Medicare Set Asides: You Are Overpaying

Submitting an MSA to CMS for review and approval builds in unrealistic costs that can double the expenses for the workers' comp payer.

Medicare Set Asides (MSAs) have become a standard feature in settling workers’ compensation claims over the past 15 years. This year, MSA proposals for 26,000 workers’ compensation claims might be submitted to the federal government. We present new evidence that strongly suggests that this voluntary process of submission predictably and excessively inflates the cost of claims. For claims payers who are concerned about the burdens of set asides, this problem and its solution are top news. Workers’ compensation claims payers far over-spend on Medicare set-asides (MSAs), paying as much as double what they need to. The conventional practice of submitting a MSA report to CMS for review and approval, which is entirely voluntary, predictably inflates costs and overburdens claims payers. Claims payers simply need to change their gameplan. This year alone, for some 26,000 claims and at an average of about $93,000, claims payers will set aside funds to reimburse Medicare for any medical care Medicare delivers to injured workers to treat their work injuries. I became involved in this massive, cumbersome process of financial resolution in 2000. I participated and watched as most claims payers selected to follow a certain game plan. They’ve stuck to it. In a nutshell, here is what happens, at an annual outlay of more than $2 billion. At the time of a claims settlement, claims payers want to cap their future financial exposure to Medicare. They know that if they submit to Medicare a report for funding (“set aside”) a fixed, irrevocable amount of money for treatment under Medicare, and Medicare approves the report, they can wash their hands of the claim. This method of resolution spawned a small industry of firms that help claims payers prepare these reports and negotiate an amount. Problem solved – but at a very high cost. First, the process is extremely convoluted and time-consuming. Our company’s survey of three dozen claims payers, which we undertook in 2016, revealed a very low level of trust in the process. Due to the involvement of Medicare, it is inherently bureaucratic. Second, these irrevocable set-aside plans (“MSA reports”) tend to be extremely costly. They greatly inflate the projected treatment costs over actual treatment costs. See also: 8 Questions on Medicare Set Aside   Our company recently analyzed several hundred approved reports. We compared the forecasted spending on medical care (surgeries , medication, etc.) with actual spending on behalf of the injured worker for the first five years post approval of the MSA report. We found that in the fifth year, the pace of medication spending was 64% of the forecast and for all other medical care 55%. In other words, close to half of the funds locked up in the MSA reports were not being used! Another study confirms how medical spending declines for many claimants over time. We analyzed a huge database of eight million non-settled workers’ compensation claims, noting medical spending for as much as 11 years after injury. We focused on opioid treatment patterns, as opioids are both expensive and create patient safety risks. The data showed a rapid early decline, as we expected. But it strikingly showed that the decline in use never ceased. For instance, for every 100 claimants who were actively using opioids in the fourth year post injury, only 50% were using opioids in the seventh year and 25% were using opioids in the tenth year. Why don’t MSA reports anticipate that medical spending will go down? The reason is due to mandatory rules that Medicare imposes. If you elect voluntarily to submit an MSA report, you must follow these rules, three of which are worth noting: First, Medicare requires that medications (which compose about half of all set-aside budgets combined) be priced unrealistically high, at Redbook “average wholesale price,” or AWP. I cannot imagine a claims payer paying for drugs at that price. Pharmacy benefit managers arrange for prices that are as much as 30% lower. Second, Medicare unrealistically requires that all medications be budgeted unaltered for the projected life of the injured worker. The average life expectancy for an MSA is 24 years. There is no scientific assurance whatsoever that opioids are effective in providing long-term relief from pain, much less being safe to use for 24 years. Third, Medicare requires that any treatment the worker is receiving or has planned at the time of settlement will continue. In reality, treatment evolves as patients adapt. Rather than submit an MSA report, which locks the claims payer in to an inflated and unalterable fixed amount, the claims payer can prepare a MSA plan for the large majority of claims using realistic forecasts, fund it and enjoy a cap on its financial liability without submitting a report. CMS has always recognized a non-submitted, funded plan as sufficient to satisfy its secondary payer rights so long as certain compliance steps are taken, and in fact states that the submission process is a voluntary one. See also: Medicare Set Asides: 10 Mistakes to Avoid   There is a way to realistically predict the medical spending: refer to a huge database of actual spending. Care Bridge’s analytic-powered MSA generates a Medicare Set Aside plan in minutes, based on machine learning algorithms of more than a billion medical claim transactions. It forecasts future medical care and costs at a zip code level. The variables of a claim can be matched against a large data set of similar claims to forecast care, which offers a more objective and accurate projection compared with current methods. Our clients are able to fund Medicare protection at the most probable cost, rather than an inflated cost, and settle claims  six to eight months faster. This  offers  a defensible way to protect Medicare and manage risk at a more realistic cost. An authoritative white paper, “Medicare Set-Asides: What Is the True Cost of Future Medical Care?” is available here.

Deborah Watkins

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Deborah Watkins

Deborah Watkins is the former CEO of Gould & Lamb, the global leader in full-service Medicare Secondary Payer Compliance. She has worked closely with the Centers for Medicare and Medicaid Services (CMS) and congressional staff advocating for improvements in the Medicare Secondary Payer program.


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