P&C Insurers, Are You Ready for Mandatory Reporting, Conditional Payments, and Set Aside Allocations in Auto, No-Fault, and Liability Claims?

Posted by Rafael Gonzalez on Sep 30, 2016 11:13:22 AM

Mandatory Reporting2015 was another banner year for property and casualty insurers, writing close to $600 billion worth of insurance. Is this growth and success the reason for the Centers for Medicare and Medicaid Services' (CMS) recent announcement on June 8, 2016, in which CMS indicated it is considering expanding its voluntary Medicare Set Aside (MSA) review process to include the review of proposed liability insurance (including self-insurance) and no-fault insurance MSA amounts? Or are there other reasons for such an attempt by CMS at this time?

Medicare is in Short Term and Long Term Financial Trouble

As we have known for more than 20 years, Medicare, the government run health program for millions of elderly and disabled is in both short term and long term financial trouble. The 2016 Medicare Trustees Report, published in July, again indicated that the Hospital Insurance Trust Fund (HI or Medicare Part A) is not adequately financed over the next 10 years. Although the Report also estimates that the Supplemental Medical Insurance Trust Fund (SMI or Medicare Parts B and D) is adequately financed over the next 10 years and beyond because premium income and general revenue income for Parts B and D are reset each year to cover expected costs and ensure a reserve for any contingencies, Part A is in trouble.

The Report shows HI expenditures have exceeded income annually since 2008. And although the Trustees project slight surpluses from 2016 through 2020, it is expected to return to deficits thereafter until the trust fund becomes depleted in 2028. The problem is nothing new, as the HI trust fund has not met the Trustees’ formal test of short-range financial adequacy since 2003. And the long-term numbers do not look any better. For the 75-year projection period, the Report estimates that HI actuarial deficit has increased from 0.68 percent of taxable payroll, to 0.73 percent of taxable payroll. The 0.05 percent of payroll increase in the actuarial deficit was primarily due to (i) lower taxable payroll and (ii) higher projected utilization of inpatient hospital services than previously estimated. The Report also predicts Part B outlays will grow from 1.6 percent of Gross Domestic Product (GDP) to about 2.4 percent by 2090 under current law. The Trustees also estimate that Part D outlays will increase from 0.5 percent of GDP in 2015 to about 1.4 percent by 2090.

Enter the Medicare Secondary Payer Act

So, it should not come as a surprise that CMS, the federal agency that oversees the Medicare system, has become more and more aggressive about finding new sources of funds, and more significantly, incredibly more aggressive about finding savings from wherever possible. Their authority to do so comes from the Medicare Secondary Payer Act (MSP), found at 42 U.S.C. § 1395y et seq., which provides, in relevant part, that “Medicare shall not make payments with respect to any item or service to the extent that payment has been made, or can reasonably be expected to be made, under a workmen’s compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan including a self-insured plan or under no fault insurance.” (see also 42 C.F.R. §411.40.) Notice that the statutory language is clear about Medicare’s past and future interest, payments that have been made (past payments), or can be expected to be made (future payments). Notice also that the statutory language includes auto, self-insured, no fault, liability, and work comp plans.

Based on regulations adopted since 1980, CMS not only has a subrogation right but also a direct right of action to recover payments against any entity that is required or responsible (directly, as a third-party administrator, or otherwise) to make payment with respect to such item or service. The government also has a right to join or intervene in any action related to the events that gave rise to the need for the item or service. CMS is provided authority to recover benefits from third parties that issue or receive payments including an employer, insurance carrier, plan, program, third party administrator, beneficiary, provider, supplier, physician, attorney, state agency, or private insurer. If CMS is successful in the action against the payer, the payer is liable to reimburse Medicare double the amount it paid even if the claim has settled and the payer previously paid.

The Evolution of MSP Compliance

Since the passage of the MSP Act in December of 1980, the statute has been amended several times, evolving and growing the number of items, details, processes, and requirements for MSP compliance. The Medicare Prescription, Improvement, and Modernization Act of 2003 made several changes to the conditional payment process, expanding the reach of CMS to recoup conditional payments from all primary payers, including employers, carriers, self-insureds, insurers, corporate defendants, and the like. It also brought prescriptions into the mix, making Part D prescriptions a component of the MSP compliance picture.

