The Social Security/Medicare program had its genesis in President Franklin Roosevelt's "New Deal" policies. During the succeeding Democratic administrations of Truman, Kennedy, and Johnson, it was developed into the "Great Society" approach, providing a social insurance program intended to operate not as welfare but as earned benefits. With the increasing focus on promptly providing necessary medical treatment to citizens, the Federal government's role of providing conditional payments has expanded, at tremendous cost. The Medicare Secondary Payer Act, originally enacted in 1981, has been recently fine-tuned to reimburse the Federal government for some of these expenses. Medicare is now halting some payments and is looking to injured workers, workers' compensation insurance companies, and petitioners' attorneys for reimbursement of payments it has already made. These requests for restitution will cause chaos, delay payments, and eventually cripple the compensation system throughout the United States.
As the Federal cash flow shrinks during lean economic times, the Social Security Administration (SSA) is seeking to contain costs by lowering expenditures to injured workers' and seeking reimbursement for medical expenses it has erroneously paid. In a multifaceted approach, during the last few months, the Administration and the Congress have sent a strong message that it intends to enforce Federal regulations that require workers' compensation payments to be reimbursed to Medicare.
Verification and Compliance
The Government Accounting Office (GAO), the investigative arm of Congress, in a May 2001 report recognized, that while both State workers' compensation programs and Medicare provide benefits to injured workers, there lacks a uniform and reliable system to integrate payment data. The failure to have a national data collection system has led to irregularities in the deliver of Federal benefits. The Social Security Act specifically precludes Medicare from paying for services that has been made or can reasonably expected to be paid under a workers' compensation statute, 42 U.S.C.A. §1395 (b)(2)(A)(ii).
The (GAO) observed that between 1991 and 1998, $43 billion was paid in cash by the Federal government for medical benefits for workers' compensation related claims. GAO revealed that "significant errors" existed in the compensation offset process by way of overpayments and underpayments. The study discloses that the Federal government is unintentionally subsidizing workers compensation insurance companies throughout the United States on a massive scale.
The study reviewed the programs of various states including the records from the State of Vi rginia. Virginia was utilized as a sentinel guide since it has maintained a central database for the collection of workers' compensation data.
GAO examined the records from the Health Care Financing Administration (HCFA), which administers not only the Medicare Program, but also the Department of Agricultural (USDA) Stamp Program, the Department of Housing and Urban Development (HUD) Section 8 Rental Vouchers and Certificates Programs, and child support enforcement activities.
The Federal investigation found several shortcomings in the present system of reporting the receipt of compensation benefits, including the Social Security Administration's (SSA) regulation of the WC offset provision. The GOA report recognized that the Federal program was undermined by the lack of reliable information identifying the recipients of State workers' compensation benefits. No national reporting system presently identifies compensation beneficiaries. As a result, some beneficiaries are overpaid and others to be under paid.
The present Federal system relies upon the applicants and their beneficiaries to report receipt of compensation benefits to the Social Security Administration (SSA). This approach lacks a valid system of verification and mandatory compliance. It is difficult for the SSA to obtain an accurate report of benefit payments. GAO reported that 50% of the beneficiaries of disability benefits, who have been subject to offset, have been paid inaccurately. Over $1.5 billion in payment errors relating to the workers' compensation offset have been identified. Eighty-five percent of the errors occur when disability insurance beneficiaries do not report reduction in the compensation benefits.
In reviewing the Virginia system, the study revealed that SSA was unaware that 20% of the disability insurance beneficiaries were receiving concurrent benefits. It was observed that lump-sum compensation payments do not always produce close approximation to the benefit value of the lump-sum payments as called for by the Social Security Act. The GAO suggested that there were unrealistic approximations made by the WC system.
The report concluded that solutions exist to correct the present failure to integrate data between the Federal and State systems. However, these are prohibited by the fragmented structure of the compensation programs throughout the US and by the lack of Federal involvement in the State delivery systems.
Share The Data
One of the methods recommended for solving this problem was better sharing of data with the Federal government and/or data from workers' compensation carriers.
The report suggested that WC insurers should voluntarily report payments made to compensation beneficiaries. The difficulty recognized with that proposal is the reluctance of insurance carriers to incur additional reporting costs. The report recognizes that an incentive to voluntarily compliance may be needed to obtain reliable and timely data. GOA suggests that SSA and HCFA initially conduct a sampling of data to determine whether the sharing of compensation beneficiary information will be helpful at all and whether it will improve the accuracy of Federal benefit payments.
Furthermore, the GOA report to Congress revisits the issue of lump-sum WC benefits and the interpretation of data that they represent, . It highlights the need to revise the policies governing how monthly benefit values of a lump-sum payment should be determined by SSA offset provisions. See 62 FR 51923-51926 (1997)
Previous attempts to implement these changes through administrative regulations have been met with significant opposition by all parties in the workers' compensation arena. The Federal report suggests that the Congress consider legislative action to resolve this long-standing operational problem of identifying compensation beneficiaries in a multiple state jurisdictional landscape that is constantly in a state of flux.
