Protecting Medicare’s Interests on Claims Not Meeting Review Threshold; is an Allocation Needed?

By David J. Korch, EPS Settlements Group | February 18, 2015

Since Medicare released the July 23, 2001 “Patel” memorandum concerning workers’ compensation and many subsequent memoranda, there have been numerous guidelines for the evaluation and submission of Medicare set asides (MSA).

We are all aware of the review thresholds:

  1. Medicare beneficiary and the settlement is $25,000 or greater and,
  2. Reasonable expectation of becoming a Medicare beneficiary within 30 months and the settlement is $250,000 or greater. A claimant has a reasonable expectation of Medicare enrollment within 30 months if any of the following apply:
  • The claimant has applied for Social Security Disability Benefits;
  • The claimant has been denied Social Security Disability Benefits but anticipates appealing that decision;
  • The claimant is in the process of appealing a denial of or re-filing for Social Security Disability benefits;
  • The claimant is 62 years and 6 months old;
  • The claimant has an End Stage Renal Disease (ESRD) condition but does not yet qualify for Medicare based upon ESRD If a threshold is met, a WCMSA can be submitted to CMS for approval.

What many have missed is a third category, the injured worker who does not meet either of the two review thresholds mentioned above. These individuals were addressed in the Gerald Walters’ Q & A memorandum of July 11, 2005 where he states “Accordingly, all beneficiaries and claimants must consider and protect Medicare’s interest when settling any workers’ compensation case; even if review thresholds are not met, Medicare’s interest must always be considered.”

“Q1. Clarification of WCMSA Review Thresholds – Should I establish a Workers’ Compensation Medicare Set-aside Arrangement (WCMSA) even if I am not yet a Medicare beneficiary and/or even if I do not meet the CMS thresholds for review of a WCMSA proposal?

A1. The thresholds for review of a WCMSA proposal are only CMS workload review thresholds, not substantive dollar or “safe harbor” thresholds for complying with the Medicare Secondary Payer law. Under the Medicare Secondary Payer provisions, Medicare is always secondary to workers’ compensation and other insurance such as no-fault and liability insurance. Accordingly, all beneficiaries and claimants must consider and protect Medicare’s interest when settling any workers’ compensation case; even if review thresholds are not met, Medicare’s interest must always be considered.”

How can we show Medicare’s interest in workers’ compensation settlements was considered, when dealing with injured workers who are not current Medicare beneficiaries, are not Social Security disability beneficiaries, have not applied for Social Security disability and are not within 30 months of receiving Medicare benefits (including individuals that have not applied for SSDI but are medically unable to return to employment).. In order to provide some analysis, we must first review 42 USC TITLE 42 – THE PUBLIC HEALTH AND WELFARE and look at references to workers’ compensation settlements.

When reviewing Title 42, we come to realize that workers’ compensation is mentioned in Section 411.43 that deals with the beneficiary’s responsibility with respect to workers’ compensation. It places the responsibility on the Medicare beneficiary to take any action that is necessary to obtain any payment that can reasonably be expected from workers’ compensation. It further outlines in Section 411.45 that Medicare will not pay for medical treatment for a work-related injury until the beneficiary has exhausted all remedies under workers’ compensation.

Section 411.46 discusses lump-sum payments in workers’ compensation claims. It specifically states that if the lump sum settlement stipulates that the amount paid is to compensate for all future medical expenses related to the workers’ compensation claim, Medicare payments are excluded until the medical expenses related to the injury are equal to the amount of the lump sum settlement. It does state that if the settlement appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for the treatment of the work-related condition, the settlement will not be recognized. This section further states “If the settlement agreement allocate[s] certain amounts for specific future medical services, Medicare does not pay for those services until medical expenses related to the injury or disease equal the amount of the lump sum settlement allocated to future medical expense.”

So the biggest issue that would be encountered is how to show that the settlement is not an attempt to shift the burden to Medicare. This was further outlined by the act in Section 411.47. This section deals with the apportionment of a lump sum compromise settlement. The section indicates that a compromise settlement reasonably allocating a portion of the settlement for payment of medical expenses and also giving reasonable recognition to the income replacement element may be accepted as a basis for determining the Medicare payments. If the settlement does not give reasonable recognition to both elements, Medicare has established a means of allocating the funds.

Medicare indicates you should determine the ratio of the amount awarded less any reasonable and necessary costs incurred in procuring the settlement to the total amount that would have been payable under workers’ compensation if the claim had not been compromised. You would then multiply that ratio by the total medical expenses incurred for the injury or disease up to the date of settlement. The product of that amount is considered as payment for medical expenses. For example:

Lifetime value of compensation claim $200,000
Medical expenses $45,000
Settlement $65,000
Ratio ( $65,000 / $200,000) 33 percent
Reasonable Medicare consideration $45,000 x .33 $14,850

So to summarize, a Medicare set aside is never required in a settlement. If a reasonable allocation is made for future medical expenses that would be Medicare allowable, then these amounts will be accepted by Medicare. Medicare further outlines how to reach those numbers. Based on the above, you should consider utilizing a reasonable number when dealing with non-Medicare workers’ compensation claimants in order to show that Medicare expenses were allocated and were reasonable and not an attempt to shift the burden to Medicare. Furthermore, Title 42 indicates that is the responsibility of the injured party to use funds appropriately.

David J. Korch, AIC, SCLA, CMSP is vice president of Workers’ Compensation and Medicare Practices for EPS Settlements Group, and a national resource in the negotiation and settlement of workers’ compensation claims and third party claims with a workers’ compensation component through the utilization of structured settlements. Visit or email

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