Paying Back Medicare After a Lawsuit

Medicare LiensMedicare recipients who file personal injury lawsuits need to be aware that by law they will have to pay Medicare back from their judgment or settlement. Unlike cases where private health insurers seek repayment, cases involving Medicare liens offer lawyers very little (to no) wiggle room in negotiating the liens down. Medicare’s lien is often referred to as a “super lien” for this reason, and due to Medicare’s ability to seek repayment not only from the plaintiff, but also the defendant — even if the defendant has paid a settlement to the plaintiff. Medicare can even seek double the amount of its lien if it is not reimbursed. Accordingly, defendants have a particular interest in ensuring that a plaintiff’s Medicare lien is properly resolved. While calculating and resolving Medicare liens in most personal injury cases is a straight-forward and simple process, in many others lawyers will run into unresolved, unclear, or downright unfair legal issues which could drastically effect their abilities to settle the cases at all.

Paying Back Medicare in Most Personal Injury Cases

In personal injury cases involving one defendant who is entirely at fault and has adequate liability insurance policy limits to pay a fair settlement, plaintiffs must repay the full amount of the Medicare lien, reduced by the same percentage which the plaintiff had to pay his attorney in fees and costs. For example, in a case that settles for $50,000.00 involving a $20,000.00 Medicare lien and a 1/3 attorney fee and $1,500.00 in costs, Medicare will reduce its lien by 36% (the same percentage of the total settlement the plaintiff paid in attorney’s fees and costs), making the final amount the plaintiff needs to pay Medicare $13,333.33.

Medicare will not reduce its lien to account for the fact that you settled your case for less than full value. State anti-subrogation laws and common law rules commonly used to reduce health insurance liens, like the “make whole” doctrine, do not apply to Medicare. If you settled your case without using a lawyer, you can only obtain a reduction for your actual costs (on a percentage basis as described above) — you get no credit for the attorney’s fees you avoided incurring.

Of course, you only need to repay Medicare for accident-related treatment. Sometimes Medicare claims a lien for treatment which it believes to be accident-related (based on doctor’s billing codes), but really isn’t. Therefore, before submitting a request to Medicare to reduce its lien for attorney’s fees and costs, your lawyer needs to make sure that all the treatment Medicare has attributed to the accident is legitimate. Having Medicare remove the cost of unrelated treatment from its claimed lien is usually not too difficult, but may involve having to submit supporting medical records (or a doctor’s statement) proving that the treatment was not for an accident-related injury.

The time it takes to ultimately resolve a Medicare lien can vary from case to case, and it will be longer if Medicare is claiming a lien for unrelated treatment. Ideally, in straightforward cases that meet the criteria stated above, the lien should be resolved within 120 days (often sooner) of settlement. However, don’t be surprised if it takes longer. Your lawyer can help avoid delays by regularly requesting updated lien information and challenging unrelated items as they appear, rather than waiting until the case has settled.

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On January 10, 2013, the Medicare SMART Act was passed into law, which will hopefully make the lien resolution process move along more quickly. The SMART Act requires Medicare to set up a website that allows lawyers to obtain official up-to-date Medicare lien information, and use the information provided by the site resolve plaintiffs’ liens. This will save considerable mail and processing time over how this is currently handled. The SMART Act also imposes fixed deadlines for Medicare to provide lien information and to resolve disputed items — this provision became effective immediately and applies to current claims. The SMART Act also imposed a (previously non-existent) statute of limitations on Medicare filing suit over an unpaid lien — it has 3 years from the date it receives notice that the plaintiff’s case settled. This statute of limitations applies to all suits filed on or after July 10, 2013.

Paying Back Medicare in Small Cases

Medicare liens must be repaid in all cases that settle for more than $300.00 (they waive recovery for nearly all cases that settle for $300.00 or less), but Medicare has a special fixed percentage option for cases that settle for $5,000.00 or less. This may be particularly attractive for plaintiffs who are trying to settle small claims on their own. In these cases, regardless of the size of the Medicare lien, Medicare will accept 25% of the total settlement amount to resolve its lien. To ensure that you qualify for this option, see this document (pdf warning) (alternate download link) from the Medicare Secondary Payer Recovery Contractor (MSPRC).

For example, if a plaintiff has a $10,000.00 Medicare lien, but may have issues involving liability or something else which causes him to believe that a $5,000.00 settlement of his personal injury case is fair, he could resolve his full Medicare lien for $1,250.00 (25% of the $5,000.00 settlement). Note that if you have an attorney, Medicare will not further reduce its lien by the percentage you paid in fees and costs if you choose the fixed percentage option. So, if the same plaintiff who obtained the $5,000.00 settlement had to pay his attorney $1,700.00 in fees and costs, he would still have to pay Medicare $1,250.00 if he chooses the fixed percentage option. Of course, this is still a better deal for him than not choosing the fixed percentage option, as Medicare would only reduce its lien to $6,600.00 (a 34% reduction) under its ordinary reduction method.

Paying Back Medicare When the Plaintiff is Partially at Fault

Not all personal injury cases involve a defendant who is 100% at fault. If the plaintiff is partially at fault for his own injuries, a Medicare lien can make settling his personal injury case particularly difficult, if not downright impossible. This has to do with the difference between how Medicare considers a settlement agreement versus how it considers a judgment. While Medicare will accept an apportionment as to percentage of fault and types of damages (medical vs. pain and suffering) established by a judgment, it will completely ignore such an allocation agreed to by the parties in a settlement agreement.

