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Medicare and Settling Your Personal Injury Action
January 22, 2008

When the time comes to settle a personal injury suit, litigants should be aware that Medicare may have a potential lien against the settlement proceeds in instances where Medicare has made past, conditional payments for medical expenses. This is due a federal law which deems Medicare to be a so-called “secondary payor” with regard to payments made under workers’ compensation, automobile, or liability insurance policies or plans, or uninsured or underinsured coverage. Congress intended Medicare to be the payment source of last resort for medical care; therefore, if a recipient is entitled to receive compensation for his injuries from a “primary payor,” Medicare will not be responsible for the costs. The “primary payor,” in many personal injury actions, is the defendant’s liability carrier. Medicare will make payments, however, if the primary payor cannot be reasonably expected to pay promptly for the medical care. These payments are called conditional payments. Medicare conditions these payments on its right to receive reimbursement from the primary payor and from anyone who receives payment from them, including a settling plaintiff.

Accordingly, if you are a Medicare beneficiary and are receiving a settlement for a personal injury claim, you should keep in mind that Medicare has a right to recover its medical payments from any primary payor (the party paying the settlement), or anyone that receives payment from a primary payor, including the beneficiary and his attorney. Medicare must be reimbursed within 60 days of receipt of a settlement or interest and penalties will begin to accrue.

Another issue to keep in mind is that current Medicare regulations may ask you to set aside a portion of your settlement proceeds for future medical care and expenses. In July of 2001, the Center for Medicare and Medicaid Services (CMS) issued a memorandum which outlined the cases in which such a set-aside arrangement might be necessary; it stated that in any case in which the injured party is receiving Medicare at the time of the settlement, adequate provision must be taken to protect Medicare’s past and future benefits for medical care. Additionally, if a case is settled for more than $250,000 and the claimant is not a Medicare beneficiary but can “reasonably expect” to become entitled to Medicare within the next 30 months, a Medicare set-aside will be required with specific approval by CMS of the amount allocated. A “reasonable expectation” means that you, as the settling party, have at least applied for SSDI benefits or have reached 62.5 years of age.

In short, if you are Medicare eligible and settling a personal injury suit where a portion of your damages have been recovered as compensation for past and future medical expenses, Medicare should be notified and a set-aside allocation should be considered. A failure to consider Medicare’s interests could result in being cut off from Medicare for all future medical treatment due to claim related injuries, or being hailed into Court as the subject of a suit for double damages brought by the government on Medicare’s behalf.

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