The Medicare, Medicaid, and SCHIP Extension Act of 2007 brought perhaps the single most significant change to MSP compliance since 1980, the creation of a mandatory insurer reporting process that requires lengthy and very detailed information about a specific Medicare’s beneficiary’s claim to be shared with CMS. And of course, the Strengthening Medicare and Repaying Taxpayers Act of 2012 brought process efficiencies and timely changes to the conditional payment process.

So, today, when we speak about MSP compliance, we are no longer just speaking about reimbursement of conditional payments. No, today’s MSP compliance program has grown into a three prong process: a) Mandatory Insurer Reporting requiring an identification of whether the claimant or plaintiff is in fact a Medicare beneficiary; and if so, a mandatory reporting of over 100 key pieces of information pertaining to the claim, including a description of the accident, associated injuries, ICD-9 or ICD-10, medical providers, defendants, insurers, and whether such defendants or insurers have accepted ongoing responsibility for medical care associated with the claim, as well as settlement information including the date of settlement, amount of such settlement, and whether any ongoing responsibility for medical care continues or is terminated; b) conditional payments resolution requiring contacting CMS to inquire about any payments Medicare may have made related to the underlying claim, analyzing such payments to determine whether or not such payments are or are not related to the underlying claim, and if not related, disputing such charges, and if still disagree with CMS’ determination regarding same, formally appealing such a request for reimbursement through a request for re-determination, request for re-consideration, request for a hearing before an Administrative Law Judge, request for review by the Medicare Appeals Council, or seeking judicial review in US District Court; and c) taking Medicare’s future interests into account.

Taking Medicare’s Future Interests Into Account:  The Era of MSAs

In December 1999, as an expansion of President Clinton’s administration’s campaign against waste, fraud and abuse, the then Health Care Financing Administration (HCFA) announced that “through a national Coordination of Benefits (COB) contractor, CMS would coordinate Medicare payments with other insurance companies by collecting, managing and reporting claims information to ensure that health care claims are paid by the primary payer before such expenses are sent and paid by Medicare, the secondary payer.”

President Bush’s administration continued these efforts and stepped up enforcement. Not only was CMS interested in reimbursement of conditional payments, Medicare became interested in making sure that settlement proceeds were properly used for medical payments related to the underlying claim before Medicare began paying for such care and treatment. Medicare made it clear that “if proceeds are not properly used, CMS has the authority to go after anyone and everyone in the chain for reimbursement - attorneys, health care providers, insurers, and claimants.”

Soon thereafter, CMS began publishing a series of policy memorandums outlining a voluntary process that would ensure a workers compensation primary payer’s compliance and protection with regard to future payments. In their first memorandum in July 2001, Parashar B. Patel, Deputy Director at the Center for Medicare and Medicaid Services, indicated that “although 42 CFR 411.46 requires that all WC settlements must adequately consider Medicare’s interests, and 42 CFR 411.46 does not mandate what particular type of administrative mechanism should be used to set aside monies for Medicare, the Patel memo recommended several items that would appropriately consider Medicare’s future interests when settling future medical care in a workers’ compensation case. In so doing, CMS had begun the era of Medicare Set Asides.

The Patel Memo made it clear that Medicare regulations (42 CFR 411.46) specifically stated that “if a lump sum compensation award stipulates that the amount paid is intended to compensate the individual for all future medical expenses required because of the work related injury or disease, Medicare payments for such services are excluded until medical expenses related to the injury or disease, equal the amount of the lump sum payment.”  In addition, Medicare manuals (§3407.8 of the MIM, §2370.8 of the MCM) stated than “when a beneficiary accepts a lump sum payment that represents a commutation of all future medical expenses and disability benefits, and the lump-sum amount is reasonably considering the future medical services that can be anticipated for the condition, Medicare does not pay for any items or services directly related to the injury or illness for which the commutation lump sum is made, until the beneficiary presents medical bills related to the injury equal to the total amount of the lump-sum settlement allocated to medical treatment.”

