What Agents & Brokers Need to Know
One of the most important services a broker provides its customers is workers’ compensation claims review. Successful resolution and prompt closure of workers’ compensation claims have a direct impact on experience modifications and the price of workers’ compensation insurance. Recently, a new cost driver has emerged in the ever-complex world of workers’ compensation — Medicare Set Asides (MSAs).
Medicare is the secondary payer of medical benefits when an injury arises out of and in the course of employment. Consequently, settlement of future medical benefits of a workers’ compensation claim involving Medicare beneficiaries or those who are likely to become Medicare beneficiaries within 30 months of the settlement date must take into account Medicare’s interests and set aside funds for the treatment of that injury after the worker begins receiving Medicare. Medicare must also approve the MSA arrangement, where the settlement is $25,000 or greater, before the claim can be closed.
Resolving claims with Medicare beneficiaries is both time-consuming and costly. One recent study by the California Workers’ Compensation Institute showed that it takes on average almost three months to get an MSA approved. This is after the injured worker has agreed to the settlement but the claim cannot close until Medicare is satisfied. While the approval process is being navigated, the injured worker continues to receive benefits and the claim remains open.
Most insurers and self-insureds use the services of MSA vendors to advise, prepare and negotiate MSAs with Medicare’s Coordination of Benefits Contractor. Analyzing the track record of the vendor in getting prompt approvals, the accuracy of their initial submissions to Medicare, and their responsiveness to the insurer is an important service the broker can provide when reviewing claims for their insured and providing assistance to the insurer.
Claims involving Medicare beneficiaries are generally costly, especially where the injured worker is also receiving or is eligible to receive Social Security Disability Insurance benefits (SSDI). The majority of these claims have attorney involvement. Only about one-half of the claims that result in an MSA involve injured workers who are Medicare beneficiaries on injury date. Close monitoring of claims development after the date of injury to determine whether the injured worker is claiming Social Security benefits or becomes eligible for Medicare due to age is an important aspect of managing potential Medicare liabilities.
MSAs can potentially add hundreds of thousands of dollars to the costs of a claim. For example, in one case involving a recipient of SSDI who was 49 years old at the date of a serious injury, Medicare required over $500,000 in future prescription drug benefits. This is far in excess of what California’s workers’ compensation system would have required because Medicare calculates future drug costs at average wholesale price (AWP) rather than at California’s deeply discounted pharmaceutical fee schedule. This is one more reason why negotiating with Medicare is important, especially on issues such as what medical conditions are within the scope of the MSA, the cost of prescription medications and the expected length of time treatment will be necessary. To date, there is no effective appeal mechanism to resolve disputes with Medicare or timeframes in which Medicare must approve an MSA.
As of Jan. 1, 2011, insurers, self-insured employers, and TPAs who registered with Medicare as Responsible Reporting Entities (RREs) must submit substantial claims information to Medicare. Complying with Medicare’s mandatory reporting requirements is the obligation of the RRE. The RRE is the entity paying the benefits to the injured worker or, in the case of liability insurance, the accident victim. RREs can be insurers, self-insured employers, or third-party administrators who have registered with Medicare. The penalty for failing to report to Medicare is $1,000 per day per claim.
Generally, a guaranteed cost policy means that the insurer is the RRE. Deductible or retrospectively rated policies where the insurer assumes all claims paying obligation and the policyholder reimburses the insurer, are treated as guaranteed cost policies by Medicare and require the insurer to report these claims to Medicare as well. Conversely, a policy with a self-insured retention (SIR) could result in the policyholder or TPA being the reporting entity because the business is paying claimants directly. Agents and brokers should assess all of a client’s insurance coverages to make sure that none would cause the policyholder to be an RRE.
Medicare is very aggressive in its efforts to make certain primary payers are meeting their obligations both for payments advanced by Medicare for which other insurance is available (conditional payments) and in protecting its interests with MSAs. If Medicare has to sue to recover conditional payments it has made, it can collect double damages. In other words, if clients think they can fly under the radar screen on Medicare Secondary Payer issues, the agent/broker would be wise to advise them otherwise.
The working population is getting older. Because of today’s economic climate, more Medicare beneficiaries are working than ever before and are getting injured on the job. This trend will increase over the years. The complications arising from an aging workforce with medical conditions such as diabetes, hypertension and obesity not only increase claims costs directly, but they inflate Medicare settlements. Working with customers and insurer partners to navigate this complicated process won’t eliminate these costs, but will go a long way toward successfully understanding and managing them.