The right medicine: how the Medicare Set-Aside business is curing workers' compensation insurers' regulation headaches.

The Medicare Set-Aside industry has experienced tremendous growth, along with countless hurdles, in its six short years. Today, the industry is at a crossroads, as traditional "mom-and-pop" entrepreneurs have given way to mature companies that can provide improved efficiencies, product enhancements and even proposed legislation. As a result, the insurance landscape is being revolutionized.

In July 2001, the Centers for Medicare and Medicaid Services began actively enforcing the provisions of Section 1862 of the Social Security Act, also known as the Medicare Secondary Payer Act. This provision requires that Medicare's interests be taken into consideration in any injury settlements where another payer would be primary, such as workers' compensation or personal injury settlements.

The workers' compensation insurance industry responded by creating Medicare Set-Aside funds for all future medical care related to settlements. Before CMS will approve any set-asides, their interests must be protected, and monies paid in error must be repaid to CMS. The stakes are high because failure to properly account for Medicare's interests in these situations may result in stiff penalties.

MSAs Defined

Medicare Set-Asides are interest-bearing accounts held by an injured individual who is currently receiving Medicare or who may qualify for Medicare in the future. In a workers' comp claim, before the injured worker can settle and therefore terminate his employer's or insurance company's obligations, sufficient funds must be set aside to cover all current or future medical expenses Medicare might contend are related to the injury. MSA providers determine the amount to be set aside.

After CMS began to enforce the Medicare Secondary Payer Act, confusion and questions ensued:

* How do you determine all future medical needs?

* What experience is needed to best determine the amount of money set aside?

* What if the number is inaccurate? Would there be penalties? If so, how would penalties be defined or enforced?

Insurance companies and self-insured employers scrambled for answers but were left unsatisfied by CMS's response. In the meantime, various entrepreneurial businesses emerged. They included law firms, nurses, life-care planners, medical case managers and Medicare Set-Aside allocation vendors, who all struggled to understand how to interpret CMS compliance, satisfy CMS requirements, educate stakeholders (clients, claimants, attorneys, third-party administrators, serf-insured companies) on their responsibilities, and protect clients with short- and long-term liability risks.

As with many emerging industries, challenges were the norm. This particular industry, however, had its unique hurdles: protecting injured individuals, insurance companies, self-insureds and third-party administrators, with little legal precedence while working with an agency facing its own set of growth issues--namely, how to process and handle work, establish protocols, inform the industry. The critical early driver for success was simply turnaround time. How quickly could the MSA be produced and returned to the client with CMS approval?

Mature Players Move In

By 2006, the nature of the industry began to change quickly due to heavy corporate involvement through mergers, acquisitions and investments. Four major transactions involving MSA companies occurred in 2005 and 2006. The new players were armed with technology, proven product development approaches and networks to support expansion. As a result, today the MSA vendor market is better equipped to meet the needs of all stakeholders.

The No. 1 challenge now is to address lengthy turnaround time--from receipt of the injured worker's allocation request to MSA completion and CMS approval. According to a recent survey conducted by MSA provider PMSI, 72% of respondents said fast CMS turnaround time was the most important factor in selecting an MSA vendor. However, turnaround time is largely out of the MSA provider's control. It actually is contingent on CMS's approval of the allocation of monies to be set aside in the account. The most prominent and probable solution to this problem is proposed federal legislation, initiated and backed by the top industry players.

Although legislation designed to resolve CMS processing delays was proposed and rejected in 2006, a rewritten proposal is now circulating with unprecedented support. It calls for faster turnaround time from CMS to approve set-asides and receive responses to conditional payments by Medicare, and it provides a process to appeal CMS decisions.

In the meantime, the industry has taken steps to improve turnaround time and accept more accountability. Some vendors have initiated guarantees or assurances of finality, which provide financial coverage if the MSA amount is rejected by CMS and more money is required for approval. The guarantees mean vendors pay the difference between the MSA estimate and what CMS ultimately approves. This allows the payer to close its file as soon as the workers' comp claim is approved by the appropriate jurisdiction, thus shutting down future payment of lost wages and medical bills without waiting for CMS approval. More than 80% of all survey respondents believe guarantees are important at least some of the time.

Enter Prescription Drugs 

Another industry challenge involves prescription drugs, as addressed under the Medicare Prescription Drug Plan. Medicare set-asides must now factor in future prescription costs relative to the injury in order to settle claims. This was not the case prior to the legislation providing prescription coverage under Medicare Part D. As a result, future prescription costs are now estimated in the total MSA allocation.

Major initiatives were put in place to improve the process before and during MSA determination and CMS approval. The next item on the agenda for MSA vendors was post-settlement services. How do insurers and employers ensure that injured parties understand the medical and prescription benefits offered post-settlement? How do injured individuals access services to obtain the necessary medications, medical services, equipment and supplies? The industry responded with extensive services that provide health care and settlement support from professionals after the close of the injured individual's claim. The goal is to provide individuals with post-settlement services while ultimately keeping down the total cost of services from their MSA allocations.

The route to continued satisfaction and loyalty to clients is centered on understanding and exceeding client expectations. Initially, services were based simply on rapid case turnaround. As the industry begins to mature, however, other metrics--that in many respects are more important--will manifest, including:

* Tracking & Reporting. In the past, vendors were approved by somewhat loose criteria. Today, more companies are making decisions through comparative processes, including Requests for Proposals. This new approach elevates the requirements and accountability of vendors. As a result, the industry can improve via better tracking of caseloads, extensive and detailed reporting, and better defined objectives and goals.

* Protective Built-ins. Poorly prepared Medicare set-asides can create short- and long-term liabilities to all parties. With emerging case law, vendors will need to incorporate and demonstrate knowledge of Social Security regulations along with legal experience to ensure risks are mitigated. Vendors will need to advise, consult, interpret and negotiate successfully with CMS on behalf of their clients.

* Improved Efficiencies. Online case submittal, individual case study reports and determination tools for reserve requirement are all on the horizon for the next round of MSA product announcements.

The remainder of 2007 and 2008 will bring about further improvements. Ultimately, MSA vendors, employers and insurers will experience faster turnaround time, dependable and predictable products, and improved relationships. At the same time, CMS will benefit from improved processes, while injured individuals will experience fair and better treatment.

Key Points

* A provision of the Social Security Act requires Medicare's interests be considered in all workers' compensation claims.

* Medicare Set-Aside providers determine the amount that must be deposited for all current and future medical costs that Medicare might contend are related to a workers' comp claim.

* Failure to properly account for Medicare's interests may result in penalties.

Contributor June Simpson is president and chief executive officer of PMSI MSA Services. She can be reached at [e-mail].