Workers’ Compensation Settlements and
ABA Urges Corrective Legislation
Workers’ Compensation (WC) is the program that compensates workers for occupational injuries. Injured workers
eligible for WC benefits may also be or become eligible for Medicare. They may have reached age 65 or they may
have a disability which qualifies them for coverage under the Social Security Disability Insurance program. To
preserve Medicare funds, the Medicare Secondary Payer Act (the MSP Act), appropriately provides that Medicare
is secondary to other sources of payment for medical care, including applicable WC medical benefits.
Most state WC laws allow final settlements of all benefits, which normally close the claim. The worker then has no
right to additional WC benefits in the future, and the employer/insurer has no further financial obligation. Most
states provide for review of the settlement by a court or administrative agency to ensure that it is in the claimant’s
best interest. Funds from the settlement for future medical expenses are sometimes included in the settlement and
used for future medical expenses resulting from the occupational injury. Sometimes this occurs after a person
becomes eligible for Medicare. Although there is no statute or regulation referencing MSP set-asides or
providing for a CMS review process, Medicare is demanding that these funds be set aside in trust for the future
medical expenses during years of Medicare eligibility.
This demand has led to unprecedented disruption and confusion among practitioners, tribunals, employers,
claimants and payers. This demand has added substantially to transaction costs and resulted in up to one year of
delay in implementing settlements. Also, past claims closed by settlement, representing hundreds of billions of
dollars, are subject to substantial uncertainty as the future action of the Centers for Medicare and Medicaid Services
(CMS) is not reliably fixed and determined.
Corrective legislation to provide certainty in the set-aside process is needed because:
• The MSP Act is being used by Medicare (without rulemaking) to assert the right to review and challenge
settlements of WC claims. Medicare’s administrator, the CMS, has adopted internal procedures for prior
review of proposed WC settlements. Although there is no statute or regulation referencing MSP set-asides or
providing for a settlement review process, CMS began to "encourage" the parties to WC settlements to submit
them to CMS regional offices for prior approval. They have done this by publishing their internal memoranda
and several sets of "FAQ's," Frequently Asked Questions.
• Although CMS does not have legal authority to mandate prior review, its “stamp of approval” is the only
way of being certain that Medicare will not come back later with a reimbursement claim for conditional
payments for care "covered" by WC. Under the MSP Act, beneficiaries who have failed to obtain approval
of their WC settlement by CMS may (1) receive a notice terminating future Medicare coverage, (2) be required
to prove that they have spent the equivalent of 100% of the entire settlement solely for Medicare-eligible
medical expenses before receiving reimbursements, and/or (3) lose Social Security Disability benefits on a
dollar-for-dollar basis until the MSP claim, including interest, has been satisfied. Additionally, the MSP Act
provides for a private right of action against the insurance carrier for double damages for failure to provide
primary payment or appropriate reimbursement.
• CMS has been unable to fix the problems and legislation is needed to provide certainty, predictability,
and efficiency to this set-aside process. Corrective legislation should establish clear criteria for when a
Medicare set-aside should be reviewed; create certainty regarding the rules for establishing a Medicare set-
aside; provide certainty to state-approved settlements; and reduce the delays now disrupting WC programs
across the country. Corrective legislation, H.R. 2549, supported by the ABA, was introduced by
Representatives John Tanner (D-TN) and Phil English (R-PA) May 24, 2007.
ABA Staff Contact: Lillian B. Gaskin (202) 662-1768