Fifteen years later, after 16 memos, countless website notices and alerts, and various versions of the Workers Compensation Medicare Set Aside Arrangement Reference Guide (WCMSARG), there is still no statutory or regulatory provision requiring a Medicare set Aside in workers compensation claims or any other claim, or that the parties submit a WCMSA amount proposal to CMS for review. Simply said, if the parties choose to use CMS’ WCMSA review process, the Agency requests that the parties comply with CMS’ established policies and procedures as published in the policy memos and now made part of the Reference Guide.

Work Comp Medicare Savings Attributable to Medicare Secondary Payer Act

What is it that they say, the proof is in the pudding? Guess then that when it comes to MSP, the proof is in the numbers. Below are the numbers as reported by CMS in CMS Statistics, published annually by the CMS Office of Financial Management. It was last published in late Fall of 2015, reporting on 2014 statistics. The next edition is due to be published in late Fall of 2016, reporting on 2015 numbers. As you can see, the numbers really do tell the story. Despite the fact that workers compensation is by far the smallest of the three lines of insurance, it is credited with more than half of all MSP savings since 1999 ($12.29 billion out of $21.51 billion). As a matter of fact, work comp MSP savings have brought in more than three times the amount auto MSP savings ($12.29 billion to $4.0 billion), and more than twice the amount of liability MSP savings ($12.29 billion to $5.22 billion).

Medicare Savings Attributable to the Medicare Secondary Payer Act (in Billions)
Published annually in CMS Statistics, by CMS Office of Financial Management

 

Work Comp

Auto

Liability

Total

1999

$0.09

$0.24

$0.20

$0.53

2000

$0.10

$0.24

$0.23

$0.57

2001

$0.09

$0.25

$0.22

$0.56

2002

$0.11

$0.30

$0.22

$0.63

2003

$0.12

$0.27

$0.24

$0.63

2004

$0.11

$0.27

$0.28

$0.66

2005

$0.10

$0.24

$0.33

$0.67

2006

$0.10

$0.25

$0.41

$0.76

2007

$0.88

$0.23

$0.23

$1.34

2008

$1.06

$0.29

$0.08

$1.43

2009

$1.23

$0.25

$0.32

$1.80

2010

$1.61

$0.33

$0.43

$2.37

2011

$1.25

$0.27

$0.45

$1.97

2012

$1.84

$0.21

$0.52

$2.57

2013

$1.89

$0.19

$0.57

$2.65

2014

$1.71

$0.17

$0.49

$2.37

Total

$12.29

$4.00

$5.22

$21.51


Direct Written Premiums vs. Medicare Secondary Payer Savings

Based on the latest direct written premiums information, as an insurance line and therefore number of dollars available for purposes of MSP compliance, workers compensation is significantly smaller than auto and liability. According to A.M. Best, in 2013, there was a total of $545.7 billion of direct premiums written in the United States property and casualty insurance lines, including $200 billion in auto, $93 billion in liability, and $52 billion in work comp. That same year, CMS reported savings attributable to Medicare Secondary Payer provisions totaling $8.93 billion, including $0.19 billion in auto, $0.57 billion in liability, and $1.89 billion in work comp. Therefore Medicare savings attributable to MSP in 2013 was 1.6% of total direct premiums, but only 0.09% of auto premiums, 0.61% of liability premiums, and 3.63% of work comp premiums.

In 2014, again according to A.M. Best, a total of $570.1 billion of direct premiums were written in the US property and casualty insurance lines, including $213 billion in auto, $99 billion in liability, and $55 billion in work comp. That same year, CMS reported savings attributable to Medicare Secondary Payer provisions totaling $8.19 billion, including $0.17 billion in auto, $0.49 billion in liability, and $1.71 billion in work comp. Therefore, Medicare savings attributable to MSP in 2014 was 1.44% of total direct premiums, but 0.08% of auto premiums, 0.49% of liability premiums, and 3.11% of work comp premiums.

