13 Feb 2015

Workers’ Compensation and Its Secondary Payers: Medicare and Medicaid

Last November I had the pleasure of participating in a panel with two more eminently qualified folks—Jennifer C. Jordan of MEDVAL, LLC and Tim Nay at Nay & Friedenberg—about Medicare Secondary Payer (MSP) compliance at the 23rd Annual National Workers’ Compensation and Disability Conference in Las Vegas. Of course, we spoke about Medicare and the MSP provision, but we also warned that the expansion of the Affordable Care Act might trigger similar reimbursement issues with Medicaid given recent changes in the law. This article summarizes the panel discussion.

MSP compliance and MSAs. Like it is with most government programs, the use of acronyms is prolific when it comes to talking about Medicare and Medicaid. To start with, we all know about Medicare Set-Aside accounts—or “MSAs”—for those of us who really hold them dear. MSAs are the approved method to shift costs from the private sector (the workers’ compensation claim) to the public taxpayer (Medicare), even though one of the fundamental purposes of workers’ compensation legislation was to force money to flow in the opposite direction. No statute or regulation authorizes MSAs, but the Centers for Medicare & Medicaid Services—that’s “CMS” for the acronym scouts—has published enough guidance for us since the Patel memo in 2001 that the availability of MSAs as a means to comply with the MSP provision is no secret. But compliance is only one side of the coin. Taking risks in settling or not settling cases involving MSP issues is the other, and this risk applies equally for both employer and employee.

This risk is substantial. The numbers tell you so. Barely over a year ago, almost 40% of workers’ compensation settlement costs went to fund MSAs, and 40% of that 40% represented medication costs from the Part D coverage alone. Although section 111 reporting saved Medicare an estimated $8.93 billion and Medicare has recovered $565 million in conditional payments, a mere $1.8 billion in claims costs from the private sector went to fund MSAs, according to CMS’s 2013 Financial Report. These are no small amounts.

Panelist Jennifer Jordan reminded everyone that there is no enabling legislation for MSAs. Rather, MSAs are only a voluntary method of MSP compliance. In other words, the parties to a workers’ compensation claim can choose to use MSAs or they can choose not to when it comes time to settling their cases, and their choice depends on their risk tolerance. The choice gets more difficult when it comes to budgeting for future medications, and whether there is truly a cost-benefit in achieving settlement. This is equally true for both employers and employees.

Medicare denials. More and more, CMS has denied Medicare coverage—even for non-work-related diagnoses—after identifying concurrent workers’ compensation claims through section 111 reporting. It is just not a good day when Medicare refuses to authorize your chemotherapy, for example, because you broke a toe at work last year. State workers’ compensation administrators have alerted CMS about this concern. So far, they have not had much luck.

NCCI. The panelists also discussed the NCCI Research Brief released in September 2014. Of its more salient conclusions, NCCI observed that CMS’s approval time for MSAs had quickened, but with a higher incidence of approved amounts that exceeded the proposed amounts. Once again, CMS’s fixation on the cost of future medications is to blame. Moreover, the quicker approvals include expedited reviews and, in at least one panelist’s opinion, challenges persist with the use of some of Medicare’s contractors.

Medicaid. Medicaid—not Medicare—has everyone’s attention since Section 202 of the Bipartisan Budget Act of 2013, Pub. L, 113-67 (“BBA 2013”), hinted at its emergence as a secondary payer much like Medicare. Because states administer Medicaid, the question is whether the states will have enough resources for their recovery efforts and, if so, whether the enforcement will be consistent or reciprocal across state lines. These issues would likely arise in workers’ compensation cases involving long-term care, which Medicaid covers but Medicare does not.

Panelist Tim Nay, a nationally recognized Medicaid expert, calmed everyone’s fears that Medicaid would become the next Medicare. According to Mr. Nay, the BBA 2013 simply affirmed that Medicaid was a payer of last resort—that is, Medicaid has always been a secondary payer and nothing has changed this. Under federal Medicaid law, states must pursue reimbursement from primary payers, and states were automatically subrogated to these reimbursement rights by virtue of qualifying for Medicaid. For these reasons, every state with a Medicaid program already has the legislative tools to pursue reimbursement in place, assuming they have the resources to enforce them, and Mr. Nay did not forecast any change in these enforcement efforts from the BBA 2013. However, the problem is that every state has different reimbursement laws to enforce so parties to workers’ compensation claims will have to know about multiple state laws and procedures when it comes to reimbursement, and this variety is not simple.

Mr. Nay added that the section 202 of the BBA 2013 legislatively negated both Supreme Court decisions in Arkansas v. Ahlborn, 547 U.S. 268 (2006), and Wos v. E.M.A., 133 S.Ct. 1391 (2013). The BBA 2013 thus extends Medicaid’s lien to the full amount of insurance settlements and is not just limited to the amount allocated toward medical expenses, as Ahlborn and Wos had done. In 2016, however, the Protecting Access to Medicare Act of 2014 § 211, Pub. L. 113-93, reinstates the effect of Ahlborn and Wos so that medical allocations will once again become relevant. useful.

