Arizona U.S. Court Ruling Impacts MSA Rules For Personal Injury Settlements

Medicare set-asides (MSA) are a problem that plaintiffs’ lawyers need to be aware of and perhaps work with. MSAs were the subject of an earlier report on the Settlement Channel. A recent case from the U.S. district court in Arizona provides some insight into the problems involved. Mark Wahlstrom of Wahlstrom & Associates interviews Jack Meligan, Chairman of Settlement Professionals Inc., in this report.

Jack Meligan

Jack Meligan

The case in question, Aranki v. Burwell, arose out of a medical malpractice case in state court in Arizona in 2009. A settlement was reached in the case, but the defendants were concerned about finality of the settlement because of uncertainty about the MSA. The Centers for Medicare & Medicaid Services (CMS) provided no guidance as to what, if anything, should be done. In order to move the case, the state court ordered the filing of a declaratory judgment case in the U.S. district court to obtain guidance. The district court dismissed the case, finding that the case was not ripe for decision “because no federal law mandates CMS to decide whether Plaintiff is required to create a MSA. That CMS has not responded to Plaintiff’s petitions on the issue, is not reason enough for this Court to step in and determine the propriety of its actions.

Meligan points out that, as terrible as this situation was, it was not isolated. “It’s happened in other venues.” Back in 2009, knowledge about MSA was in “the dark ages.” Meligan says that this case predates Section 111 reporting. Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) that came into effect in 2012 requires defendants to report liability settlements when they have determined that the claimant is a Medicare beneficiary. Meligan explains that defense counsel in the Aranki case knew so little about MSAs that they thought they would somehow be liable without having a court decision. As a result, it took six years to get the problem resolved.

Moving ahead in settlement situations will be the plaintiff’s problem. Meligan points that defendants will always want a complete and irrevocable release from litigation before they part with money. They will want to be held harmless, even defended, from any Medicare complications. “But they can’t force a plaintiff to create an MSA. . . .There is no law that requires an MSA account.” Meligan says that, while plaintiffs’ lawyers are probably more knowledgeable than they were six years ago, many of them do not realize that the creation of an MSA account is a voluntary act. There are no statutes or regulations making such a requirement.

For plaintiffs who decide they would like to create an MSA, the preferred method, Meligan says, is a segregated account, not commingled, that is used solely to pay “future Medicare allowable expenses.” If a plaintiff does create such an account, it become prima facie evidence that they plaintiff has thought to protect the Medicare trust fund. The advantage of such an account is that it provides a fund to pay those expenses, and when the fund is depleted, Medicare is liable to pay those accident-related medical expenses for the rest of the plaintiff’s life.

As to who sets up an account, Meligan suggests that the plaintiff should hire a firm experienced in working with personal injury claimants, not with defendants. Defense counsel, especially in workers’ compensation cases, are eager that the MSA be just the right size to receive CMS approval. But, Meligan points, out, there is no requirement for approval in liability cases. Plaintiffs and their counsel should hire a firm that can help them decide if an MSA is even necessary. If so, there should be an allocation such that not one extra dollar goes into the MSA account. Meligan and his firm, SPI, are experienced at handling these situations and in dealing with defense counsel.

Jack Meligan is the Chairman and founder of Settlement Professionals Inc., Portland, Oregon, a company created to work with personal injury victims in structured settlements. He is a widely recognized settlement industry authority. He helped develop the curriculum for the nation’s only professional Registered Settlement Planner designation, a designation he has held since 2009.  For more than 29 years, SPI has forged new paths, developing comprehensive, innovative solutions to protect victims and attorneys all over the U.S. The Settlement Channel is a featured network of Sequence Media Group.

Posted on December 8, 2015 .