Medicare, Medicaid, and SCHIP Extension Act of 2007 and the Medicare Secondary Payer Act (MSP) LMSA: The Train at the End of the Tunnel

What is Driving MSP Enforcement by Medicare? Medicare cost working people and business $396.5 Billion in 2010 Estimated to increase to $502.8 Billion in 2016. Medicare views the MSP as part of the solution to their revenue shortfall problem.

Where is the Money Going? From 2007 to 2010 Medicare approved 43,632 MSAs This year CMS will review 24K to 30K MSA proposals Industry pays between $1,400 to $2,400 per MSA proposal Industry spends $3.36m to $5.76m / year for MSAs CMS takes an average of 180 days to review proposals, 1/3 of proposals submitted are sent back for rework (usually resulting in request for more money) Since 2001, about $50B have been placed in MSA Trusts This year it is estimated $1.5B to $2.375B will be placed in MSA Trusts Over 96% of MSA Trusts are “self-administered”

WCMSA: What happens to the money?

History of MSP (Medicare Secondary Payer statutes) & Current Overview of MMSEA Section 111 & MSP Medicare Secondary Payer Act (“MSP”): Social Security Act (1980) [42 USC 1395y(b)] Medicare, Medicaid and SCHIP Extension Act of 2007, Section 111 (“MMSEA”) “Any entity that engages in a business, trade, or profession shall be deemed to have a self-insured plan if it carries its own risk (whether by failure to obtain insurance or otherwise) in whole or in part.” Medicare always “secondary” since 1965 for Work Comp

“MMSEA Section 111” Major Elements of the Law: Establishes an ongoing reporting requirement of any settlement, judgment, award, or other payments by “any entity” (“self insured” or insurer) who settles a claim with a Medicare “eligible” claimant. Establishes civil penalties of $1,000 a day, per claimant for failure to report any claim subject to the statute. Law applies to Group Health Plans (“GHP”) and non-Group Health plans (non-GHP) The lines of business covered under MMSEA 111 include: Liability insurance (including auto; GL; products; professional) No-fault insurance Workers Compensation “Self Insured” for non-GHP as defined by CMS includes: Any entity that pays its own claims Any entity that is responsible to pay a claim because of its failure to obtain insurance Any entity that “self-insures” a deductible insurance program Any entity that pays or funds the settlement of its own claims, CMS defines as Responsible Reporting Entities

Electronic Reporting and Reporting Agents CMS has mandated that all reporting shall be done electronically and in accordance with their established protocols found in the CMS Users Guide and CMS Alerts. RREs may use Reporting Agents to perform the reporting functions, they have also made it clear that the RRE remains solely responsible and accountable for complying with CMS instructions for implementing Section 111 reporting. A All of the data elements for reporting have been published under CMS Liability Insurance (Including Self-Insurance), No-Fault Insurance, and Workers’ Compensation USERS GUIDE Version 3.4) [“Users Guide”]. This guide can be downloaded from the following CMS webpage: www.cms.hhs.gov/MandatoryInsRep/Downloads/NGHPUserGuideV3022210.pdf

Direct Data Entry Option Alternative to CMS mandated submission methods i.e HTTPS, SFTP, Connect:Direct. A “Small Reporter” is an RRE that will submit 500 or fewer NGHP claim reports per calendar year. Small Reporters will be required to report the same data elements as those required under the file submission methods by manually keying the information into COBSW pages/screens. Claim record submissions are required within 45 calendar days of the Total Payment Obligation to the Claimant (TPOC) date or within 45 calendar days of assuming Ongoing Responsibility for Medicals (ORM). Cannot use “query function” Small Reporters that use the DDE option have the same responsibility and accountability as any other RRE.

Current TPOC Reporting Dates Mandatory Total Payment Obligation to the Claimant (TPOC) Dollar Thresholds for Certain Liability Insurance (Including Self-Insurance) Current TPOC Reporting Dates TPOCs over $25,000 July 1, 2012 October 1, 2012 TPOCs over $5,000 October 1, 2012 January 1, 2013 TPOCs over $2,000 October 1, 2013 January 1, 2014 TPOCs over $300 October 1, 2014 January 1, 2015

Mandatory Minimum Dollar Threshold for Workers’ Compensation Ongoing Responsibility for Medicals (ORM) The claim is for “medicals only”; and The associated “lost time” is no more than the number of days permitted by the applicable workers’ compensation law for “medicals only” (or 7 calendar days if applicable law has no such limit); and All payment(s) has/have been made directly to the medical provider; and Total payment for medicals does not exceed $750

Administratively closed claims On Workers’ compensation claims where there was an ongoing responsibility for medical (ORM) payments to a Medicare beneficiary, but the claim was administratively closed before January 1, 2010, these claims do not need to be reported to the COBC. However, if these claims are reopened for medical payments after January 1, 2010 they will need to be reported.

