medicare’s interests. They do so by setting aside money to help ensure Medicare does not eventually pay for a workers’ comp claimant’s future medical costs.
IronHealth’s policy would pay for a defense arguing that the amount of money the insured originally calculated for an MSA was adequate. Should that defense fail, any untapped policy limits left after defense expenses are paid would pay for additional medical expense costs that Medicare demanded.
“We expect the majority of the loss costs in this product to be defense,” said Josh Stein, president of U.S. health care at IronHealth.
“If [say] 16 years down the line after an MSA has been exhausted by virtue of legitimate expenses paid in accordance with the MSA, the claimant tries to get reimbursement from CMS for expenses in addition to that [originally funded] MSA amount. [If] CMS balks and says, ‘Hold on a minute, you didn’t adequately fund the MSA 15 years ago and we think it should have been much higher,’ our policy will kick in to defend the original MSA amount in that dispute with CMS.
“If, after the whole process of appeal, we for some reason lose,” Stein continued, “then whatever remains of the limit of liability will be available to pay that claimant’s medical expenses.”
The policies on A-rated paper are available either for individual MSAs or a group of MSAs.
Available policy limits are $500,000 when insuring an individual MSA. When insuring a portfolio of MSAs, each MSA would have an individual limit with a master policy aggregate limit of $10 million.
While insurer interest in the product is expected, there is potential for greater demand from self-insured employers because they experience a greater adverse balance sheet impact from reserving for MSAs, Stein said.
“We are finding in our discussions with people in the industry that more self-insured employers are interested because of the potential benefit to their financial statements by reducing the amount they have to set aside in MSAs by virtue of not asking for CMS to approve it,” he added.
Michelle A. Allan says her clients prefer obtaining CMS approval to eliminate the risk that Medicare will demand additional, unknown sums at some future date. Allan is a Medicare compliance expert and partner at Burns White L.L.C. who represents insurers, self-insured employers and pools.
“There have been [industrywide] discussions about not submitting cases to Medicare [for approval] because it is not a statutory requirement,” Allan said. “It may not be a statutory requirement, but if you have a process available to you that will eliminate that risk, my clients are still interested in getting that approval letter from Medicare.”
Following Medicare guidelines for seeking approval allows his clients to control their risk, agrees James E. Pocius, an attorney and chair of the Medicare Set-Aside Practice Group at Marshall Dennehey Warner Coleman & Goggin P.C. in Scranton, Pa.
Medicare essentially approves a “snapshot in time” of a claimant’s expected future medical expenses, Pocius explained.
Therefore, through risk management practices, such as working with medical providers to assure medical treatments and prescriptions are necessary and the claim’s severity is not exaggerated, employers can limit the amount CMS will require for an MSA.
“Once you get that approval you can settle your case fully closed, it’s done” Pocius said. “Without approval, if it blows up later. you are paying the freight.”
But Jennifer C. Jordan, general counsel at MEDVAL L.L.C. sees potential for a different risk management strategy, one that could be helped by IronHealth’s new insurance policy.
Jordan advised IronHealth in developing its new policy. MEDVAL will assist in underwriting and serve as the point negotiator with CMS when policyholders file claims, according to IronHealth.
Jordan cites several problems with submitting to CMS for approval.
CMS determines appropriate set-aside amounts by “projecting the wors- case medical scenario possible,” Jordan said. That can, for example, force payers to fund surgeries and other procedures that are highly unlikely to occur.
The government also ignores state workers’ comp laws limiting what payers are responsible for, Jordan said.
“So in submitting to the program [for approval], you are accepting that you are paying a premium in exchange for an opinion letter that says the government is good with this number,” Jordan said.
“Once you get [CMS] approval you can settle your case fully closed, it’s done. Without approval, if it blows up later, you are paying the freight.” — James E. Pocius, attorney and chair of the Medicare Set-Aside Practice Group, Marshall Dennehey Warner Coleman & Goggin P.C.
Jordan, however, also advises that an approval letter is not a guarantee that Medicare will never seek additional sums from payers.
Still, her clients commonly seek MSA approval.
“We have one major carrier that does not get approval unless one of the parties [to the claims settlement] demands it,” Jordan said. “They are by far avant garde. They are totally self-insuring the risk. It’s a rather large carrier so it is impressive their organization has embraced [the strategy].”
She also has self-insured employer clients that set a threshold and absorb the risk for cases under a certain dollar amount in value.
IronHealth’s product could help others decide against obtaining CMS approval or shouldering the risk themselves, she said.
“If [payers] are unwilling to self insure the risk, this gives them the opportunity to buy something insurance people understand — insurance,” Jordan said.
But such a product may not be necessary if claims payers follow the law, have practices in place to protect Medicare’s interests, and can justify their MSA protocols and the amount they elect to set aside, Allan said.
Stein counters, however, that there is still potential for CMS to come back one day and argue that the only way to have protected Medicare’s interests would have been to obtain CMS approval for an MSA.