Chapter 15 Medicare

I. Introduction

By now, experienced workers' compensation attorneys realize that workers' compensation cases do not involve only workers' compensation law. In some instances, the interaction with other laws is negligible and creates little friction, such as when an injured employee becomes eligible for COBRA insurance benefits. Other examples are more sophisticated, but their consequences defined and predictable: an employee's receipt of Social Security disability insurance benefits under federal law is offset algorithmically by the amount of indemnity paid under state workers' compensation law.¹ In still others, the interaction between state law and these other laws involves a more involved strategy when it comes to decisions in underlying workers' compensation claims.

An employee's simultaneous entitlement to workers' compensation and Medicare benefits falls in this latter category. Under these circumstances, there are a number of interests to consider. These include:

(1) Medicare's interest in getting reimbursed from primary sources of coverage for payments made by Medicare;
(2) Medicare's and the Social Security Administration's interest in the offset between disability insurance benefits and workers' compensation indemnity payments, but only by a "reasonable" allocation for future medical expenses;
(3) The workers' compensation insurance carriers' interests in achieving finality in their settlements with injured employees;
(4) The injured employees' interests in balancing the previous interests while at the same time preserving (1) a sufficient, but fair, portion of workers' compensation settlement proceeds, and (2) their entitlement to coverage for future medical needs through Medicare; and
(5) The legal profession's interests in the ease of coordinating settlements and in minimizing attorneys' liability to reimburse Medicare or for legal malpractice suits because of their failure to sufficiently accommodate all these interests in workers' compensation cases.

This chapter will (1) discuss the history of the Medicare Secondary Payer (MSP) provision² of the Social Security Act; (2) analyze the legal framework under which Medicare's reimbursement efforts operate; (3) review how the MSP provision affects workers' compensation claims.

II. The History

Congress enacted Medicare in 1965. Found in Title XVIII of the Social Security Act, Medicare provides governmental health coverage for the following groups of beneficiaries:

(1) Individuals over 65 years of age;
(2) Individuals under 65 years of age who have received Social Security disability insurance benefits for at least 24 months (i.e., 29 months after the onset date of disability); and;
(3) Individuals with end-stage renal disease.³

These beneficiaries are "entitled" to Medicare coverage, meaning that the government will pay for the beneficiaries' medical items or services covered by Medicare, but not that the government has discretion to deny payment for an item or service otherwise covered.⁴

Medicare is divided into four parts, each of which covers different things. For qualified beneficiaries, Medicare Part A covers expenses for hospitals, skilled nursing facilities, home health care, and hospice care. Medicare Part B covers physicians' services and ancillary health care expenses such as physical and speech therapy, inpatient and outpatient medical and surgical services, laboratory tests, and durable medical equipment. Medicare Part C provides for "Medicare Advantage Organizations" (MAOs), or private insurance plans that are substitutes for governmental Medicare coverage. Finally, Medicare Part D covers prescription expenses.

The United States Department of Health and Human Services (DHHS) administers the Medicare program. Until 2001, the Health Care Financing Agency (HCFA), a division of the DHHS, regulated the Medicare system in conjunction with contracting agencies in every state.⁵ Since 2001, however, HCFA's responsibilities have been transferred to the new Centers for Medicare and Medicaid Services (CMS).

CMS's enforcement of the Medicare Secondary Payer provision has varied over the years, depending on the attention to which the government (including Congress) has given to the MSP provision and its enforcement. When reading published opinions by federal courts concerning the MSP provision, the advocate should keep the law as it existed within these timeframes in mind, if only to give context to the courts' discussions and analyses.

A. Period #1 — 1965 to 1980

Initially, Medicare did not concern itself with alternative sources of medical coverage for its beneficiaries. "From 1965 to 1980 Medicare was the primary payer of health care costs for individuals over the age of 65."⁶ During this time, DHHS administered the Medicare program through the HCFA, treating Medicare much like private insurance coverage. Contracting intermediaries in every state — usually private insurance carriers — administered Medicare claims on a local basis, largely ignoring alternative sources of payment such as group health insurance, liability insurance, no-fault or PIP coverage, and workers' compensation.⁷ By statute, Medicare was the primary payer between 1965 and 1980, and there is no precedent during this period dealing with its right of reimbursement under the MSP provisions.