Therefore, even if your lawyer and the defense attorney agree that you were 50% at fault, and that only $15,000.00 of your $35,000.00 settlement is attributable to past medical bills — and even if this allocation is perfectly reasonable and not a clear attempt to avoid paying the full Medicare lien — Medicare will assert its lien up to the full amount of the settlement (minus attorney’s fees and costs). So, if you have a $32,000.00 Medicare lien and you settle the case as described above, you could wind up with nothing after you pay your lawyer and Medicare.

However, if that same amount of past medical bills was determined at trial and resulted in a judgment, Medicare would only assert its lien against that $15,000.00. As you can see, this creates a serious impediment to settling certain cases involving Medicare liens. Therefore, some personal injury lawyers may refuse to handle such cases because they know that a trial would be required to obtain a fair amount for the client. It makes better business sense to them to avoid that case and only accept cases that can be settled.

From a policy standpoint, Medicare’s total refusal to honor allocations of damages defined in settlements could result in it not being repaid anything for such cases. If plaintiffs’ lawyers don’t want to take these cases because they necessitate trials, the plaintiffs may never recover anything from which Medicare can be repaid. Medicare itself just doesn’t have the manpower to discover and pursue such claims on its own, resulting in both the plaintiff and Medicare walking away empty handed. Medicare needs to adopt a process by which it can review and approve proposed settlement allocations to avoid this situation, but pleas for such a process from plaintiffs’ lawyers have to date gone unanswered.

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Paying Back Medicare When the Defendant Doesn’t Have Adequate Insurance

A particularly nightmarish scenario for plaintiffs and their lawyers arises when the plaintiff has a Medicare lien and the defendant doesn’t have adequate liability insurance to pay a fair settlement or judgment. While private insurers will almost always take into account the fact that a plaintiff failed to make a fair recovery due to inadequate policy limits and reduce their liens accordingly, Medicare probably won’t. These types of cases may be impossible to settle (if your goal is to get the plaintiff any money) because of Medicare’s obstinance, resulting in lawyers rejecting these cases outright and Medicare recovering nothing at all.

While Medicare does have a process by which a claimant can request a waiver of repayment (in part or full), this process can’t even be started until after the claim is settled, making it a gamble that most lawyers aren’t willing to take. To make matters worse, you typically have to pay the full amount requested by Medicare while the waiver is being considered, as you can be responsible for penalties and interest if the payment isn’t made within 60 days of Medicare’s final demand and the waiver is later denied. Waivers are rarely granted, so don’t get your hopes up about getting one just because you think fairness requires it.

Medicare Set-Asides for Future Damages in Personal Injury Cases

A Medicare Set-Aside (MSA) is an amount of a settlement specifically placed in a special account to pay for future accident-related medical treatment. For years, MSAs have been required in all workers compensation cases where the claimant is either currently receiving Medicare or is likely to in the near future. Recently, there has been considerable debate in the legal community as to whether lawyers should create MSAs in personal injury cases. While Medicare has a specific process for obtaining prior approval of an MSA amount in workers compensation cases, it does not have any such mechanism for personal injury claims.

This is likely due to the fact that workers compensation settlements are easier to review. They require judicial/administrative approval, specifically set forth the amount of future medical expenses expected and the basis therefor, and don’t involve any pain and suffering damages. Personal injury settlements, on the other hand, normally don’t require judicial approval, don’t specify any allocation of the money to past/future damages (and when they do, they don’t have specific medical records cited in support of such an allocation), and include pain and suffering damages, which are extremely speculative.

For these reasons, it seems that Medicare doesn’t want to have to review every settlement agreement in personal injury cases because it would involve scrutinizing tens of thousands of agreements per year in which both the plaintiff and defendant have an incentive to lie about the amount of future medical damages (lowball them) in order to settle the case.

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This is why, despite the fact that MSAs are technically required for personal injury cases, they are rarely done — and rarely questioned by Medicare. This doesn’t mean that they aren’t legally required — just that if you don’t create one, odds are in your favor that Medicare won’t question the fact or cut off your future Medicare benefits.

I would caution plaintiffs with Medicare liens who take their cases to trial, however, that verdicts and judgments usually specify the amount paid to you for future medical care, making it easier for Medicare to determine the amount that should have been placed in an MSA. This may make it more likely that Medicare will cut you off if you don’t use that money to pay your future accident-related Medical bills.

Obviously, the safest course of action for plaintiffs is to create an MSA in every personal injury case involving a Medicare lien and expected future medical treatment (if you don’t need future treatment for your accident-related injuries, an MSA is unnecessary). However, most plaintiffs are willing to risk not doing so in light of Medicare’s lax and inconsistent enforcement of this requirement — and the fact that this can mean a difference of tens of thousands of dollars that they can spend on other things. If you take that risk, as most plaintiffs do, it would be wise to hold onto a portion of your settlement until you are convinced that Medicare isn’t going to cut off your benefits (see how it goes for several months, at least).

Do Medicare Advantage Liens Work the Same Way as Medicare Liens?

Medicare Advantage providers will often bluff plaintiffs and their lawyers by claiming that their liens are the equivalent of Medicare “super liens”. This is not true. Reimbursement of Medicare Advantage providers does not fall under the same federal law as reimbursement of traditional Medicare. Medicare Advantage liens are more like standard private health insurance liens than Medicare liens. This opens up the possibility of reductions to (or elimination of) Medicare Advantage liens under state anti-subrogation laws and common law rules like the “make whole doctrine”. As with traditional private health insurance liens, a lot depends on your state’s laws and the language of your Medicare Advantage policy.

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