Medicare and the Set-Aside Trust


The Set-Aside Trust is now being used in settlement of catastrophic workers' compensation cases to satisfy Medicare concerns relating to responsibility for future medical expenses arising out of the employee's job injury. Employees in such cases no longer have the luxury of setting their claims for the maximum value including future medical expenses, pocketing the entire settlement, and then applying for SSDI disability which includes Medicare in order to pay for future medical needs arising out of the workers' compensation injury.

In early 2001, rumors began circulating that Medicare was considering filing claims for reimbursement against an insurance carrier to determine whether medical expenses of former workers whose workers' compensation cases had settled were later paid under SSDI disability Medicare. The basis for the claims by Medicare was 42 CFR 411.46 which requires certain workers' compensation settlements to adequately consider Medicare's interests. The prospect of  Medicare "reaching back" and recovering medical expenses paid by Medicare from the workers' compensation carrier long after claims had been settled had a distinct "chilling" effect on the employers' and insurance carriers' desire to settle cases which involved potentially large future medical expenses.


Settlement of catastrophic workers' compensation cases literally ground to a halt. Fortunately, the Set-Aside Trust has been utilized to provide for future medical needs under Medicare and guidelines were issued by Medicare to clarify the settlement procedure. On July 23, 2001, the U.S. Department of Health and Human Services issued a memorandum regarding workers' compensation settlements in order to ensure that Medicare's interests were properly considered in settlement of workers' compensation catastrophic cases.' All settlements involving commutation aspects of future medical expenses require review and approval of the Regional Office (RO) in order to compromise any Medicare recovery claim. The memo explained that a Set-Aside Trust could be used in workers' compensation catastrophic settlement cases where an injured claimant either has already qualified for Medicare or may qualify for Medicare through SSDI to provide a reasonable amount for the present and future medical needs of the claimant. The use of the Medicare Set-Aside Trust enables Medicare to identify and analyze the appropriateness of the future medical care needs contained in the settlement and to issue a letter approving the Set-Aside amount for future medical expenses. After exhaustion of the proceeds of the Trust, Medicare would then pay for medical expenses under Medicare payment guidelines.


Critical to gaining approval by Medicare for the settlement Trust is the preparation of a future medical projection analysis by a consultant to review the medical records and to project future medical needs of the claimant. Since in catastrophic cases the future medical care is usually a principal component of settlement, the claimant's attorney would have already secured future medical information from the principle treating physicians in addition to medical records. This can be done through the use of medical statements prepared by the claimant's attorney which requires the treating doctor to "fill-in-the-blanks." A cottage industry of medical analysis companies has emerged to provide a projection analysis information to Medicare. Without this critical information, it is unlikely that any settlement will be approved since the assignment of funds to the Medicare Set-Aside Trust is a key element in the approval by Medicare.

The workers' Compensation settlement stipulation should also contain language regarding Medicare considerations. The agreement should recite the designated purpose of setting aside a portion of the settlement for the Set-Aside Trust under the direction of a custodian, who will need to be designated. Companies offering custodian services are now available to serve as the permanent custodians of the Set-Aside Trust.

The Trust should be "triggered" by the approval of the overall workers' compensation stipulation by the Board and the funding by the employer/insurer of the designated funds into the Trust. Some important considerations for the claimant's attorney to consider when drafting the Trust:

(1) Definitions of qualified medical expenses, supplemental medical services, and physicians must be set out which are compatible with Medicare definitions.
(2) The duties of the custodian must be set out, including responsibilities for paying not only medical expenses for claimant, but
preparation and filing of tax returns on the Trust and any tax due on income earned by the Trust. (The corpus of the Trust is commonly invested in an FDIC insured money market account). Also, annual reports of money earned and paid out, along with copies of the return upon closing the Trust, and tax returns should be required from the custodian with copies to the claimant.
(3) Qualified medical expenses to be paid out of the Trust must be defined by one of three possible standards:
(a) workers' compensation medical charge standard,
(b) Medicare charge standard, or
(c) Regular and customary medical charge standard (full charge).
(4) Provision should be made for disbursement of the remaining corpus of the Trust to claimant's estate in the event of the death of the employee.
(5) Provision should be made for disbursement of the remaining corpus of the Trust to claimant in the event of termination of Medicare eligibility of the employee.
(6) Provision for dealing with disputes regarding the execution and performance of the Trust, such as arbitration and a situs for the arbitration. (It is likely that the parties will reside in different states).
(7) Provisions for general liability bonding or insurance of the custodian to guarantee faithful performance of the Trust.
(8) Consideration should be given to making the claimant a party to the Set-Aside Trust for standing by the claimant to enforce the agreement against either the custodian or insurer.
(9) Provisions should be made for successor custodian in the event the original custodian is no longer able to serve.

Great care should be exercised in the drafting of the Trust and Settlement documents since they will have significant impact on the claimant for his life expectancy. Claimant attorneys should not hesitate to associate and/or review with experienced counsel the procedures for settlement of these cases. Experienced attorneys should offer their assistance to claimant's counsel to educate our workers' compensation bar in these cases to minimize mistakes and omissions in the process.

The proposed Set-Aside Trust Agreement will be forwarded for Georgia cases to Ms. Juanita Dixon, at the Center for Medicare/Medicaid Services (CMS), 61 Forsyth Street, S.W. Suite 4T20, Atlanta, Georgia, 30303-8909. With the Trust should be an analysis from a healthcare consultant reviewing the claimant's projected medical needs for his lifetime, pertinent medical records and the proposed workers' compensation settlement stipulation. Allow at least three months for an opinion to issue regarding approval or disapproval of the Trust. The letter from CMS will also, if it approves the Trust, identify the Medicare contractor whose responsibility it will be to monitor the case and to whom the annual summaries of payments will be sent by the custodian of the Trust.

Currently, attorney's fees are not charged on medical set-asides or trusts, just on the non-medical portion of the settlement. Since the preparation of the Medicare Set-Aside Trust is a complicated and detailed procedure requiring considerable time and effort, it is the author's judgement that the attorney's fee issue in catastrophic cases should be re-evaluated by the Board of Workers' Compensation, and perhaps a contingency fee of ten to fifteen percent of the sum in the Trust would be appropriate for attorney's fees in addition to the regular fee.

Workers' Compensation settlements in appropriate catastrophic cases are now viable again through the use of Set-Aside Trusts and the Medicare approval process. Although the time required to negotiate and settle the case has been lengthened due to Medicare involvement, at least the parties have the assurance that the claim is settled without risk of future liability or reimbursement responsibility by the employer/insurer.

Michael R. Casper is a Gainesville attorney in the firm of  Michael R. Casper, P.C., which he founded in 1974. His practice is limited to trial practice-personal injury and wrongful death, and workers' compensation law.

Casper graduated from the University of Georgia in 1969 with Honors in English and lettered as a varsity diver on the U.G.A. swimming team. He received the Juris Doctorate degree from the University of Georgia School of Law in 1972.

Casper has served as Secretary-Treasurer and President of the Gainesville-Northeastern Bar Association, area vice-president of the G.T.L.A., and member of  the American Trial Lawyers Association. He has served as adjunct Professor of  Law at Gainesville College and Director of the Legal Assistant Program at Gainesville College and has also written and lectured on law related topics.