Why are Work Comp MSP Savings So Much Higher than Auto and Liability?

Why the difference? Why such a disparity between auto, liability and work comp MSP savings numbers and ratios? Are there that many more injured workers than injured drivers or other forms of liability? Are there that many less Medicare beneficiaries involved in auto claims and liability claims than in work comp claims?

Of course not. According to CMS, there are about 56 million Medicare beneficiaries today in the US. 45 million of those are due to age, the other 11 million due to entitlement to social security disability benefits. According to several studies performed by the SSA and CMS over the years, these individuals make up anywhere between 18% to 25% of our overall population, dependent on your state, and from 10% to 15% of auto, liability, and work comp claims filed annually.

The reason for the significant difference between the very low auto and liability MSP savings as compared to the much higher work comp MSP savings is the number of dollars allocated towards future medical expenses related to claimed injuries in Medicare Set Asides, a voluntary account created from settlement proceeds with the intent of providing the injured Medicare beneficiary with sufficient monies to be able to pay for future medical care and treatment related to his/her claim.

Auto and Liability MSP Savings Do Not Include Medicare Set Asides

Auto MSP savings shown by CMS only come from conditional payments recouped and payments made by claimant, defendant, or insurer that Medicare did not pay for. However, unlike work comp, auto MSP savings do not include auto MSAs. Liability MSP also only come from conditional payments recouped and payments made by claimant, defendant, and insurer that Medicare did not pay for. As of 2011, such savings also includes CP recovered from global settlements. However, here again, unlike work comp, these savings do not include any liability MSA funds.

Workers Compensation MSP savings come from conditional payments recouped by CMS, and in addition, as of 2007, from funds allocated and approved by CMS in a Workers Compensation Medicare Set Aside (WCMSA). Therefore, it is widely believed that the overwhelming majority of the $21.51 billion reported by CMS as MSP savings in auto, liability, and work comp since 1999 are attributable to savings produced by MSA allocations.

Expansion of Voluntary MSA Review Process to Include Auto and Liability

This may certainly explain Medicare’s recent announcement on June 8, 2016, in which CMS indicated it is considering expanding its voluntary MSA review process to include the review of proposed liability insurance (including self-insurance) and no-fault insurance MSA amounts. Anticipating opposition from the plaintiff bar, litigation groups, legal organizations, and the auto and liability insurance industry, the announcement also indicated that CMS plans to work closely with the stakeholder community to identify how best to implement this potential expansion. To this end, the announcement informed that CMS will provide future announcements of its proposal and expects to schedule town hall meetings later this year.

CMS has been down this road before. On June 14, 2012, CMS announced their intention to expand their voluntary MSA program to liability and no-fault cases. CMS published an Advance Notice of Proposed Rulemaking (ANPRM) soliciting comments on options to protect Medicare's interest with respect to MSP claims involving automobile and liability insurance (including self-insurance), no-fault insurance, and workers' compensation when future medical care is claimed or released in the settlement, judgment, award, or other payment. Although CMS later voluntarily withdrew its proposal, CMS learned that the plaintiff bar, litigation groups, legal organizations, and the auto and liability insurance industry believe there is no statutory authority permitting CMS to impose any obligation or granting a right of recovery against an insurer or self insured with regard to future medicals. Based on various responses received, CMS learned that stakeholders believed CMS lacked authority with respect to insurers and self insureds on future medicals, and that there was no law that imposed any obligation on insurers or self insured for medical expenses incurred after the date of a liability settlement.

However, CMS has been very clear for many years on these points. Based on comments made during the various town hall meetings CMS has held over the last 5 years, we know with certainty that CMS strongly believes that the MSP Act, as currently found at 42 U.S.C. § 1395y et seq., requires Medicare’s past and future considerations. CMS has been adamant that the statutory language “Medicare shall not make payments with respect to any item or service to the extent that payment has been made, or can reasonably be expected to be made, under a workmen’s compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan including a self-insured plan or under no fault insurance” provides them with the statutory authority to enforce Medicare’s past and future interest against auto, self-insured, no fault, liability, and work comp plans.

Conclusion

Clearly, it is not just the growth and success of the auto and liability insurers in their written premiums that has propelled the Centers for Medicare and Medicaid Services' recent announcement on June 8, 2016, in which CMS indicated it is considering expanding its voluntary MSA review process to include the review of proposed liability insurance (including self-insurance) and no-fault insurance MSA amounts. A big part of it is the ongoing, continuing, and seemingly non-ending financial difficulties Medicare has been facing and is projected to face for many years to come. But let’s not make any mistakes about it, another part of such reasoning is the undeniable fact that a much smaller insurance line, workers compensation, is credited with saving two to three times the amount these other much larger lines of insurance, auto and liability, are saving the Medicare Trust Fund, aka taxpayers of America.

So, with mandatory insurer reporting in full swing, Medicare completely aware of which primary payers are and are not reporting their Medicare claims, which are and are not reporting ongoing responsibility for medical, which are and are not reporting settlements, judgments, awards, or other payments, and which are and are not reimbursing conditional payments, the only thing that is left for true congruent and consistent across the board MSP compliance is liability set aside allocations.

Are you ready? State Farm, Berkshire Hathaway, Allstate, Progressive, Liberty Mutual, have you built a process that allows you to identify Medicare beneficiaries early in the claims process? USSA, Farmers, Nationwide, Travelers, and American Family, have you built a system that allows you provide CMS with accurate ongoing responsibility for medical information? Hartford, Erie, Auto Owners, Mercury, and Auto Club, have you built a system that allows you to provide CMS with settlement, judgment, award, or payment details on a timely manner? CSAA, MetLife, MAPFRE, Natnl Gen, and Zurich, have you built a system that allows you to identify conditional payments made by Medicare early in your claims process? AIG, Infinity, Hanover, and Chubb, have you built a system that allows you dispute such conditional payments on a timely basis? AmTrust, SCIF, Old Republic, WR Berkley, and Great American, have you built a system that allows you to appeal such conditional payment disputes and resolve them without referral to Treasury? Accident Fund, TX Mutual, Fairfax, CNA, and Employers, have you built a system that allows you identify Medicare Advantage Plans and Prescription Drug Plans and efficiently resolve conditional payments made by these? Pinnacol, NJM, Sentry, Saif, and Philadelphia, have you built a system that allows you to begin to look at life expectancy, future medical and prescription needs, as well as costs of same early on in the claims process? Cincinnati, QBE, Allianz, Church, and Westfield, have you built a system that allows you to determine when is the best time to create an MSA allocation? Main Street, GuideOne, Greater NY, Country, and Tower Hill, have you built a system that allows you to decide whether submitting a proposed MSA is in your best interest? Doctors, ProAssurance, Medical Liab, Coverys, and Norcal, have you built a post settlement system that guarantees the beneficiary is using the allocated MSA funds appropriately and as intended?

Medicare Compliance Manual, Flagship Services Group

About Rafael Gonzalez

Rafael Gonzalez, Esq. is Executive Vice President and Chief Legal Counsel at Flagship Services Group, the only national Medicare Secondary Payer services provider focusing on and offering comprehensive mandatory reporting, conditional payments, and set aside allocation compliance services to the property and casualty insurance industry. He has been a part of the insurance, medical, and disability industries since 1983. He has served as a thought leader on all aspects of liability, workers compensation, social security, Medicare, and Medicaid compliance since 1990. He speaks and writes on mandatory insurer reporting, conditional payment resolution, set aside allocations, CMS approval, and MSA and SNT professional administration, as well as the interplay and effect of these processes and systems and the Affordable Care Act throughout the country. Rafael blogs on these topics at Medicare Compliance for P&C Insurers at http://www.flagshipservicesgroup.com/blog. He can be reached at rgonzalez@flagshipsgi.com or 813.967.7598.

Topics: Liability, medicare compliance, MSA, Medicare Law