Many people have questions about the Medicare Secondary Payer (MSP) program. This article describes certain rights and obligations under the Medicare Secondary Payer law. The MSP law is found in Section 1862(b) of the Social Security Act (42 USC Section 1395y(b)(5)). Applicable regulations are found at 42 CFR Part 411 (1990).
What is the MSP program?
The MSP program is Medicare's version of a "Coordination of Benefits" (COB) program. When someone has multiple insurance policies and medical bills need to be paid, insurance companies use a COB program to decide who pays first, second and so on. Medicare's MSP program operates the same way when a Medicare beneficary has another source that could pay medical bills.
There are seven areas addressed by the MSP legislation.They are:
| Working
Aged (20+ employees) |
When a
Medicare beneficiary age 65 or over has employer group health plan (EGHP)
coverage through his own or spouse's employment |
| ESRD |
When a
beneficiary is entitled to Medicare on the basis of End Stage Renal
Disease (ESRD), Medicare is secondary to EGHP for a period of up to
30 months after Medicare entitlement begins. |
| Diabled
(100+ employees) |
When a
disabled beneficiary under age 65 is covered by an EGHP as a current
active employee of certain large employers or family member of such
employee. |
| Veterans
Administration |
When a
beneficiary has a Fee Basis Card and uses the card for VA services. |
| Motor
Vehicle & Liability Accidents |
When a
beneficiary was involved in a motor vehicle or liability accident
and recovery is expected. |
| Worker's
Compensation |
When a
beneficiary has a work related injury or illness that will be
compensated by employer's insurance |
| Black
Lung |
When a
beneficiary diagnosis is pulmonary services should be filed with the
insurer paying Black Lung Benefits. |
In simple terms, anytime someone in one of these groups has another way of getting medical bills paid, the MSP program makes the other source pay first and, then, Medicare pays "second" (or last). For example, if a Medicare beneficiary is injured in a car wreck, then the insurance policy for the driver at-fault would pay its limits before Medicare steps in to pay anything toward the Medicare beneficiary's medical bills.
When Does MSP Recovery Occur?
If an injured Medicare beneficiary's medical expenses are covered by liability insurance (including self-insurance, no-fault and med-pay insurances), Medicare will pay for medical services when the third-party insurance payment will not be "prompt". Such Medicare payments are described as "conditional" and the program expects to recover them when the private insurance payment "has been or could be made." When a health care provider seeks conditional Medicare payment, it must accept payment at the Medicare rate and cannot obtain additional payment from subsequent liability insurance payment.
The Medicare program has been given specific collection powers with respect to its conditional payment recovery claims. The Centers for Medicare & Medicaid Services (CMS) has both subrogation rights and the right to bring an independent action to recover its conditional payments. CMS is authorized to bring actions against "any other entity [including any physician or provider] that has received payment from that [primary plan] entity." Medicare rarely pursues either of these remedies.
How Does Medicare Collect The MSP Overpayment?
Typically, Medicare initiates collection procedures when a beneficiary's personal injury attorney notifies it that a settlement is expected. (See also Attorney Factsheet). Many personal injury attorneys believe that they will be penalized unless they contact and repay Medicare directly, but the law imposes penalties only on insurance companies that fail to repay Medicare. Beneficiaries themselves are required to cooperate, to notify and to pay Medicare within 60 days of receiving a liability payment. Medicare also may learn about the existence of third-party liability claims through questionnaires to beneficiaries, contractor screening of claims for injury-related services, and information-sharing with the Internal Revenue Service.
CMS sends a collection letter that sets out the amount claimed as an overpayment by Medicare, as determined by its Coordination of Benefits (COB) contractor. The letter should also describe the repayment process, and the procedures for obtaining waiver and appeal of MSP recovery. The collection letter pressures beneficiaries to pay Medicare immediately by asserting a right to interest accruing on unpaid claims, including pending beneficiary requests for waiver and/or appeals which prove unsuccessful. It further states that Medicare may arrange for the amount of an overdue MSP claim to be deducted from the beneficiary's Social Security or Railroad Retirement check.
Beneficiaries can respond to the collection letter by paying the amount claimed, or by seeking a reduction of the MSP claim through the appeal and waiver procedures.
How Much Can Medicare Recover?
