Non-Submit Medicare Set-Asides: What Employers and Carriers Need to Know About CMS’s Evolving Stance
A GUIDE FOR WORKERS’ COMPENSATION EMPLOYERS AND INSURANCE CARRIERS
Workers’ compensation settlements that involve Medicare beneficiaries have long required careful planning to protect Medicare’s interests. The Medicare Set-Aside (MSA) has been the traditional vehicle by which Medicare’s future interests are protected. To expedite settlement, many employers and insurance carriers relied on “non-submit” MSAs as a cost-effective, flexible alternative to a formal review by the Centers for Medicare and Medicaid Services (CMS). However, in 2022, CMS issued guidance that cast doubt on this approach. In our analysis, non-submit MSAs are viable, but require disciplined risk management.
Understanding Medicare Set-Asides and the Non-Submit Approach
What Is a Medicare Set-Aside?
An MSA is an allocation of a portion of a workers’ compensation settlement designated to pay for future medical care related to the work injury – care that would otherwise be covered by Medicare. The legal basis for MSAs is the Medicare Secondary Payer Act (MSP Act), which establishes that Medicare is a “secondary payer.” In practical terms, this means Medicare should not pay for medical treatment when another source – such as a workers’ compensation settlement – has already provided funds for that care.
Once an MSA is funded, the allocated dollars must be spent on Medicare-covered, injury-related medical expenses before Medicare will begin paying for such treatment. MSAs can be funded as a lump sum or through a structured annuity and can be managed by a professional administrator or by the injured worker (known as “self-administration”).
The CMS Voluntary Review Process
CMS operates a voluntary review program: settling parties may submit a proposed MSA amount to CMS (through its Workers’ Compensation Review Contractor, or WCRC) for review and approval. If CMS approves the proposed amount and the MSA funds are properly administered, Medicare recognizes the allocation and considers its future interests protected. This process provides certainty from CMS as to the necessary amount. The downside is that the process can be slow and expensive, as CMS often seeks additional documentation or determines that additional funds are necessary to protect its interests. As noted, the review program is voluntary. While encouraged by CMS, there is no law that mandates CMS approval.
Further, CMS has established workload review thresholds that determine when it will review a proposed WCMSA. Currently, CMS will review a submission if: (a) the claimant is already a Medicare beneficiary and the total settlement exceeds $25,000; or (b) the claimant has a reasonable expectation of Medicare enrollment within 30 months of the settlement date and the total settlement exceeds $250,000. These thresholds are workload management tools, not substantive “safe harbors.” CMS has repeatedly stated that settlements below these thresholds still carry an obligation to consider and protect Medicare’s interests. Falling below the review threshold does not eliminate the underlying MSP obligation. Thus, if the parties settle a claim for $25,000, and future medical ends up at $50,000, there is no guarantee that the settlement will be protected from CMS.
What is a Non-Submit MSA?
A non-submit MSA is one where the settling parties calculate and fund a set-aside but choose not to submit it to CMS for review. This approach is common when a settlement falls below CMS’s review thresholds, or when the parties believe CMS’s pricing methodology significantly overestimates the appropriate allocation. Non-submit MSAs are frequently paired with self-administration, meaning the injured worker manages the funds and keeps records of spending.
How CMS Treats Non-Submit MSAs in Practice
The 2022 WCMSA Reference Guide: A Turning Point
In January 2022, CMS issued guidance expressing skepticism toward non-submit MSAs, which we discussed in this piece. CMS characterized non-CMS-approved products as “a potential attempt to shift financial burden by improperly giving reasonable recognition to both medical expenses and income replacement.” More significantly, CMS stated that when it is not provided with an approved set-aside, it may deny payment for injury-related medical claims up to the full settlement amount – not just the MSA portion – until the entire settlement is demonstrated to be exhausted on injury-related care. The bottom line is that CMS does not prohibit non-submit MSAs. But it reserves the right to deny Medicare coverage for injury-related care until it is satisfied that Medicare’s interests were adequately protected. Without CMS’s approval letter, there is no guarantee of finality.
As a practical matter, this means CMS is treating a non-submit MSA as the claimant’s problem more than the employer or carrier’s. Once the settlement is paid, the employer and carrier typically have no further liability for the claim, and as yet, we have not seen CMS attempt to claw back money from the employer or carrier.
Key Risks for Employers and Insurance Carriers
Denial of Future Medicare Benefits
If CMS determines that Medicare’s interests were not adequately protected, it may deny coverage for the claimant’s future injury-related medical care. Under the 2022 Reference Guide language, CMS may measure its exposure against the full settlement amount, not just the MSA allocation. This means a claimant could be required to spend down the entire settlement on injury-related care before Medicare will pay – creating significant personal hardship and potential pressure to reopen the workers’ compensation claim.
Expanded Section 111 Reporting and Increased CMS Visibility
Non-submit MSAs do not affect the carrier or employer’s obligation to report a settlement to CMS. Under Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA), “responsible reporting entities” – typically insurers, self-insured employers, or their third-party administrators – must report certain settlement information to CMS. This is known as Mandatory Insurer Reporting and CMS has finalized rules imposing civil money penalties for non-compliant or late Section 111 reporting, adding another compliance pressure point.
Self-Administration Risks
Self-administration compounds exposure. Injured workers frequently mismanage MSA funds or fail to document spending properly. Without clear records demonstrating that funds were spent on Medicare-covered, injury-related care, CMS may not recognize that the MSA was properly exhausted. For this reason, many of our clients elect to pursue professional administration of MSAs to ensure that the funds are spent properly.
Lack of Finality
Without a CMS approval letter, the adequacy of a non-submit MSA can be second-guessed at any time. There is no statute of limitations on CMS’s ability to deny future benefits or question the allocation – meaning exposure can surface years after settlement.
The Benefits of a Non-Submit Approach
Faster Resolution
The response time of a CMS approval letter can vary significantly from claim to claim. CMS frequently demands additional documentation as part of the review. And in some instances, it may be documentation that does not exist. For example, a settlement in which the claimant has not treated in some time, and does not plan further treatment, but there was a previous recommendation of surgery. In those instances, CMS will often demand updated medical indicating that the surgery is no longer indicated, which most doctors will refuse to provide. A non-submit MSA avoids this and similar issues.
Lower Cost
For the same reason as above, a non-submit MSA will usually come in less expensive than obtaining CMS approval. Further, CMS assumes the current treatment course continues for life, which is often not the case.
Risk Falls Primarily on the Claimant
Although there is nothing that necessarily prevents CMS from pursuing recovery from employers and carriers, we have not seen it happen, despite ample opportunity. The language of CMS’s 2022 guidance demonstrates that their recourse will be to hold the entire settlement to be the MSA if they determine their interests have not been adequately protected.
Weighing the Risks and Benefits
Non-submit MSAs remain a legitimate and widely used tool in workers’ compensation settlements and while they disfavor them, CMS has not prohibited the approach.
We recommend considering the risks and benefits on a case by case basis, and consulting with counsel as part of same. If the MSA is straightforward, CMS approval may be more sensible. If you have reason to believe that the MSA is likely to be inflated by CMS or has significant hurdles to completion, a non-submit MSA may be worth considering. Goldberg Segalla’s Medicare Compliance team stands ready to assist you in finding the most cost-effective approach.
If you have further questions about Medicare Set-Asides and the Non-Submit Approach, contact: