Crossing the Threshold: What’s included in the Total Settlement Amount?

7.31.2018 Blog

CMS will consider a proposed Medicare Set-Aside (MSA) when the Total Settlement Amount (TSA) exceeds the one of two review thresholds. The CMS review thresholds are well-known and, for Medicare beneficiaries, is only $25,000. For claimants who have a reasonable expectation of Medicare enrollment within 30 months of the settlement date, the threshold jumps to $250,000.

However, less is understood about what is included in the TSA. Most often, the TSA will include 1) the anticipated indemnity (permanency and unpaid lost time and past medical expenses; 2) the proposed MSA; and 3) any pending conditional payments by Medicare for past medical expenses. However, CMS has provided more specific information in its Workers’ Compensation MSA Reference Guide.

What’s Included?

First, the TSA is the gross total indemnity settlement and includes attorney fees and expenses. Note that exact amounts, not rounding up or down, should be used. Settlement payments from a state second injury being made at the same time are included.

Next, the TSA includes the MSA (whether proposed or approved by CMS) itself. The MSA is comprised of Medicare-covered medical items and services and future prescription medications normally covered by Medicare. If applicable, non-Medicare-covered medical costs that are paid in the settlement are also included.

If the MSA is to be funded by an annuity, the full annuity payout expected over the life of the settlement is included in the TSA. The actual cost or present value of an annuity is not relevant to calculating the TSA.

In addition, prior settlements of the same claim and settlement advances are included in the TSA. A common example is where the indemnity or permanency portion of a settlement is reached, but future medical rights are kept open. Later, the parties agree to settlement those medical rights. In that situation, both the prior settlement amount  and the amount of the projected future medical costs are included in the TSA calculation.

Amounts forgiven by the carrier or primary payer are included in the TSA. This provision includes amounts waived against third party recovery as part of settlement of a workers’ compensation claim. In Illinois, such right of recovery or lien is found in Section 5 of the Worker’s Compensation Act. The amount of prior third party liability settlement of the same workers’ compensation injury is also included in the TSA, though such amount may be reduced if apportioned by a court on the merits.

Prior lien payments to be repaid – including Medicare conditional payment claims – are also considered in the TSA.  Regarding conditional payments, CMS has not clarified  what constitutes amounts to be repaid. Generally, a final conditional payment amount is not determined until after a settlement is approved. In the interim, CMS will assert conditional payment claims which may be disputed (usually for relatedness) and reduced or even removed. Considering these interim amounts in the calculation may cause the TSA to exceed the review threshold, particularly if the lower $25,000 figure for Medicare beneficiaries applies.

What’s Excluded?

The Reference Guide also specifically excludes certain items from the TSA. The most relevant exclusions are past payments of indemnity or medical expenses that are not part of settlement and payment of prior contested awards by a court on the merits. Liens that the claimant will pay from the settlement funds are also excluded. In addition, medical malpractice settlements based on alleged mishandling of the workers’ compensation injury are not considered part of the settlement.

Thoughts to Takeaway and Compliance Strategies

Settlement refers to “new” amounts being offered to resolve existing claims. While prior settlements of workers’ compensation claims are included in the TSA calculation, CMS has drawn a distinction for past payments of voluntary benefits and even for prior contested awards. Consider the following scenario: a claim went to a full hearing on contested matters and a final award was paid for lost time, medical expenses, and/or permanency benefits, but the claimant’s future medical rights remained open. Later, the parties wish to settle the remaining future medical portion. There is a strong argument to exclude payment of the prior contested award in the TSA and it may be beneficial to remain under the threshold where CMS review is not available. In fact, it is likely that CMS would not review a proposed MSA under those circumstances.  It is important to note however CMS’ internal workload review threshold are not “safe harbors” when it comes to Medicare Secondary Payer obligations.

In the calculating conditional payments to be included in the TSA, the TSA may fluctuate and present a timing component. If interim conditional payments would put an otherwise under-the-threshold settlement over the threshold, consider whether the conditional payments are unrelated and may be disputed. The dispute process can take a few months, but once removed the planned settlement may go forward without submission of the MSA proposal to CMS for approval. Conversely, the certainty of CMS approval may be desirable where certain body parts/conditions are accepted while others are denied and waiver of future medical costs is sought, the inclusion of interim conditional payments might allow CMS review.

While the TSA calculation is fact-specific and sometimes complex, our MSA team of attorneys is available to assist with strategies and recommendations. Let us help navigate CMS policy and Medicare Secondary Payer compliance.


The NBKL blog is provided for informational purposes; we are not giving legal advice or creating an attorney/client relationship by providing this information.  Before relying on any legal information of a general nature, you may consider consulting legal counsel as to your particular facts and applications of the law.