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On November 15, 2016, the Court of Appeals of North Carolina published its decision on Williford v. North Carolina Department of Helath and Human Services and North Carolina Division of Medical Assistance, concluding that the Industrial Commission’s workers compensation settlement agreement order is a legally binding agreement, and that the Workers’ Compensation Medicare Set-Aside Account (WCMSA), which was incorporated into the order, barred petitioner from using the funds in the WCMSA for her support or maintenance. The court further holds that petitioner established that her use of the WCMSA funds was subject to legal restrictions arising from a legally binding agreement. The court therefore concludes that the WCMSA funds are not a countable resource for purposes of determining petitioner’s eligibility for Medicaid, thereby reversing the trial court’s order.

Settlement of WC Case Includes WCMSA

Phoebe Williford (petitioner) is a 68 year old widow, who on November 25, 2005, suffered a workplace injury to her left arm and right knee. She sought and obtained workers’ compensation medical and disability benefits from her employer. Upon turning 65, she became eligible for Medicare on November 8, 2009. After several years of medical treatment, petitioner and her employer disagreed about the degree of permanent impairment to her left arm and right knee, and about the likelihood her workplace injuries would require further medical treatment. The parties engaged in mediation and reached an agreement resolving the contested issues related to her workers’ compensation claim.

On April 19, 2011, the Industrial Commission entered an order that incorporated the parties’ settlement agreement. In its order, the Commission concluded that the settlement agreement was “fair and just” and properly addressed the interests of all parties. The terms of the settlement agreement included a provision which awarded petitioner a lump sum for disability benefits and attorney fees. The agreement also provided that the employer would contribute $46,484.12 to fund a WCMSA, which represented the parties’ settlement of all future workers’ compensation medical benefits for which the employer would be liable that would otherwise be paid by Medicare. 

WCMSA Funds Are Not Countable Resources

Eligibility for Medicaid Benefits

In addition to becoming entitled to Medicare, when petitioner reached 65 years of age, she applied for and received Medicaid, a state and federal program which provides funds for the medical expenses of applicants who meet various requirements and whose income and financial resources are below a specified amount. The requirement that is relevant to this appeal is that an applicant who is single and is over 65 years old may have no more than $2,000 in liquid assets, such as bank accounts. The dispositive issue in this case is whether the funds in petitioner’s WCMSA were properly classified as a financial resource for purposes of determining petitioner’s eligibility for Medicaid.

State Decisions Denying Medicaid Eligibility 

On December 27, 2013, a local hearing officer for the Sampson County Department of Social Services (DSS) issued a decision terminating petitioner’s eligibility for Medicaid, on the grounds that the funds in petitioner’s WCMSA, which were then approximately $46,630, were a countable resource. Inclusion of petitioner’s WCMSA in the calculation of her liquid assets resulted in the conclusion that petitioner had more than $48,000 in countable resources. Petitioner appealed the decision of the local hearing officer to North Carolina Department of Health and Human Services (DHHS) and DHHS’ Division of Medical Assistance (DMA) (collectively, respondents). On June 10, 2014, DHHS issued a “tentative decision” concluding that petitioner’s WCMSA was a countable resource, and affirming the decision by DSS to terminate petitioner’s Medicaid benefits. DHHS issued its final agency decision on July 11, 2014, in which it affirmed the tentative decision. On July 30, 2014, petitioner filed a petition for judicial review, and on August 31, 2015 the trial court conducted a hearing on this matter. On February 8, 2016, the trial court entered an order denying petitioner’s petition for judicial relief and affirming DHHS’s ruling that the funds in petitioner’s WCMSA were a countable resource for purposes of determining her eligibility for Medicaid. Petitioner filed a timely appeal from the trial court’s order.