In general, CMS may recover an amount equal to the Medicare payment for injuries covered by the liability insurance, up to the full amount payable under the insurance. However, there is no MSP recovery for services covered by Medicare after the date of settlement unless the settlement included a specific allocation for future medical services. Medicare reduces its recovery to account for the cost of procuring the judgment or settlement." Under this provision, a proportionate share of attorney's fees and costs should be subtracted from the amount recovered by Medicare. If the primary insurer's payment is less than the MSP claim, Medicare will take it all, minus the costs of procurement.
Example: Ben Beneficiary received a settlement of $50,000 following an accident. His medical expenses were $40,000, of which Medicare paid $25,000; his pain and suffering were valued at $10,000; lost wages were $20,000; and his permanent loss of limb was valued at $30,000.
Despite the fact that Ben's settlement was only 50% of his $100,000 damages, Medicare would demand recovery of its entire $25,000 outlay, reduced only by its proportionate share of the procurement costs. Assuming a 30% contingency fee arrangement, Medicare would claim $17,500, Ben's personal injury attorney would receive a fee of $15,000, and Ben would receive only $17,500, leaving $82,500 in uncompensated losses.
There are several ways that the amount claimed by Medicare may be reduced. First, MSP recovery is limited to Medicare outlays for health services resulting from the accident or other incident that gave rise to liability. A beneficiary should carefully look over the itemized list of health care for which Medicare claims recovery to be sure it does not include care due to, or aggravated by, for example, a preexisting condition. If such costs are included, or if the amount claimed is incorrect for some other reason, the beneficiary has the right to appeal.
Second, beneficiaries can ask Medicare to compromise its claim for MSP recovery before a settlement is reached. Compromise is appropriate when the amount of recovery is too small to merit pursuit of the claim, and it is in the best interests of the Medicare program. The CMS Regional Offices handle requests for compromise, which usually come from the attorney handling a liability claim.
Finally a beneficiary can ask Medicare to waive recovery of some or all of amount of its MSP claim on the ground of hardship. The MSP Manual, which can be found online at www.cms.hss.gov/manuals/105_msp/msp105.index.asp, sets out factors to be considered in granting waivers. They include out-of-pocket expenses incurred by the beneficiary, age, assets, income and expenses, and impairments of the beneficiary. Specific information and documentation of these factors will be required.
Medicare Recovery from Workers' Compensation Awards
The Medicare Secondary Payer law also makes Workers’ Compensation programs primary payers of medical expenses for persons receiving Workers' Compensation for health care.
In many respects, MSP recovery from Workers’ Compensation payments is the same as Medicare recovery from liability insurance. For instance, the amount recoverable can be reduced through the waiver and appeal processes described above. However, unlike its policy with respect to liability insurance settlements, Medicare may also reduce the amount of its recovery by an apportionment in the Workers’ Compensation settlement agreement between medical expenses and other damages (e.g., lost wages). It will do this when the settlement represents a compromise of disputed claims, and the apportionment is fair to Medicare.
Workers' Compensation claims for future losses are often settled with a lump sum payout rather than continuing payments for the lifetime of the disabled worker. This is known as commutation of future benefits. If the lump sum settlement includes medical expenses (and they almost always do), then Medicare will not pay for the beneficiary's covered health care until the portion of lump sum allocated to "Medicare covered" health expenses has been spent.
Medicare set-aside allocation is an agreement that takes place at claim settlement. It prevents the shifting of burden for future injury-related medical expenses from the carrier to Medicare.
If a determination is made that an Employer or Workers' Compensation Carrier attempted to shift the burden for payment of medical expenses for an injured employee to Medicare, Medicare can make a claim against the employer and/or insurance company for reimbursement.
A Medicare Set-Aside Allocation and approval by the CMS (Center for Medicare and Medicaid Services) is required with any settlement in which:
The claimant is a Medicare recipient at the time of settlement regardless of the amount of the settlement. The claimant is not yet receiving Medicare benefits but the following 2-prong test is met:
- The total amount of the settlement (indemnity plus medical less attorney fees) is over $250,000.00, and
- It is reasonably expected that the claimant will becomed a Medicare recipient within 30 months of the settlement.
Any monies placed into a Medicare Set-Aside trust or custodial account will be paid out according to the workers' compensation fee schedule. However, only Medicare covered expenses will be paid from these funds once the claimant becomes eligible for Medicare benefits (i.e., prescription medications and attendant care are two of the items which cannot be paid from the MSA funds).