This post is part of a month-long series about Medicare set-asides. We welcome you to contact our comprehensive settlement planning firm, Milestone Consulting, with any questions or to seek advice about MSAs.
Establishing a Medicare set-aside (MSA) is a vitally important part of settlement for many personal injury cases. This type of fund helps ensure plaintiffs maintain eligibility for needs-based government benefits, even after their large settlement recovery comes in.
Part of that process involves determining the amount of the MSA allocation by adding up the cost of future medical treatment (which would otherwise be payable by Medicare Parts A & B) and future prescription drug treatment (which would otherwise be payable by Medicare Part D). An accurate allocation helps the beneficiary retain as much of the settlement as possible, while also ensuring that Medicare’s interests are protected.
The defense broker will typically run the allocation report. However, it’s important to know that this person is not required to keep the individual’s best interests in mind. In fact, allocation firms may neglect any of the following:
- Navigating the cumbersome MSA review process: Even with the introduction of the Medicare Secondary Payer Recovery Portal, the review process can be complex.
- Life expectancy: A person’s life expectancy should be a major determining factor in assessing the future cost of care and therefore, the set-aside amount.
- Estimated generic pharmaceutical pricing: There are no regulations for pharmaceutical pricing in liability cases, so generic prescriptions can be substituted for brand name prescription medications, resulting in an overall lower MSA allocation.
- Use of structured arrangements: In cases that require future surgical care, the claimant can elect to receive a lump sum in an amount equal to the first expected surgery and/or replacement, and two years of annual payments. The remaining funds are then annuitized and divided as annual payments over the course of the client’s life expectancy. If the claimant selects this option, once the payment for a given year has been exhausted, Medicare will cover any additional costs related to the injury during that year. This approach can lower the lifetime MSA funding requirement significantly.
These factors can all contribute to the cost of the MSA, sometimes significantly. In addition to reviewing the allocation prepared by the defense, plaintiffs also have the right to obtain a report from an allocation firm selected by the plaintiff’s attorney and/or settlement consultant.
To illustrate this point, here is an example of allocation reports that were prepared for a client.
- Female, age 50
- Rated Age: 57*
- Life Expectancy: 30 Years
- Injury: Traumatic Brain Injury
Defense Carrier Allocation:
- Lifetime Services: $38,212.00
- Lifetime Prescription Medication: $247,023.00
- Lifetime Total: $285,235.00
Plaintiff Carrier Allocation:
- Lifetime Services: $45,311.66
- Lifetime Prescription Medication: $71,996.25
- Lifetime Total: $117,307.91
Difference: The lifetime total of the plaintiff carrier allocation is $167,927.09 less than the defense carrier lifetime total, which means more money in the plaintiff’s pocket over time.
While there is not always such a drastic difference, it is still wise for individuals to get a second opinion from an allocation firm that isn’t tied to the defense’s interests. If you’re a personal injury plaintiff currently receiving government benefits or an attorney representing a person in this situation, consider getting a second opinion. The difference could be thousands of dollars.
* Rated age reflects the client’s actual life expectancy.
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).