Federal and State Medicaid Statutory Law

“The Medicaid program was established by Congress in 1965 to provide federal assistance to states which chose to pay for some of the medical costs for the needy. Whether a state participates in the program is entirely optional. However, once an election is made to participate, the state must comply with the requirements of federal law.” Accordingly, N.C. Gen. Stat. § 108A-56 (2015) states in relevant part that “all of the provisions of the federal Social Security Act providing grants to the states for medical assistance are accepted and adopted, and the provisions of this Part shall be liberally construed in relation to such act so that the intent to comply with it shall be made effectual.”

State Administrative Law

“North Carolina’s Medicaid program is supervised and administered by the Division of Medical Assistance (DMA), an agency within the Department of Health and Human Services (DHHS).” DMA is “authorized to adopt rules to implement or define the federal laws and regulations, the North Carolina State Plan of Medical Assistance and the terms and conditions of eligibility for applicants and recipients of the Medical Assistance Program.” These rules are set out in the North Carolina Administrative Code (NCAC), clearly indicating that “North Carolina has contracted with the Social Security Administration under Section 1634 of the Social Security Act to provide Medicaid to all SSI recipients. Resource eligibility for individuals under any Aged, Blind, and Disabled coverage group shall be determined based on standards and methodologies in Title XVI of the Social Security Act.” 

The NCAC specifically indicate that “limitation of resources for aged, blind, and disabled cases, shall be two thousand dollars ($2,000.00).” They also indicate that “for all aged, blind, and disabled cases, the resource limit, financial responsibility, and countable and non-countable assets are based on standards and methodology in Title XVI of the Social Security Act.” Therefore, these rules establish that in North Carolina eligibility for Medicaid is determined utilizing the federal standard for determining eligibility for Supplemental Security Income (SSI).

Federal Administrative Law 

In addition to state administrative codes, the code of federal regulations at 20 C.F.R. § 416.1205 states that an “aged, blind, or disabled” applicant for SSI must, in addition to meeting all other eligibility requirements, have no more than $2,000 in “non-excludable resources.” Thus, respondents and petitioner are in agreement that petitioner may have no more than $2,000 in countable assets. 20 C.F.R. 416.1201 defines “resources” as “cash or other liquid assets that an individual owns and could convert to cash to be used for his or her support and maintenance.” In other words, “if the individual has the right, authority or power to liquidate the property, it is considered a resource.”

The Social Security Administration (SSA) also issues a Program Operations Manual System (POMS), that instructs SSA employees on the SSA’s interpretation of eligibility standards for SSI. “The POMS represent the publicly available operating instructions for processing Social Security claims. While these administrative interpretations are not products of formal rulemaking, they nevertheless warrant respect.”

POMS SI 01110.100B. provides that “resources” are “cash and any other personal property” that an individual “owns; has the right, authority, or power to convert to cash and; is not legally restricted from using for her support and maintenance.” Similarly, POMS SI 01120.010B.2 states that in order for an asset to be a countable resource, an “individual must have a legal right to access property. Despite having an ownership interest, property cannot be a resource if the owner lacks the legal ability to access funds.”

POMS SI 01120.010D.5 indicates that in circumstances in which an SSI recipient is awarded damages “to be used solely for medical expenses related to the accident, although the SSI recipient owns the funds and has direct access to them, he is not legally free to use them for his own support and maintenance. Therefore the awarded funds are neither income nor resource.” Finally, POMS SI 01110.115A states SSA’s “general rule” that “assets of any kind are not resources if the individual does not have the legal right, authority, or power to liquidate them or the legal right to use the assets for her support and maintenance.”

Countable Resource Must be Available Without Legal Restriction

In North Carolina eligibility for Medicaid is determined by reference to the standards applicable to eligibility for SSI. The court therefore concludes that these federal standards clearly establish that, “in order for a given asset to be a countable resource, the asset must be legally available to the applicant without legal restriction on the applicant’s authority to use the resource for support and maintenance.”

