When a settlement is reached in a personal injury lawsuit, a written settlement agreement is prepared, and, if medical expenses for the injured party have been paid by Medicare, a Medicare Set-Aside Account (MSA) may be created to reimburse Medicare for past, and potentially future, medical payments.

The purpose of a MSA is to ensure that Medicare will not pay bills for plaintiff’s injuries where there is other insurance available. The rationale is that since plaintiff received settlement money from an insurance company to cover future medical expenses, Medicare wants to ensure that a portion of the settlement money is spent on injury-related care before the taxpayers start paying through Medicare.

Case law and Centers for Medicare and Medicaid Services’ policy memoranda

A recent case out of the U.S. District Court in Arizona, Aranki v. Burwell, makes it very clear that MSAs are not required for future medical expenses in personal injury cases, unlike such requirements in workers’ compensation cases. The following is an excerpt from the Aranki case:

To comply with the provisions outlined in the MSP statute, in workers’
compensation cases CMS (Centers for Medicare and Medicaid Services)
mandates the creation of a ‘Medicare Set Aside’ (“MSA”) account.
(42 C.F.R. §411.) The purpose of a MSA is to allocate a portion of a workers’ compensation award to pay potential future medical expenses resulting from
the work-related injury so that Medicare does not have to pay. However, no
federal law or CMS regulation requires the creation of a MSA in personal injury settlements to cover potential future medical expenses.

The Aranki case involved the issue of whether a MSA is necessary in a medical malpractice case. The court held the case was not ripe for review because no federal law mandates CMS to decide whether plaintiff is required to create a MSA. As such, the court lacked subject matter jurisdiction to hear this case. As the court noted, there may be a day that the CMS requires the creation of MSAs for future medical expenses in personal injury cases, but that day has not yet arrived.

Those having to deal with MSAs and future medical expenses in liability settlement cases can also look to other recent court decisions for some guidance. For example:

• Berry v. Toyota Motor Sales, U.S.A., Inc. (2015) The parties asked the court to determine whether there was a need for a MSA in connection with a settlement. Specifically, the parties sought a determination that CMS’s interests had been adequately taken into account by the settlement to which the parties had agreed. The Berry court found there was no need for a MSA as part of the settlement of this case. Based on the evidence of plaintiff’s treating medical providers and correspondence from CMS, Medicare had been reimbursed for all conditional payments that it made for plaintiff’s accident-related treatment. Since it was not reasonably anticipated that plaintiff would receive any future accident-related treatment, the court found that Medicare would not be called upon to pay for such are in the future.
• Tye v. Upper Valley Med. Ctr. (2014) The Ohio Supreme Court decided that the parties were not required to set aside any portion of the settlement proceeds for future benefits which may be paid or payable to Medicare. In its decision, the Court noted several reasons for its holding, including: (1) the plaintiff’s injuries were paid by a private health insurance carrier, (2) the private health insurance carrier would continue to pay plaintiff’s medical expenses in the foreseeable future, and (3) Medicare did not have an established policy or procedure in effect for reviewing or providing an opinion regarding the adequacy of the future medical aspect of a liability settlement.
• Warren Frank v. Gateway Ins. Co.(2012) The United States District Court for the Western District of Louisiana held Medicare does not currently require or approve MSA’s when personal injury lawsuits are settled.
• Sipler v. Trans Am Trucking, Inc. (2012) The court determined that no federal law requires set-aside arrangements in personal injury settlements for future medical expenses.
• Big R Towing, Inc. v. David Wayne Benoit, et al.(2011) The United States District Court for the Western District of Louisiana found that a set-aside for future medical expenses in a liability case was appropriate.

Along with the above case law, CMS policy statements offer additional guidance in terms of when to set up a MSA account for future medical expenses. Although these statements do not have the force of law, they do reflect a body of expertise and informed judgment to which courts may properly resort for guidance. (See Anderson v. Burwell, (2016) F.Supp.3d (U.S. Dist. MI))

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