B. Period #2 — 1981 to 1995

In 1980, Congress changed its mind. Tracing a several-year erosion of Medicare's "primary payer" status by Congress, one court explained that

[t]he Omnibus Budget Reconciliation Act of 1980 ("OBRA 80") was the first in a series of legislative enactments designed by Congress to reduce federal spending in the area of Medicare....
The intent of Congress in shifting the burden of primary coverage from Medicare to private insurance carriers was to place the burden where it could best be absorbed. "[M]edicare ha[d] served to relieve private insurers of obligations to pay the costs of medical care in cases where there would otherwise be liability under the private insurance contract." H. Rep. No. 96-1167, 96th Cong., 2d Sess., reprinted in 1980 U.S. Code Cong. & Admin. News 5526, 5752. Congress foresaw the possible delay in ascertaining the existence and liability of private insurance, but found that payments made conditioned on reimbursement was the only economically feasible solution. Id.
The Omnibus Budget Reconciliation Act of 1981 ("OBRA 81") [OBRA 81, Pub. L. No. 97-35, § 720H, 95 Stat. 357 (1981)] further amended the Medicare Act by providing that payment by Medicare for certain [end-stage renal disease] expenses would be secondary.... This amendment became effective for medical care furnished on or before October 1, 1981.
[In 1982, t]he Tax Equity and Fiscal Responsibility Act ("TEFRA") [TEFRA, Pub. L. No. 97-248, § 128, 96 Stat. 324 (1982)]...eliminated the employer's ability to have a Medicare "carve out" provision in his health plan, excluding benefits actually paid for by Medicare. Congress, however, left establishing regulations regarding minimum amounts recoverable and the procedures for seeking recovery from employer plans to the Secretary [of DHHS]. In fact, Congress explicitly referred to past regulations in other cases where Medicare is the secondary payer. S. Rep. No. 97-494, 97th Cong., 2d Sess., reprinted in 1982 U.S. Code Cong. & Admin. News 781, 793.
TEFRA further amended the Medicare Act to provide that Medicare become the secondary payer to employer group health plans ("EGHPs") where the beneficiary was between the ages of 65 through 69. However, TEFRA created two anomalies: (1) in order for the TEFRA rules to apply to an older spouse, the active employee had to be between the ages of 65 and 70; if an active employee was under age 65 or over age 70, Medicare was the primary payer for the age 65 to 70 spouse; and (2) people who did not enroll in Medicare Part B when first eligible at age 65 were subject to certain penalties and restrictions.
The Deficit Reduction Act of 1984 ("DEFRA") provided the Government with an explicit statutory right of recovery for Medicare overpayments against certain third parties. Prior to DEFRA, Medicare would make benefit payments "conditioned on reimbursement" for which other third party insurance programs such as workers' compensation, auto or liability insurance, and employer health plans were ultimately liable for some or all of the costs.
As Congress stated:

[DEFRA would] establish the statutory right of [M]edicare to recover directly from a liable third party, if the beneficiary himself [did] not do so, and to pay a beneficiary, or on the beneficiary's behalf pending recovery where such third party is not expected to pay promptly. [DEFRA] would also permit the Secretary to recover directly from the third party whether or not the beneficiary brings suit to recover and subrogate to the United States the right of the individual or anyone else to payment from the third party. These provisions are intended to improve the ability of the [M]edicare program to obtain reimbursement to which it is entitled by law. [DEFRA] would not permit [M]edicare to bring an action against a beneficiary who had already been paid by the third party. Rather, the normal [M]edicare rules with respect to collection of overpayments would apply.

H. R. Rep. No. 98-432, 98th Cong., 2d Sess., reprinted in 1984 U.S. Code Cong. & Admin. News 697, 1417 (emphasis supplied).
DEFRA amended the Medicare Act to explicitly provide the United States a right of recovery for Medicare overpayments "against any entity which would be responsible for payment" effective July 18, 1984.... DEFRA also refined TEFRA to remove the two anomalies previously discussed. Effective January 1, 1985, all employees and spouses between the ages of 65 and 70 with employer coverage had primary coverage under the employer group health plan and secondary coverage under Medicare as long as the employee was actively employed and under age 70. Also, effective