Medicare Secondary Payer Act and WCMSAs

“Medicare is a federal program providing subsidized health insurance for the aged and disabled. See 42 U.S.C. § 1395 et seq.” For the first fifteen years, Medicare paid for medical services without regard to whether they were also covered by an employer group health plan. However, in 1980, Congress enacted a series of amendments, commonly referred to as the Medicare Secondary Payer (MSP) provisions, which were designed to make Medicare a “secondary payer” with respect to such a plan. One of these provisions is 42 U.S.C. § 1395y(b)(2)(A)(ii) (2015), which states that Medicare coverage is not available if “payment has been made or can reasonably be expected to be made under a workmen’s compensation law.” In order to comply with the MSP statute, in workers’ compensation cases, “CMS mandates the creation of a Medicare “set aside” account (MSA). 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.”

A WCMSA “is a financial agreement that allocates a portion of a workers’ compensation settlement to pay for future medical services related to the workers’ compensation injury. These funds must be depleted before Medicare will pay for treatment related to the workers’ compensation injury.” Workers’ Compensation Medical Set Aside Arrangements, The funds in a WCMSA “must be deposited into an interest- bearing account, and the WCMSA may be administered by the workers’ compensation claimant or by a professional administrator.” The administrator “must submit an annual accounting of any expenditures from the WCMSA.” If funds in a WCMSA are used for any purpose other than medical expenses that arise from the claimant’s compensable injury and would otherwise be payable by Medicare, then “Medicare will refuse to pay for any medical expenses that were intended to be covered by the WCMSA until the claimant has replaced the funds and has then depleted them according to the WCMSA.” See WCMSA Reference Guide,

Petitioner Argues WCMSA Funds Are Not Countable Resource

Petitioner argues that the funds in the WCMSA are not a countable resource for purposes of determining her eligibility for Medicaid, because her use of the funds for her support and maintenance is subject to “legal restrictions” pursuant to a “legally binding agreement.”

The Settlement Agreement that was incorporated into the Commission’s order provided, as relevant to this appeal, that “the defendants agree to fund a Medicare Set Aside account in the amount of $46,484.12. These funds are for future medical treatment related to petitioner’s compensable injuries.

The MSA funds for future Medicare-covered expenses are intended directly for payment of these expenses. Petitioner shall open an interest bearing bank account for the Medicare Allocation and shall disburse only payments for Medicare-covered expenses which are work related from said account. Petitioner shall not pay non-Medicare-covered expenses from this account.

Petitioner shall not pay any Medicare-covered expenses from this account that are unrelated to the work injury. If payments from this account are used to pay for services that are not covered by Medicare, Medicare will not pay injury-related claims until these funds are restored to the set-aside account and then properly exhausted. In this circumstance, petitioner is responsible for restoring such funds to the account. Petitioner understands that Medicare will not pay for any expenses related to the work injury until, and unless, the petitioner can provide documentation indicating that the entire MSA account, including any accrued interest, was properly expended on Medicare-covered treatments and expenses related to the work injury covered by this Settlement Agreement.”

Respondents Argue WCMSA Funds Are Countable Resource

Respondents argue that the WCMSA is a countable resource on the grounds that petitioner’s access to the WCMSA funds is not restricted by the bank in which the funds are deposited. The court concludes that this fact is not relevant to the determination of whether petitioner’s use of the funds is restricted pursuant to a legally binding agreement. Respondents also assert that the funds in the WCMSA are a countable resource on the grounds that the Industrial Commission order is not “binding” upon Respondents and, as a result, does not constitute a legally binding agreement. The court finds Respondents did not offer a basis for their suggestion. Respondents also maintain that the WCMSA “is clearly a type of Medical Health Savings Account (HSA) funded by Medicare.” The court finds respondents failed to articulate any legal basis for their argument that a WCMSA is “a type of” HSA. The court therefore concludes that this argument lacks merit.

