Expert Commentary

Workers Compensation and Medicare

Medicare now believes there has been an illegal shift of medical benefits from workers compensation insurers to Medicare. To stem this flow, Medicare hopes to examine all workers comp settlements, even when claimants do not qualify for Medicare benefits. See what may be in store in this controversial area.


Workers Compensation Issues
May 2001

In recent years, multiple states have provided that all workers compensation claims can be settled. These settlements of workers compensation claims operate in a similar fashion to settlements in civil cases. A workers compensation claimant can resolve both the indemnity and medical portions of the claim. In Pennsylvania, this opportunity has been available only since Act 57 was passed in 1996. Other states have allowed settlements for longer periods of time.

Recently, the U.S. government has been taking more of an interest with regard to workers compensation settlements. Specifically, Medicare is starting to review workers compensation settlements. Medicare believes that there has been an illegal shift of medical benefits from workers compensation insurers to Medicare. This article addresses Medicare's concerns and their potential ramifications.

Medicare's Perspective

The activity began in the western states, specifically lawsuits filed in Colorado and Texas. The Healthcare Financing Administration has forwarded letters to several workers compensation carriers regarding Medicare's rights in the context of workers compensation. This new interest by Medicare can cause great problems for all participants in a workers compensation system.

Medicare has a very broad scope of authority with regard to collecting payments from other sources. This broad right is contained in Section 1862(b) of the Social Security Act, which was codified at 42USC Section 1395(y). Applicable regulations describing and explaining this section are contained in 42C.F.R. Part 411.

The Medicare Secondary Payer Law precludes Medicare from paying in a primary capacity on behalf of a Medicare beneficiary when another entity has primary payer responsibility. In workers compensation terms, Medicare will not pay a workers compensation bill since the primary payer should either be the employer or the insurer that covers the employer. If Medicare does make a payment in a workers compensation case, Medicare is given a priority right of recovery to its expenditure. Thus, any payment made by Medicare is considered a lien. That is a simple enough concept. If Medicare paid a bill in the amount of $100, which was related to a work injury, Medicare would be entitled to recover its expenditure from the primary source.

The Federal Regulations also indicate that if Medicare has to initiate any type of legal action in order to make collection, they are entitled to double damages. Medicare also has a right of action to recover its payments from any entity, including a beneficiary, provider, supplier, physician, attorney, state agency, or private insurer. Section 42CFR 411.40 indicates that all workers compensation plans of the United States are included with regard to recovery.

Who Is Responsible?

The real problems arise when attempting to interpret Sections 411.46 and 411.47. In Section 411.46(b), Medicare indicates that a lump sum compromise settlement is deemed to be a workers compensation payment for medical purposes, even if the settlement agreement indicates that there is no liability under the workers compensation law or plan. This begs the question: In a case where the claimant cannot prove that he had a workers compensation injury, how could Medicare overturn the settlement without a hearing? This provision would seem to be contrary to the due process clause of the Constitution.

In Section 411.46(b)(2), the Act notes that if a settlement attempts to shift to Medicare the responsibility of payment of medical expenses for treatment of work-related conditions, the settlement will not be recognized. Medicare will not pay for the treatment of that condition. However, in paragraph (d), this section notes that the basic rule with regard to lump sum compromise settlements is: "If a lump sum compromise settlement forecloses the possibility of future payment of workers compensation benefits, medical expenses incurred after the date of the settlement are payable under Medicare."

There seems to be a distinct conflict between paragraph (b) and paragraph (d). The regulations also note an exception to paragraph (d). The exception basically indicates that if the settlement agreement allocates some portion of the settlement to medical expenses, Medicare does not pay for any services regarding the work injury until the medical expenses related to the injury or disease equal the amount of the lump sum settlement allocated to future medical expenses.

Further confusion is generated from Section 411.47. This regulation attempts to explain the apportionment of a lump sum compromise settlement of a workers compensation claim. Paragraph (a)(1) indicates that if a compromise settlement allocates a portion of the payment for medical expenses and also gives reasonable recognition to the income replacement element, that apportionment may be accepted as a basis for determining Medicare payments. The next paragraph, (a)(2), basically states that if no recognition is given to the medical portion of a claim, the agency will use a mathematical formula to determine the amount of medical offset.

How Will Enforcement Be Handled?

The Medicare office in Philadelphia was contacted for this article to try and determine what broad parameters, if any, Medicare was using in enforcing these provisions. In essence, the Medicare representative indicated that there were none. There were no rules or regulations regarding the amount of compromise settlement that Medicare would examine.

More troubling was the fact that this Medicare representative indicated that Medicare would like to look at all workers compensation resolutions, even if the claimant was not receiving Medicare or disability payments. In light of this statement, it is conceivable that Medicare would wish to look at resolutions regarding minor injuries and examine settlements regarding claimants who might not qualify for Medicare benefits for at least 20-30 years.

Prepare for the Worst

Currently, there is no way of resolving a workers compensation claim without leaving a potential problem with Medicare far into the future. However, in order to try to minimize this exposure, the following risk-saving tips may provide some assistance:

  1. Designate a set amount for future medical expenses. At least the participants in the system can then argue that Medicare's interest was considered in reaching any settlement.
  2. Attempt to call Medicare and get Medicare's approval with regard to any settlement amounts.
  3. In any evidentiary hearing regarding the settlement of future workers compensation medical benefits, establish on the record that the claimant is aware that there may be a potential Medicare lien at some time in the future and that the claimant understands that the total amount of settlement can be offset by Medicare before Medicare would make any payments for the work-related condition.
  4. Strictly limit the work-related condition through precise language in order to succinctly define what condition was considered work related. These terms will clearly define, for future Medicare benefits, which conditions are work related and which are not.
  5. The participants to the resolution of the workers compensation case may also establish a Medicare trust. However, this is an unwieldy device and will take some time and expense to establish.

Conclusion

Medicare may be overstepping the authority allotted in the regulations. It appears from the regulations that Medicare should only be involved in cases where Medicare benefits are involved. If no Medicare benefits are being paid, there should be no Medicare involvement in any workers compensation settlement. However, all insurers and participants in workers compensation systems must now be concerned about this Medicare interest.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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