Similar findings concerning cost shifting from workers' compensation carriers to Federal programs have been previously reported in a 1992 study by J. Leigh, S. Markowitz, M. Fahs, and P. Landrigan, "Costs of Occupational Injuries and Illnesses", University of Michigan Press (2000). That report concluded that $28.5 billion (18.3% of total cost) is erroneously paid by the federal government. Consequentially, the Federal government is compelled to raise revenue by taxes and the injured worker endures an increase tax burden. Ironically, injured workers are already paying $68.6 billion (44.2% of all medical costs) directly through out of pocket expenditures.
The administration is undertaking a program to review certain lump-sum workers' compensation programs of compromises to prevent irregularities. In July, 2001 HCFA issued a memorandum concerning the computation of future benefits in workers' compensation matters in order to be in conformance with federal regulations, 42 CFR 411.46. The HCFA recognizes that there exists distinction in workers' compensation between lump sum settlements that are commutations of future benefits and those settlements that are a compromise between the workers' compensation carrier and the injured worker for both wage loss benefits and future medical benefits.
The memorandum discusses when and how regional offices should be involved in the evaluation and approval of compensation lump sum settlements in order to insure that Medicare's interests are properly considered.
The HFCA memorandum sets forth criteria when the regional office staff may choose to consult with the regional office's Office of the General Counsel (OGC) on workers' compensation claims. It recognizes that some cases may raise many legal issues that need evaluation, including those situations where there has been a request to compromise Medicare's recovery plan or if the Federal Claims Collection Act (FCCA) requires a legal consultation.
The HCFA will become involved in claims when a conditional payment is made by Medicare for which another payer is actually responsible. If Medicare's conditional payments are more than $100,000 and the beneficiary wishes Medicare to compromise its recovery under FCCA, 31 U.S.C. 3711, the case must be referred to the Central Office of HCFA and the Department of Justice.
All cases that request a compromise, either by pre-settlement or post-settlement requests, must be submitted to the Regional Office for appropriate action.
The memorandum notes that it is in "Medicare's best interests" to learn of the existence of workers' compensation situations as soon as possible in order to avoid mistakes in payment. The use of an administrative mechanism referred to as a Medicare Set-Aside Trusts requires that the workers' compensation settlement must adequately consider Medicare's interests, 42 CFR 411.46. Even in arrangements that are self-administered, the injured individual-beneficiary must adhere to the same rules-requirements as any other administrator of a set-aside arrangement.
Set-aside arrangements are used in compensation commutation cases where an injured individual is disabled by an event for which workers' compensation is making payment, but the individual will not become entitled to Medicare until sometime after the settlement is made. Set-Aside Arrangements are used only in cases that possess a commutation aspect and they are not used in workers' compensation cases that are strictly or solely compromise cases.
A lump-sum compromise settlement represents an agreement between the compensation carrier and the individual to accept less than the injured worker would have received if he or she had received full reimbursement for lost wages and lifelong medical treatment for the injury or illness. These situations occur where the compensation carrier strongly disputes liability and will generally not have paid voluntarily for all the medical bills related to the accident.
The HCFA recognizes that settlement offers in such matters are relatively low and that income replacement and medical costs may not be aggregated in the resolution. HCFA also appreciates that lump-sum compromise settlements are not based purely on a mathematical computation, but are based upon other factors including: pre-existing medical conditions, causal relationship, and employment status.
Compromise v.s. Commutation
Medicare also distinguishes between compromise and commutation cases by determining if there is a lack of controversy over whether a compensation carrier is liable for payments.
Commutation cases typically exist where there is no controversy between the injured individual and the compensation insurance company over the liability of the insurance carrier to make payments. HCFA cautions that lump-sum settlements should not be automatically be considered as a compromise case merely because a workers' compensation insurance company does not admit to being liable in the settlement agreement. The reverse is also true.
Finally, the admission of liability by the workers' compensation insurance company is not the sole determining factor of whether or not a case is considered as a compromise or commutation.
Workers' compensation commutation cases can be described as settlement awards intended to compensate individuals for future medical expenses required because of a work related injury or disease. On the other hand workers' compensation compromise cases are settlement awards intended for an individual's current or past medical expenses that were incurred because of a work-related injury or disease. Any settlement award or agreement that intended to compromise an individual for any medical expenses after the date of settlement, that is, future medical expenses, are construed as commutation cases.
The HCFA recognizes that some settlements may have dual aspects. A single agreement may simultaneously designate one part of the settlement for an injured worker's individual medical expenses up to the date of settlement and also designate a part of the individual's future medical expenses. Therefore, both elements of a compromise and commutation case may appear in a workers' compensation lump-sum settlement agreement.
Workers' compensation commutation cases generally are considered a lump-sum amount paid in exchange for giving up the usual continuing payments by an insurance company of compensation for both lost wages and lifetime medical care related to the injuries. In those instances an individual may need the advanced money to remodel a home, to accommodate a wheel chair, or for attendant care. HCFC recognizes that the amount of the lump-sum is usually established by the life care plan.