Court Concludes WCMSA Funds Are Not Countable Resource

The court concludes “Petitioner produced evidence that, pursuant to the terms of a Settlement Agreement that was incorporated into an order of the Industrial Commission, she may only use the funds in the WCMSA for (1) medical expenses (2) arising from her compensable injury (3) for which Medicare would otherwise be liable. If petitioner uses the WCMSA funds for any other purpose, Medicare will not pay for treatment for her compensable injury until she replaces the funds and then depletes them in accordance with the WCMSA. Specifically, petitioner may not use the funds in the WCMSA for her general support and maintenance. In addition, petitioner could be held in contempt of court for violating the terms of the Commission’s order, which incorporated the WCMSA.” The court therefore holds that because petitioner established that the terms of a “legally binding agreement” impose “legal restrictions” on her use of the WCMSA funds, the trial court erred by affirming the agency decision of DHHS that treated the WCMSA as a countable resource for purposes of determining petitioner’s eligibility for Medicaid. The court concludes that the WCMSA is not a countable resource for purposes of determining petitioner’s eligibility for Medicaid.

This case was decided by a State of North Carolina appellate court. It may very well be that the State of North Carolina, which has a significant interest in the outcome of this issue because of its financial implications to the state budget, may very well appeal this decision to the Supreme Court of North Carolina. Therefore, we may not have seen the last decision yet to be published on this matter. In addition, we could also see federal litigation on this issue with a federal district court, or even a federal court of appeal also providing an opinion on this matter. Having said this, this may be one of the most significant cases ever decided for dual eligibles, individuals entitled to both Medicare and Medicaid, as it pertains to the status of Medicare set-aside funds when that same individual applies for Supplemental Security Income and Medicaid.

As the early administrative process in this case indicated, and the trial court also decided, the historical and accepted norm was that MSA funds were considered assets and resources available to the claimant, which by definition would prevent that individual from obtaining SSI and Medicaid benefits. This opinion turns that old theorem on its head. By holding that the legal restrictions placed on MSA funds prevent a claimant from using such funds for support and maintenance, this court has essentially provided a blueprint for all workers compensation, liability, auto, medical malpractice, products liability, nursing home, and other bodily injury litigants on how to settle their case, obtain and hold a lump some amount dedicated to future medical expenses related to the settled claim, and still become eligible for SSI and Medicaid.

If this decision becomes the law in other areas of the country and becomes the consistent finding of other similar courts, the aftermath may very well be a significant growth in the number of individuals who after settlement of their bodily injury claims will file for SSI and Medicaid benefits. If approved to receive such benefits, this may mean that state Medicaid agencies may end up paying for medical care related to the bodily injury claim for which the claimant received a settlement and for which an MSA was created and approved. This may ultimately end up in state Medicaid agencies seeking reimbursement of medical expenses related to the bodily injury settled claim from either the claimant, claimant’s counsel, or potentially from the third party ability self insured or insurer. With October 1, 2017 approaching as the date on which Medicaid state agencies have been given the greenlight to go forward on seeking full reimbursement from all settlement proceeds, now more than ever, property and casualty insurers must be vigilant and have a process or partner to handle such potential Medicaid liens.

Learn more about Flagship Service’s Group unique approach to MSAs by downloading the flowchart below.


About Rafael Gonzalez

Rafael Gonzalez, Esq. is President of Flagship Services Group, the only national Medicare Secondary Payer services provider focusing on and offering comprehensive mandatory reporting, conditional payments, and set aside allocation compliance services to the property and casualty insurance industry. He has been a part of the insurance, medical, and disability industries since 1983. He has served as a thought leader on all aspects of liability, workers compensation, social security, Medicare, and Medicaid compliance since 1990. He speaks and writes on mandatory insurer reporting, conditional payment resolution, set aside allocations, CMS approval, and MSA and SNT professional administration, as well as the interplay and effect of these processes and systems and the Affordable Care Act throughout the country. Rafael blogs on these topics at Medicare Compliance for P&C Insurers at He can be reached at or 813.967.7598

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