Workers’ Compensation (WC) is the program that compensates workers for occupational injuries. Injured workers eligible for WC benefits may also be or become eligible for Medicare. They may have reached age 65 or they may have a disability which qualifies them for coverage under the Social Security Disability Insurance program. To preserve Medicare funds, the Medicare Secondary Payer Act (the MSP Act), appropriately provides that Medicare is secondary to other sources of payment for medical care, including applicable WC medical benefits.

Most state WC laws allow final settlements of all benefits, which normally close the claim. The worker then has no right to additional WC benefits in the future, and the employer/insurer has no further financial obligation. Most states provide for review of the settlement by a court or administrative agency to ensure that it is in the claimant’s best interests. Funds from the settlement for future medical expenses are sometimes included in the settlement and used for future medical expenses resulting from the occupational injury. Sometimes this occurs after a person is eligible for Medicare. Medicare, without authority, is demanding that these funds be set aside in trust for the future medical expenses during years of Medicare eligibility.

This demand has led to unprecedented disruption and, confusion among practitioners, tribunals, employers, claimants and payers. This demand has added substantially to transaction costs and up to one year of delay in implementing settlements. Also, past claims closed by settlement, representing hundreds of billions of dollars, are subject to substantial uncertainty as the future action of the Centers for Medicare and Medicaid Services (CMS) is not reliably fixed and determined.

Legislation supported by the ABA to do this was introduced as H.R. 2549by Representatives John Tanner (D-TN) and Phil English (R-PA) May 24, 2007.

• The MSP Act is being used by Medicare (without rulemaking) to assert the right to review and challenge settlements of WC claims. Medicare’s administrator, CMS, has adopted internal procedures for prior review of proposed WC settlements. Although there is no statute or regulation referencing MSP set-asides or providing for a settlement review process, CMS began to "encourage" the parties to WC settlements to submit them to CMS regional offices for prior approval. They have done this by publishing their internal memoranda and several sets of "FAQ's," Frequently Asked Questions.


• Although CMS does not have legal authority to mandate prior review, its “stamp of approval” is the only way of being certain that Medicare will not come back later with a reimbursement claim for conditional payments for care "covered" by WC. Under the MSP Act, beneficiaries who have failed to obtain approval of their WC settlement by CMS may (1) receive a notice terminating future Medicare coverage, (2) be required to prove that they have spent the equivalent of 100% of the entire settlement solely for Medicare-eligible medical expenses before receiving reimbursements, and/or (3) lose Social Security Disability benefits on a dollar-for-dollar basis until the MSP claim, including interest, has been satisfied. Additionally, the MSP Act provides for a private right of action against the insurance carrier for double damages for failure to provide primary payment or appropriate reimbursement.


• Because CMS has been unable to fix the problems, legislation is needed to provide for certainty, predictability, and efficiency to this set-aside process which was mandated by Medicare without statute or regulation referencing MSP set-asides or providing for a CMS settlement review process. Corrective legislation should establish clear criteria for when a Medicare set-aside should be reviewed; create certainty regarding the rules for establishing a Medicare set-aside; provide certainty to state-approved settlements and reduce the delays now disrupting WC programs across the country.

The ABA supports enactment of corrective legislation such as H.R. 2549.