After a protracted settlement negotiation involving a high six figure Workers’ Compensation Medicare Set Aside approved by CMS, the parties finally reached a settlement. One of the main issues in dispute was reversion of any remaining MSA funds upon death of the claimant and payment of any remaining related medical bills. The parties agreed that the funds would be professionally administered and any remaining WCMSA funds would revert to the employer. The settlement contract and the professional administration agreement stated the agreement reached by the parties. The carrier was happy to have finally resolved a high exposure case and congratulated the defense counsel on a job well done. The defense counsel thought all that was left was the formality of securing approval of the settlement contract from the Workers’ Compensation Commission. Then, the unexpected happened. The claimant questioned why the remaining funds should revert back to the employer when the WCMSA correspondence approving the MSA provided otherwise.
One exhibit to the final settlement documents was the standard correspondence from CMS approving a professionally administered Medicare Set Aside. The WCMSA approval letter signed by the CMS Office of Financial Management stated on the second page:
“Administrators must send attestations annually to the Benefits Coordination & Recovery Center * * *. Annual attestations should continue through final exhaustion of the account. We have enclosed instructions, titled ‘Professional Administration of Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA).’”
On page 1 of the Professional Administration “instructions” it stated in the second paragraph:
“* * *, failure to adhere to any of the following requirements will be regarded as a failure to reasonably recognize Medicare’s interests and Medicare will deny coverage for all medical treatments and prescription drug expenses due to work-related injuries. The requirements are as follows:
7. Distributions Following Death of Beneficiary – In the event the Medicare beneficiary dies before the funds in the WCMSA are depleted, the account will continue to exist for payment of any outstanding bills for work-related injury medical expenses and prescription drug expenses that would otherwise be covered by Medicare. Any funds remaining in the WCMSA account after payment of all outstanding bills for work-related medical expenses and prescription drug expenses shall be paid to the beneficiary’s estate or subject to State Law.”
After getting over the initial shock that the settlement was going to blow up because of a provision buried in the last page of the WCMSA approval correspondence from CMS, we stepped back and tried to figure out why CMS had included such a provision in their Professional Administration “instructions.”
The latest version of the CMS Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) Reference Guide, Section 17.1 addresses Administrators for the WCMSA account and provides in pertinent part:
“WCMSAs should be administered by a competent administrator (a professional administrator, the representative payer, the claimant, etc.). * * * Claimants may also administer their own WCMSAs, if State law allows. * * * Although beneficiaries may act as their own administrators, it is highly recommended that settlement recipients consider the use of a professional administrator for their funds.”
Of course, one of the primary benefits to the employer of professional administration of the WCMSA funds is the ability to enforce a reversionary provision providing that any remaining funds revert to the employer or original funder. With the funds in the hands of a third party administrator, there should be a seamless transfer of any remaining funds in the WCMSA on dissolution to the designated beneficiary. The employer’s position is that without a reversion of the remaining funds to the employer, the claimant’s estate reaps a windfall of monies that otherwise would not have passed to the claimant’s estate. For many employers, the potential reversion of any remaining WCMSA funds is the incentive behind agreeing to fund a substantial WCMSA. Did the CMS Professional Administration instructions trump the party’s right to contract? That was the claimant’s position.
Section 19.0 of the Reference Guide addresses change of circumstances. Section 19.2 addresses the ultimate changed circumstance – the death of the claimant:
“If the claimant dies before the WCMSA is completely exhausted, the RO (Regional Office) and the BCRC will ensure that all claims have been paid. Then any amount left over in the WCMSA may be disbursed pursuant to state law, once Medicare’s interests have been protected. * * * Often, the settlement itself will dictate the appropriate dispersal of funds upon the death of the claimant.”
This provision in the Reference Guide acknowledging \that the settlement terms will often prescribe how the remaining WCMSA funds will be dispersed certainly supported the employer’s position that the Professional Administration instructions was not a mandate from CMS that any remaining funds in a professionally administered WCMSA shall go to the beneficiary’s estate.
Further supporting the employer’s position that the parties had the right to agree on the beneficiary for any remaining WCMSA funds is Section 10 of the CMS Self-Administration Toolkit for Workers’ Compensation Medicare Set-Aside Arrangements (WCMSAs) for WCMSAs approved by CMS, which provides:
Section 10: Inheritance – “* * * If there is money left in the account after all related bills are paid, the funds are distributed according to the last will and testament, the settlement decree that set up the account, or state inheritance laws.”
Of note, the CMS instruction for self-administration of a WCMSA account do not address what happens to remaining funds on the death of the beneficiary.
Our response to the claimant’s assertion that the Professional Administration instructions trumped the settlement terms agreed upon by the parties referenced the foregoing provisions. Further, we contended that the provision relied on by the claimant provided that any remaining WCMSA funds shall be paid to the beneficiary’s estate or subject to State Law. The applicable workers’ compensation act allows the parties to reach a settlement of all disputed issues that upon approval of the State Workers’ Compensation Commission had the same effect as a final judgment on the merits. As the applicable State law allowed for the parties to negotiate the beneficiary of any remaining funds of the WCMSA, the remaining funds did not need to paid to the beneficiary’s estate.
Fortunately, after considerable additional effort the claimant backed down and executed the settlement documents as drafted. This situation was brought to the attention of the National Alliance of Medicare Set-Aside Professionals and has been escalated to CMS. Along with CMS, hopefully revising the professional administration instructions addressing the dispersal of remaining WCMSA funds on account dissolution, it is hoped that CMS will prioritize the dispersal of any remaining WCMSA funds as follows: (1) settlement decree; (2) if issue not addressed in the settlement decree then the claimant’s last will and testament; and (3) if there is no will or the issue is not addressed in the will, then the remaining funds in the WCMSA will be dispersed according to State inheritance laws. As Medicare has no interest in any remaining funds in a WCMSA account following payment of all related Medicare-covered expenses, paragraph 7 of the current CMS Professional Administration instructions should be revised to avoid any further ambiguity with regard to the dispersal of any remaining WCMSA funds.