Medicare Secondary Payer Act & Medicare Set-Aside FAQ’s



The Medicare Secondary Payer Act
Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007, and
Medicare Set-Aside Frequently Asked Questions

On January 4, 2019, the Centers for Medicare & Medicaid Services (“CMS”) released version 5.5 of the Medicare Secondary Payer (MSP) Non-Group Health Plan (NGHP) reporting requirements mandated by Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) (P.L. 110-173) are documented in the MMSEA Section 111 Medicare Secondary Payer  Mandatory Reporting Liability Insurance (Including Self-Insurance), No-Fault Insurance, and Workers’ Compensation User Guide (NGHP User Guide). MMSEA amended the MSP making it easier for Medicare to effectively establish liens. The following Q&A identifies some of the common questions surrounding the MSP, Section 111, and the reasoning behind Medicare Set-Aside.

1.) Q: What is the Medicare Secondary Payer Act (MSP)?

A: The Medicare Secondary Payer Act (42 U.S.C. 1395y) is federal legislation which effectively enacted Medicare liens. Prior to the Act, Medicare did not have an efficient mechanism to identify or evaluate instances where Medicare’s liability should have been secondary to the “responsible” party (or its insurance) and could only recoup payment from insurance plans to the extent that payment had been made or could “reasonably be expected to be made promptly.” MSP is designed to preserve the Medicare Trust by making persons or entities “responsible” for injury(ies) to a Medicare recipient also responsible for reimbursing those expenses, rather than waiting on the “expectation” of prompt payment.  Specifically, the statute mandates that Medicare not pay medical costs for beneficiaries when there is a primary payer situation. Rather, Medicare is permitted to initiate recovery when it learns that payment has been made or could be made under workers’ compensation, any liability or no-fault insurance, or an employer group health plan. (42 C.F.R. 411.24).

2.) Q: What is the Section 111 of the Medicare, Medicaid, & S-CHIP Extension Act of 2007?

A: Section 111 of the Medicare, Medicaid, & S-CHIP Extension Act of 2007 (“MMSEA”) (P.L. 110-173), amended the MSP to impose new reporting requirements on liability insurance plans, private self-insured entities, Group Health Plans, no fault insurance plans and workers’ compensation plans with respect to Medicare beneficiaries who receive settlements, judgments, awards and other payments.  

3.) Q: Who must report under Section 111?

Under the reporting requirements, “Responsible Reporting Entities” (RREs) or their agents are required to electronically exchange data with Medicare on a quarterly basis listing recent settlement, judgments, awards – or whenever ongoing responsibility for medical benefits begins and ends.

4.) Q: What is a “Responsible Reporting Entity” (“RRE”)?

A: A RRE is an “Applicable Plan” that is responsible for complying with Section 111 of the MMSEA. (42 U.S.C. § 1395y(b)(8).) The NGHP User Guide Policy Guidance Chapter III (Section 6) provides that the term “Applicable Plan” refers to laws, plans, or other arrangements, including the fiduciary or administrator for such laws, plan or arrangement: 

  • Liability insurance (including self-insurance),
  • No-fault insurance, and
  • Workers’ compensation laws or plans.

Specifically, a RRE is the entity that contractually or legally assumes liability for a risk of injury or accident. Entities that choose not to make plans for liability are deemed under Federal law as self-insured.

5.) Q: What claims must be reported under Section 111?

A: In general, RREs are required to report claims where the injured party is (or was) a Medicare beneficiary and medicals are claimed and/or released or the settlement, judgment, award, or other payment has the effect of releasing medicals.

RREs must report on no-fault insurance and workers’ compensation claims where the injured party is/was a Medicare beneficiary that are addressed/resolved (or partially addressed/resolved) through a settlement, judgment, award, or other payment with a Total Payment Obligation to the Claimant (TPOC) Date on or after October 1, 2010, that meet the reporting thresholds, regardless of the assigned date for a particular RRE’s first submission.

 (See Chapter 6, Pages 18-19, CMS’ NGHP User Guide Version 5.5 Rev. 2019/4 January).

6.) Q: What is the penalty for failure to comply with Section III?

Failure to abide by Section 111 reporting requirements carries a stiff penalty. Congress has authorized civil penalties of ($1,000.00 per day ). $1,000.00 per day per claim for any RRE that fails to report a claim within the applicable time period. It is important to note that Medicare has not set any parameters for the penalty, other than those already delineated in the statute itself.

7.) Q: Should Medicare Set-Asides be used to comply with Section 111?  

In certain instances, Medicare is also considered the secondary payer for post-settlement, future medical expenses. These instances arise where “responsibility” is attributed during settlement with a claimant who needs future treatment. Because the “responsible” party becomes the primary payer, if medical expenses for the injured party will be paid by Medicare, a Medicare Set-Aside Account (MSA) should be created to reimburse Medicare for potential future medical payments.

8.) Q: What are some examples of Medicare Set-Aside (MSA) arrangements?

There are generally 3 (three) types of MSAs:

  1. Medicare Set-Aside Trust
    1. This is professionally administered. Typically, this option can be very expensive and involve a bank and/or formal trust.
  2. Medicare Set-Aside Custodial Account
    1. This option is also professionally administered but offers more diverse/flexible options. This option happens to be the most common arrangement for MSAs.
  3. Self-Administered MSA

Additional considerations:

Establishing a MSA is important. Getting it right the first time will alleviate possible risks to the beneficiary.

If Medicare reviews a case and determines that its interests were not adequately protected, the immediate risk lies with the Medicare beneficiary, not the Defendants.

Medicare may suspend the beneficiary’s coverage until such time as Medicare determines its interests have been properly considered (i.e., the entire settlement amount has been exhausted to pay for Medicare-covered expenses).

If MSA is underfunded, CMS may consider any ongoing payments “conditional” in nature, in which case reimbursement may be sought against the carrier as a lien against the settlement.