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Set Aside Allocation Compliance Risks for Auto, Liability, No-Fault, and Work Comp Primary PayerWith Medicare still in financial short and long term trouble, the US Department of Health and Human Services (HHS), and its Center for Medicare and Medicaid Services (CMS), have become increasingly more aggressive about making sure Medicare is the secondary payer pre and post settlement in auto, liability, no-fault, and workers compensation claims. As a result, insurers, self insureds, and third party administrators responsible for payment of auto, liability, no-fault, and work comp claims must be aware of and understand their responsibilities under the Medicare Secondary Payer Act (MSP), and be prepared for the multiple risks associated with MSP compliance. What follows is part three of a four-part analysis of risks associated with each of the MSP compliance components: Mandatory Insurer Reporting (MIR), Conditional Payment Resolution (CPR), and Medicare Set Asides (MSA). This third part focuses on MSA compliance risks for auto, liability, no-fault, and work comp primary payers.

Courts Ordering Plaintiffs and Defendants to Fund MSA Accounts to Pay for Future Medical Expenses

On June 4, 2012, the United States District Court for the Western District of Louisiana, Lafayette Division, published its decision in Bertrand v. Talen’s Marine & Fuel, LLC, concluding that Bertrand shall provide funding for $64,866.88 out of the settlement proceeds for payment of future medical items or services, which would otherwise be covered or reimbursable by Medicare, related to what was claimed and released in the lawsuit. The court orders the funding for Bertrand’s future medical expenses to be deposited into an interest bearing account, which will be self-administered by Bertrand, for the purpose of paying any future medical items or services that would otherwise be covered or reimbursable by Medicare that are related to what was claimed and released in this lawsuit.

Plaintiffs Seeking Court Determination as to Whether MSA is Necessary in Liability Cases and Amount Which Adequately Protects Medicare’s Interests

On February 26, 2013, the United States District Court for the Southern District of Mississippi published its opinion on Welch v. American Home Assurance, finding that where there is an actual controversy and the parties seek a declaration of their rights and obligations in order to comply with the MSP and its related regulations involving the settlement of liability claims, for which CMS provides no procedure for determining the adequacy of protecting Medicare’s interests for future medical needs and/or expenses, the Court finds it necessary and appropriate to decide and determine the necessity of the MSA and the amount of the MSA, and to further declare that the interests of Medicare have been reasonably considered and protected by all parties through the creation, funding, and maintenance of a MSA.

Courts Providing Formulas to Take Medicare’s Future Interests Into Account in Third Party Liability Matters When Settlements are Less than Set Aside

On April 17, 2013, the United States District Court of Louisiana published its opinion on Benoit v. Neustrom, finding that since the net settlement proceeds, after reimbursement of conditional payments to Medicare, was $55,707.98 and the mid-point range of the MSA projections was $305,512.50, the net settlement is 18.2% of the MSA. Using that percentage applied to the net settlement proceeds, the Court concluded that the sum of money to be set aside in trust for future medical expenses is $10,138.00, finding that this amount adequately protects Medicare’s interests and should be available to provide funding for future medical items or services related to what was claimed and released in this lawsuit that would otherwise be covered or reimbursable by Medicare.

Settlements Lacking Medicare Details Binding on Parties, Leaving Parties Unprotected from MSP Viewpoint

On February 11, 2015, the United States Court of Appeals for the Second Circuit published its opinion on Hoover v. New York State Department of Corrections and Community Supervision, Albion Correctional Facility, Sue Wojcinski, Sandra Durfee, Angie Maume, and Donna Baker, finding that if defendants considered plaintiff’s Medicare status and protecting Medicare’s future interests to be critical in deciding whether to settle, they should have ascertained that status and attempts to protect Medicare’s future interests before agreeing to settle the case on November 5, 2012 for $750,000. As a result, the court affirmed the judgment of the district court, which had previously directed that judgment be entered in favor of plaintiff in the amount of $750,000 when the parties were unable to agree on the exact Medicare language in the settlement documentation.

Plaintiffs Seeking Re-visitation of Settlement Agreements, Alleging Violation of MSP

On May 14, 2009, the United States Court of Appeals for the Seventh Circuit published its opinion on Coryell v. Liberty Mutual Insurance Company, concluding that because all of the relief demanded from the defendants was obtained in the district court, the appeal was dismissed. Coryell was a Medicare beneficiary at the time of his injury, and in compliance with the Medicare Secondary Payer Act, the parties set aside a portion of the $41,006 settlement for future injury related medical expenses. The $8,091 MSA was subject to review by HHS and would be placed in a trust account administered by Coryell. The parties however finalized their deal without getting approval from HHS. After Medicare began denying payment of medical care related to the injuries associated with his claim, Coryell filed this action in February 2007, asserting that Sears, Liberty Mutual, and HHS had all violated the Medicare Secondary Payer Act.

State Courts Finding No Settlement Agreement Where MSA Terms Were Unclear

On January 20, 2011, the Supreme Court of Kentucky published its opinion on Hudson v. Cave Hill Cemetery, finding that the amount to be allocated to a Medicare Set-Aside Account may have legal and financial consequences and therefore is an essential element of a settlement that includes such an account. The Court therefore concluded that the settlement agreement here was incomplete under the circumstances because the parties had not come to terms concerning the portion of the settlement to be allocated to the Medicare Set-Aside Account.

State Courts Setting Aside Settlements Based on Confusion Over MSA Terms

On October 27, 2014, the Louisiana Court of Appeal, First Circuit, published its opinion on McCarroll v. Livingston Parrish Council and Louisiana Workers Compensation Corporation, concluding that since all parties believed that the MSA amount could be used to pay for Mr. McCarroll’s surgery and that Medicare would pay for the surgical costs exceeding the MSA amount, there was no error in the Workers’ Compensation Judge’s finding that defendants’ misunderstanding regarding the MSA was a misrepresentation sufficient to set aside the settlement order of approval.


These are by no means the only MSP compliance risks auto, liability, no-fault, and work comp primary payers face every day on every file. They are however the most common seen throughout the country. In my next blog, I will discuss the best way to reduce, mitigate, or even better, prevent such MSP situations from taking place. I will provide concrete steps to achieving Medicare Secondary Payer compliance, whether through an in-house program or by partnering with a knowledgeable and experienced vendor like Flagship, whose only purpose is to mitigate, reduce, and often times eliminate potential MSP compliance risk.


About Flagship Services Group

Flagship Services Group is the premier Medicare compliance services provider to the property & casualty insurance industry. Our focus and expertise has been the Medicare and Medicaid compliance needs of P&C self-insureds, insurance companies, and third party administrators. We specialize in P&C mandatory reporting, conditional payment resolution, and set aside allocations. Whether auto, liability, no-fault, or work comp claims, we have assembled the expertise, experience and resources to deliver unparalleled MSP compliance and cost savings results to the P&C industry. To find out more about Flagship, our folks, and our customized solutions, please visit us at To speak with us about any of our P&C MSP compliance products and services, you may also contact us at 888.444.4125 or

About Rafael Gonzalez

Rafael Gonzalez, Esq. is President of Flagship Services Group. 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 is very active on LinkedIn, Twitter, Instagram, and Facebook. He can be reached at or 813.967.7598.

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