Author: Joanne Marcus, MSW
Commonwealth Community Trust, Richmond, VA
This is the third article in a series on Pooled Special Needs Trusts. Click here to read the first installment, An Overlooked Planning Option: Pooled Special Needs Trust.
Medicare Set Asides (MSAs) are common in the Workers’ Comp field and may become more commonplace in liability cases sooner than later. At settlement, many attorneys acknowledge that their clients are incapable of managing the settlement proceeds, but many do not know the effect that an award can have on means-tested benefits such as Medicaid and SSI.
That’s when you get the call asking what should be done to preserve the client’s benefits. In addition to understanding public benefits requirements, knowing that the MSA is a countable resource for public benefits purposes is critical to the advice you give.
The Future of MSAs
In February 2017, and again in April 2017, Centers for Medicare and Medicaid Services (CMS) released transmittals requiring Medicare Administrative Contractors to deny payment for services related to or associated with an open Liability Medicare Set-Aside (LMSA) or No Fault Medicare Set-Aside (NFMSA). It can be inferred from these transmittals that CMS will begin denying payment for items and services that should instead be paid, or have been paid, by a primary payor such as an insurance company or third party, just as it does for Workers’ Compensation cases. If this is the case, CMS will require the Medicare claimant to create and use Medicare set-aside funds first until they are exhausted, and then Medicare will again cover expenses related to the injury. One transmittal was rescinded near the end of 2017, leaving additional confusion about the future of LMSAs. Because no transmittal has been released mandating these set-asides, and no formal process for LMSAs and NFMSAs has been dictated, many PI attorneys are still opting not to create MSAs for their clients, but the writing is on the wall.
Protecting Public Benefits and Medicare Simultaneously
If CMS begins enforcing the Secondary Payor Act for liability cases, when the plaintiff’s attorney seeks your advice, you must understand how the MSA fits into the liability settlement. Some clients are eligible for both Medicare and Medicaid. Both can be protected, but not without some planning. The Courts have held that not considering and planning for the client’s means-tested government benefits can result in a legal malpractice claim, Grillo v. Pettiette et al., 96-145090-92 (96th Dist. Ct., Tarrant Cty., Texas); and Grillo v. Henry Cause, 96-167943-96, (96th Dist. Ct., Tarrant Cty, Texas), or a breach of fiduciary duty or dereliction of duty if not considered by a fiduciary or denied by a Court, Department of Social Services v. Saunders, 247 Conn. 686, 724 A.2d 1093 (1999). Clients receiving Medicaid, which can come in the form of health insurance benefits, long term care, and waiver programs for those with intellectual disabilities, family support, technology assistance, home and community based care, etc., must be advised that receiving the settlement proceeds will endanger these benefits. In the case of waiver benefits, there are often long waiting periods before the individual can receive these waivered benefits again if the client loses eligibility. The timing of the payout and the planning is especially important for them. Creating and funding a special needs trust pursuant to 42 U.S.C. 1396p(d)(4) will preserve these benefits; however, having an MSA, which is not properly held, will jeopardize these benefits.
MSAs Nested within a Special Needs Trust
Careful planning to nest the MSA in a special needs trust allows for management of the set-aside portion of the funds and the remainder of the settlement proceeds, while protecting eligibility for means-tested benefits, and also insuring that injury related medical expenses are covered. The trustee of the special needs trust contracts with an MSA administrator to administer the MSA that is held in the trust. Both stand-alone special needs trusts (SNTs) created under (d)(4)(a) and pooled SNTs (PSNTs) created under (d)(4)(c) are options to consider.
When considering the stand alone SNT, one must look at the choice of trustee. Banks and trust companies will agree to serve, but consider the cost benefit of these services given the size and value of the trust created. Family members can serve as trustee, but while the family members usually have good intentions, they may not be equipped to monitor the disbursements to ensure that they comply with the complex federal regulations and do not cause a period of ineligibility for Medicaid or a reduction in SSI benefits.
In contrast, pooled SNTs are administered by a non-profit organization, which works solely for the benefit of disabled individuals and usually has great expertise in the administration of SNTs and the intricacies of Medicaid regulations and the Social Security Administration’s Program Operating Manual System (POMS). Assets in a PSNT are pooled for investment purposes so investment and management fees are usually less than a stand-alone SNT. An individual sub-account is maintained for each beneficiary. SNTs can be created by the individual, a parent, a grandparent or a Court. PSNTs can be created and funded by individuals 65 years and over; whereas stand-alone SNTs cannot. However, while PSNTs can be funded by those who are 65 and older, depending on the client’s state regulations, there may be a transfer penalty for funding the PSNT.
Finally, a stand-alone SNT must have a repayment provision that requires that the states providing medical services to the beneficiary must be paid back upon the death of the beneficiary. In contrast, a PSNT can either have that provision or the non-profit organization is allowed to retain the remainder after the death of the beneficiary for the benefit of other disabled people. Some pooled trusts have a hybrid approach to the remainder. For example, with Commonwealth Community Trust (CCT), if the remainder is less than the repayment amount owed to the states, then CCT retains it; however, if the remainder is more than the repayment, CCT first reimburses the states, and then distributes the remainder to the successor beneficiaries
All signs indicate that the CMS is moving closer to enforcing the MSPA on liability cases. Your clients with special needs who have received a settlement will face bigger obstacles related to maintaining benefit eligibility. The ability to nest a MSA inside a SNT will help manage the issue and implementation will fall to attorneys in the elder law and special needs practice areas.
Joanne Marcus, MSW, is the Executive Director of Commonwealth Community Trust (CCT), a nonprofit organization that provides administration of pooled special needs trusts since 1990. CCT operates nationwide and currently serves more than 1,400 clients
For more information, call 804-740-6930 or visit commonwealthcommunitytrust.org