California: Is it Time to Question the MSA-based Compromise and Release?

Most California Workers' Compensation practitioners are exceedingly familiar with the term Medicare Set-Aside (MSA). The idea of the MSA is to set aside an amount within a Compromise and Release (C&R) settlement that will be used to pay for medical treatment that would otherwise be covered by Medicare. The idea is that this "set-aside" will serve to protect Medicare's interests.

The problem with these settlements is that the Workers' Compensation Administrative Law Judge (WCALJ) who reviews the settlement for adequacy has to have information not only of what Medicare is likely going to cover going forward, but more importantly what other treatment the injured worker may need that will not be covered by Medicare. Though the Medicare covered treatment is addressed by the MSA, in the vast majority of MSA based C&R's, there is no evaluation of the non-Medicare covered treatment. When the WCALJ asks the parties what those costs may entail, he often receives a blank look back by the submitting party.

Recently, a panel of commissioners issued a decision in McGowne Willoughby v. Hoge, Fenton, Jones & Appel, 2020 Cal. Wrk. Comp. P.D. LEXIS 162. In this case, the panel approved a C&R of a 1991 claim where, using round numbers, $120,000 was paid to the applicant as "seed" money for the MSA, $934,000 was paid to an annuity company to make annual payments into the MSA for the future Medicare covered treatment, and $204,000 was paid to the applicant's attorney for an attorney fee.

It is important to remember, prior to the approval of this C&R, applicant had a medical award issued by the Workers' Compensation Appeals Board (WCAB) that covered both his Medicare covered treatment and his non-Medicare covered treatment. 

The WCALJ in Willoughby disapproved the C&R on the basis that it was an unlawful assignment of the insurance company's liability to the annuity company making the payments into the Medicare set-aside account.

On reconsideration, the WCAB concluded structured settlements should be allowed and approved the C&R. However, the WCAB failed to address how this particular C&R (as well as many of these MSA based C&R's) was adequate. If, after the approval of the C&R, the employee has no way to pay for the non-Medicare covered treatment, how is the injured worker better off after the settlement? If the applicant's attorney is basically exchanging one medical benefit for a lesser medical benefit, how exactly is that attorney earning a $204,000 attorney fee?

Indeed, Medicare does not cover many types of medical care. Medicare does not pay for home health care nor chiropractic treatments. There are medications Medicare will not cover and there are co-payments involved with the medications Medicare does cover.

In an environment where the workers' compensation medical benefit is broken and people are desperate to get out of the workers' compensation system, the WCAB should be very cautious when approving these MSA based C&R's. If the parties do not have an assessment of what the non-Medicare covered treatment includes, or where a zero amount is allocated to the non-Medicare covered treatment, these MSA based C&R's should not be approved. 

Noteworthy panel decisions are not binding authority. Practitioners should check the subsequent history of a case before citing to it.

Any information or opinions contained in this commentary are not necessarily endorsed by LexisNexis® or its affiliates.  

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