Who is a “Medicare” Beneficiary/Claimant? “Medicare beneficiary” is one who is eligible to: Receive Social Security Insurance (SSI) or has been assigned a HICN number. Any US citizen claimant 65 years of age or older; A disable person entitle to SSI (such as disabled war veterans) Claimant with end stage renal disease Anyone who has been assigned a Medicare Health Insurance Claim Number (HICN) MMSEA 111 imposes a duty to conduct an investigation into eligibility CMS has a “Query Function” on those cases where eligibility is questionable. Use of the tool does not create a “safe harbor” if information provided by CMS was later proven wrong. Claims “Best Practice” will need to be implemented by claims professionals to investigate and document their inquiry and efforts.

MAJOR NEW ISSUES FACING OUR INDUSTRY LIABILITY MEDICARE SET-ASIDES: New Tax on our Civil Justice System?

LIABILITY MEDICARE SET-ASIDES Currently no statues or regulations require support CMS’ rights to “future medicals” Only one CMS memorandum addresses the issue and it fails to cite any authority supporting their position (Benson Memo 9/29/11)

LIABILITY MEDICARE SET-ASIDES CMS’ Claims rights under 42 USC § 1395y(b)(2)(B(ii) : 42 USC § 1395y(b)(2)(B(ii) of the MSP imposes a prohibition by Medicare from payment for items or services if others can be reasonable expected to pay “promptly”: Payment under this subchapter may not be made, except as provided in subparagraph (B), with respect to any item or service to the extent that— (ii) 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 [emphasis added] 14

LIABILITY MEDICARE SET-ASIDES This language was added by the MMA of 2003 to allow CMS to make “conditional payments”. Nothing in the Congressional Record suggests the changes were made to gave Medicare the right to “future medicals.” Contrary to CMS and MSA industry opinion, the MSP is only allowed to collect funds it has already paid “conditionally.” Nothing in the statute that addresses “future medicals.”

LIABILITY MEDICARE SET-ASIDES Liability claims are fundamentally different than workers’ compensation. CGL policies were written to protect YOU, not the injured party! Unlike workers’ comp, the injury party has no vested rights for medical treatment, so there can be no “commutation” of those rights in a settlement. In third-party liability cases, THERE CAN BE NO EXPECTATION OF FUTURE MEDICAL PAYMENTS. Once a third-party case is settled, all obligations of the defendant to the injured party are EXTINGUISHED.

LIABILITY MEDICARE SET-ASIDES CMS’ Claims rights “primary payer” has “duty to protect Medicare’s interests”: Barbara Wright has claimed their authority rest somewhere in 42 USC § 1395y(b). She is unable to cite the specific provisions within the MSP. MSA Industry and CMS claim the “duty” is “implied” because the overall purpose of the statute is to protect the Medicare trust-fund. The notion that “primary payers” have a duty to “protect Medicare’s interests” comes from a footnote in the Patel Memorandum that addressed “commutation” of “future medicals” under 42 CFR 411.46(a), et. seq. 17

LIABILITY MEDICARE SET-ASIDES THE WORLD MAY RADICALLY IF CMS IS SUCCESSFUL IN IMPLEMENTING “NEW RULES” ON LMSA CMS–6047–ANPRM; Medicare Program; Medicare Secondary Payer and ‘‘Future Medicals’’

LIABILITY MEDICARE SET-ASIDES CMS proposes requiring consideration of “future medicals” in third-party liability claims The propose it apply to both “Medicare eligible” and non-Medicare eligible cases (this means EVERY third-party case) What will be the economic consequence?

LIABILITY MEDICARE SET-ASIDES What will be the economic consequence? Will it be the 2x to 4x MSA submittals as some in the MSA industry hope? (i.e $4B to $6B annual windfall to the MSA industry and CMS?) Or will the defense industry simply no settle with Medicare beneficiaries or take these cases to trail (resulting in a net decrease in the number of settlements/recoveries to CMS and increased defense costs and congested courts? The potential for unintended consequences is very high. Shouldn’t such a radical change be vetted by Congress?

Questions?

James S. Price, ARM Senior Consultant Aon Risk Solutions  |  Aon Global Risk Consulting  199 Fremont Street  |  Suite 1500  |  San Francisco, CA  |  94105 t +1.415.486.7230  |  c +1.415.405-5739  |  f +1.415.486.7040    jim.price@aon.com  |  aon.com License # 0D56685 22