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.
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.
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
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
- 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.
- Attempt to call Medicare and get Medicare's approval with regard to
any settlement amounts.
- 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
- 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.
- 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.
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.