Question: What Is a “Medicare Set-Aside” and When Do You Need One?
Answer: If you are injured because of someone else’s negligence, you may have to resort to a personal injury lawsuit in order to obtain payment for the medical care you will need in the future and to compensate you for your pain and suffering. If your injury falls under the workers’ compensation system, or if you are receiving Medicare or can be expected to receive Medicare, you may need to create a special kind of trust, called a Medicare Set-Aside, to reimburse the government for future medical expenses related to your injury. (Many people younger than age 65 receive Medicare through their receipt of Social Security Disability Insurance (SSDI) benefits.) Medicare Set-Aside law is very complicated and constantly changing, but here are some basic points that will help frame your conversation with your special needs planner.
Personal injury litigation is expensive, so in most cases insurance companies and other responsible parties will try to settle your lawsuit without having to go through the time and expense of a trial. The settlement agreement, a lengthy document that can take months to draft, lays out the parties’ understanding of the issues and typically allocates the settlement money into different categories, including past medical expenses, future medical expenses, and damages for pain and suffering. If you are already a Medicare recipient at the time of the settlement, you may have to use some of the settlement funds to reimburse the federal government for injury-related “conditional” medical expenses that Medicare paid for prior to your settlement. This is because Medicare is a “secondary” payer that is only supposed to pay for medical services that are not provided by another party. In the case of your personal injury settlement, the person who injured you includes funds in your settlement to pay for your past medical expenses. Therefore, he is the “primary” payer, and some of those settlement funds must be applied towards any bills that Medicare has already paid on your behalf.
But personal injuries don’t just go away once the parties settle, and your future medical expenses could be much higher than your previous bills, especially if your injury is severe and you are expected to live for a long time. Since the government is still only a “secondary” payer, it wants to make sure that you use the funds in your settlement that are allocated towards future medical expenses before Medicare picks up the tab for the rest. This is where the Medicare Set-Aside comes in.
A Medicare Set-Aside is a trust or trust-like arrangement that is set up to hold settlement proceeds for future medical expenses. A specialized company evaluates your future medical needs, recommends an amount that should be set aside for future medical care, and the government approves the amount. The funds are then either placed in the Medicare Set-Aside account in one lump-sum or the account is funded with a “structured settlement annuity” that will refill the account over time. In either case, the administrator of the Medicare Set-Aside trust may use the funds only to pay for medical care related to your personal injury, leaving Medicare or your private insurance free to provide coverage for medical expenses that are not related to your injury.
Medicare Set-Asides have been used for years in workers’ compensation cases, and the federal government has an extensive set of reporting and monitoring rules in place for those cases. But recently, the government has instituted a new set of reporting requirements for anyone who is responsible for compensating a personal injury victim, and many practitioners believe that the government will soon require Medicare Set-Asides for all personal injury cases (right now, you are responsible for protecting Medicare’s interest in your future medical care in case of a settlement, but there are few hard-and-fast rules defining this requirement, especially for small claims).
Currently, the government is interested in setting up a Medicare Set-Aside if you are a Medicare recipient settling a personal injury claim for more than $25,000 or if you settle for more than $250,000 and can be expected to receive Medicare within 30 months of settlement (this happens a lot if you receive Social Security Disability Insurance, which has a 24-month waiting period before you can receive Medicare benefits).. However, these rules are in a constant state of flux and no one can predict how extensive the Medicare Set-Aside requirements will become. Therefore, it is essential to speak with your special needs planner immediately if you think that you are entitled to a personal injury settlement or if you are beginning a workers’ compensation claim.