On a more general scope, Mr. Nay discussed the fact that Medicaid was originally limited in scope. Now, it has become the largest healthcare payer in the United States. In 2012, for example, it covered 66 million people, or one out of every five Americans—with total expenditures of $415.15 billion. The federal government funds about 65% of Medicaid coverage, while the states fund the remaining 35%. The Affordable Care Act (ACA) represents the largest expansion of Medicaid in history. The rate of expansion under the ACA is more rapid than it was when Medicaid first appeared in 1966. But unlike Medicaid, coverage under the ACA does not depend on financial means, even though the ACA does provide major medical coverage to adults of all ages with incomes not exceeding 138% of the federal poverty level. (In 2014, the federal poverty level was $16,105 for an individual and $32,900 for a family of four.) The 2012 decision by the United States Supreme Court in National Federation of Independent Business v. Sebelius, 132 S.Ct. 2566 (2012), which upheld the ACA under Constitutional scrutiny, allowed states to sign up for Medicaid expansion as an option. Only six states signed up initially, but twenty-seven states are now players, while the remaining states sit on the sidelines watching their federal tax dollars go someplace else. This interesting dynamic takes place because federal taxes fund ACA coverage for the states that have opted “in,” thus siphoning money from politically conservative venues to venues that opted into the ACA. When it comes to Medicaid’s resemblance to Medicare in terms of its secondary payer status, this siphon suggests that the opt “in” states will have more financial resources to implement and enforce their own reimbursement efforts than the opt “out” states with finances under more stress. If Medicaid is to become the next Medicare when it comes to subrogation, in other words, then look to the opt “in” states for where this trend might start. They have more money to put it into effect.

The ACA does have a greater interaction in personal injury litigation than it does with workers’ compensation. This brings about a fourth area in which reimbursement occurs. Before the ACA, Medicaid could get reimbursed for catastrophic injuries, from people who qualified for Medicaid based on limited financial means, and from people who qualified for Medicaid by virtue of also qualifying for Supplemental Security Income under the Federal Social Security Act. Under the ACA, there is now the opportunity to reimburse ACA plans before settlement. According to Mr. Nay, this might require an amendment of the state Medicaid plan or approval by the Centers for Medicare and Medicaid Services. These possibilities are on the horizon.

The ACA expansion did not affect Medicaid’s spousal impoverishment long-term care services, which are resource-dependent services with varied criteria for coverage from state to state. To avoid asset transfer penalties, Mr. Nay advised the use of special needs trusts and the use of exempt transfers. Needless to say, these services are among the most costly of Medicaid expenditures, and the government has engaged in lien recovery for these services since 1982 with three limitations. First, the scope of reimbursement requires CMS approval of a state’s legislation governing reimbursement. Second, the reimbursement is limited by the Medicaid anti-lien statute, 42 U.S.C. § 1396p(a)(1), and the Medicaid anti-recovery statute, 42 U.S.C. § 1396p(b)(1). Lastly, recovery can only take place after age 55. The good news, according to Mr. Nay, is that there is no current legislative action to make the spousal impoverishment recovery efforts resemble the policy under the Medicare Secondary Payer provision for future medicals.

Cost analysis remains the same. The fortunate thing about Medicare and (possibly) Medicaid compliance is that it does not change how we evaluate cost drivers and exposure in claims. You still have the same risks. You will still allocate money to account for those risks. Secondary payers are just one way to subsidize those risks, and playing by their rules might be the only possible way to resolve claims. Sure, you might not like those rules and it might take some more administrative costs to get there, but this is a choice like any other choice you can make. Play the game or do not play the game. Follow the rules or do not follow the rules. Like we told you earlier, MSAs are a voluntary method of compliance with the MSP provision.

How voluntary it really is, well, that’s another question.

About the Author: Vernon Sumwalt is a board certified specialist by the North Carolina State Bar in the fields of workers’ compensation and appellate practice, and he currently serves as Chair of the Bar’s workers’ compensation specialization committee. Mr. Sumwalt is currently the legislative Vice President of the North Carolina Advocates for Justice (NCAJ) and formerly served as Chair of the workers’ compensation sections of the NCAJ and the North Carolina Bar Association. He has been a member of the Larson’s National Workers’ Compensation Advisory Board for LexisNexis® since 2007 and has contributed to numerous publications, including The Law of Workers’ Compensation in South Carolina (S.C. Bar, 2nd ed. 1998, 3rd ed. 2003, 4th ed. 2005, 5th ed. 2008, 6th ed. 2012), The Law of Automobile Insurance in South Carolina (S.C. Bar, 4th ed. 2000, 5th ed. 2002, 6th ed. 2009), The South Carolina Law of Damages (workers’ compensation chapter) (S.C. Bar 1st ed. 2004, 2nd ed. 2009), The Complete Guide to Medicare Secondary Payer Compliance (Chapter 6, § 6.11, North Carolina (LexisNexis® 2011-present), and North Carolina Workers’ Compensation Law: A Practical Guide to Success (Chapter 13, Credits under the North Carolina Workers’ Compensation Act) (LexisNexis® 2012).