Such plans are deemed to be an actuarial method to determine the individual's life expectancy. The likelihood of any Medicare conditional payments being made in the future is reduced when a compensation insurance company has accepted full responsibility.
The HCFC recognized that set-aside arrangements are most often used in cases where the beneficiary comparatively is very young and an impairment seriously restricts his or her daily living activities. The set-aside arrangement is usually not created until the individual's medical condition has stabilized so that future medical expenses may be estimated.
Medicare cannot make a formal determination until the individual actually becomes entitled to the Medicare. The regional office in consultation from the Regional OGC, if necessary, obtain review a proposed settlement including a set-aside arrangement and can get a written opinion. Medicare will only review the proposal when there is a "reasonable expectation" of Medicare enrollment within 30 months of the settlement date and the anticipated total settlement amount for future expenses and disability/lost wages over the life or duration of the settlement agreement is expected to be greater than $250,000. The Division of Benefit Coordination will establish a "record's system" via the Federal Register process for those not enrolled currently in Medicare.
Once the set-aside arrangement has been approved by the regional office in consultation with the OGC, if necessary, an audit process requiring monthly and annual review will be initiated. Medicare payments will not be paid until such time as the structured set-aside arrangement has been depleted. HCFC will arrange for a contractor to monitor the settlement.
The criteria that Medicare will use to determine whether the amount of a lump sum or structured settlement has sufficiently taken its Medicare's interest into account are: date of entitlement to Medicare; basis for Medicare entitlement; type and severity of injury or illness; age of beneficiary (whether the medical condition would decrease the life span of the individual); the workers' compensation classification of the petitioner whether it be permanent partial, permanent total or a combination of both; prior medical expenses paid by Workers' Compensation and whether or not any of those payments must be recovered by Medicare; the amount of lump sum or amount of structured settlement; whether the commutation was for the beneficiary's lifetime or specific period of time; where the beneficiary is resident-- home, nursing home, or receiving assisted living care; and are the expenses for Medicare covered items and services appropriate in light of the beneficiary's condition.
The Regional Office must ascertain whether the arrangement was based upon a workers' compensation fee schedule or full actual charge amounts.
The set-aside arrangement should be for the expected life expectancy of the individual unless limited by State law.
There must also be a determination whether Medicare is permitted to accept an up-front cash settlement in appropriate circumstances including when the workers' compensation carrier did not pay promptly.
A minimum documentation review must be satisfied before the Regional Office can provide a written opinion with regard to the sufficiency of the Set-Aside Arrangement. The minimum required is: copy of the settlement agreement or proposed settlement agreement; a copy of the life care plan if there is one.
If the life-care plan does not contain an estimate of the injured individual's estimated life span, then a "rated age" may be obtained from life insurance companies for injuries/illnesses sustained by other similarly situated individuals. Physicians and providers should provide documentation of the necessity for continued care. Additional documentation may be required.
The regional office must determine whether or not the administrative fees and expenses charged to the arrangement are reasonable. Medicare will not make payments for any services related to the work-related injuries or disease until nothing remains in the Set-Aside Arrangement. If the determination to deny the claim is made, Medicare's regular administrative appeals process for claim denials would apply.
The Inspector General
The Office of the Inspector General (OIG) of the SSA is charged with the responsibility to evaluate and review legislation, regulations and standard operation procedures and proactively seek new ways to prevent and deter fraud, waste and abuse. The OIG recently published two reports concerning issues flowing from the failure to integrate data between workers' compensation and SSA. It reported that the SSA incorrectly paid attorneys on disability income cases when workers' compensation payments were involved. It was estimated that for the 183,881 compensation cases in the national population, the total dollar error was $19.3 million. (A-04-98-62001, March 2000). The OIG recommended that the SSA verify that State compensation payment information is current and accurate when past due benefits are paid to claimants and attorney fees are calculated.
Additionally, the OIG in another report found that workers' compensation benefits were grossly underreported by social security beneficiaries. It was estimated that for an inventory of 183,881 compensation offset cases, the SSA trust fund lost $214.4 million due to disability insurance overpayments, and beneficiaries were underpaid $111.4 million in disability insurance payments. It recognized that reliance on WC beneficiaries to voluntarily report changes was not a viable control. The OIG recommended that in those States where SSA has on-line access to WC data, the SSA should perform a periodic match of the disability insurance beneficiary workers' compensation benefit rate used for offset against the WC rates paid and make adjustment for any discrepancies. Additionally, in those States where on-line matching of WC data is not a viable option, the SSA should negotiate agreements with State officials to periodically obtain computer extracts of State compensation information and benefit payments. (A-04-98-64002, November 1999).
As the new economy falters and an additional financial burden is placed upon the SSA additional revenue sources will be required. Since it is the Bush administration's intention to utilize the Social Security Trust Fund to fund the national budget, it is more than obvious that the US Congress will review this issue in greater depth in the near future.
This article is reprinted with permission from the NOVEMBER 5, 2001 issue of the New Jersey Law Journal. © NLP IP Company
Cite as: 166 NJLJ 501 (November 5, 2001)