by Douglas J. Holmes, President UWC—Strategic Services on Unemployment & Workers’ Compensation

1. Medicare Set-Aside and CMS Reporting Update by Douglas J. Holmes, President UWC—Strategic Services on Unemployment & Workers’ Compensation The Michigan Self-Insurers Association Traverse City, Michigan May 27, 2009

2. About UWC Established 1933 “The Voice of Business on Unemployment & Workers’ Compensation” Only association exclusively devoted to lobbying for business on national workers’ compensation and unemployment insurance issues • Lobbying • Support for state lobbying organizations • National professional society • Employers, insurers, service providers, law • firms, state administrative agencies, and associations • Research/education arm is the National Foundation for • Unemployment Compensation & Workers’ Compensation

3. Federal Impacts on WC • Workers’ Compensation Medicare Set-Aside Arrangements (WCMSAs) and Legislative Update • New reporting requirements under Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007 (S 2499) • Prospects for 2009 and 2010

4. Workers’ Compensation Medicare Set-Asides • HR 2641 Introduced by Representative John Tanner (D –TN) is reintroduction of HR 2549 from the 110th Congress with modifications to address revenue neutrality. • Primary modifications include 1) reducing the MSP exclusion threshold from $250,000 to $25,000, 2) adding a cap of $250,000 present value to 10% safe harbor settlements, and 3) providing CMS 90 days in which to document and determine amounts to be subject to conditional payment recovery.

5. MSP Issues Addressed In HR 2641 • WC settlement agreements exempt from MSP include 1) present value of $25,000 or less; 2) likely ineligibility for Medicare;3) no future medical expenses; and 4) no limitation on future medical expenses. • Present value includes cash, purchase cost of annuities, amounts previously paid, but excludes payments for previous medical expenses, payments for third party liens or claims, attorney fees for the claimant and any other procurement costs to secure the agreement.

6. HR 2641 Provisions • Limited cases when not likely to be ineligible to 1) awarded SSDI; 2) Applied for SSDI and determination pending 90 or fewer days; 3) appealing denial of SSDI; 4) at least 62 and1/2 years old; 5) has end stage renal disease. • MSP satisfied with specified “Qualified” WCMSAs under settlement agreements. Set aside amounts to be based on items and services under WC agreement and/or using WC fee schedules, and reduced by direct costs of establishing and administering the WCMSA and costs of attorneys, TPAs, or administrators. • Optional compromise settlement

7. HR 2641 • CMS Decisions on qualified WCMSAs shall be made within 60 days of submission with specific reasons if disapproved. • Safe harbor for submissions if 10% of present value of settlement submitted as long as settlement is $250,000 or less. • Reconsideration of disapproval may be filed within 60 days; reconsideration within 30 days; appeal within 30 days to ALJ; decision within 90 days of appeal; judicial review of ALJ decision. • Optional direct payment of WCMSA to CMS

8. HR 2641 • CMS must provide documentation of conditional payment within 90 days of request • Payment of amount of conditional payment based on documentation discharges liability • If CMS fails to provide documentation within 90 days of request neither the claimant nor the payer is liable for payment • WC law shall be conclusive as to matters under WC law and not subject to CMS review • No additional liability for a WC settlement agreement effective prior to enactment of HR 2641 than on effective date of the agreement

9. Continuing WCMSA Issues • Rated age information must conform to CMS standards; if not CMS will not consider re-pricing WC based on corrected information submitted and will use Actual Age • Effective June 1, 2009 CMS will independently price prescription drugs using average wholesale price (AWP) for brand name drugs. Re-opened cases subject to new standards • If CMS determines submitted information for pricing of Implantable Devices, CMS will utilize its own cost-finding methodology

10. Legislative Reform Goals • No CMS review where frictional costs exceed potential recoveries from WCMSA accounts • CMS approval within 60 days of submission • Appeal process – 30 days after determination • Even handed administration on a national basis • Require that state WC laws determine existence and amount of primary obligation • Adjustment of WCMSAs to reflect settlement percentages in compromise settlements • Provide clear legal authority for set-asides

11. S 2499 Section 111 Reporting • Enacted during last day of Senate session in 2007 • Projected to produce $1.1 billion in revenue for Medicare over 10 years; CMS expects much greater revenue as reporting is implemented • Requires plans of insurance, including workers compensation laws and plans to report all judgments, settlements, awards and payments of WC to individuals who are Medicare entitled

12. S 2499 Section 111 Reporting (cont’d) • Responsible Reporting Entities (RREs) include insurance carriers, self-insured employers, and federal and state agencies • TPAs may not be RREs but may be registered by RREs as agents to submit reports • Registration of RREs began May 1, 2009 and has been extended through September 30, 2009 • Obligation to report is July 1, 2009, but reporting has been extended through testing by March, 31 2010, and production reporting April – June 2010

13. S 2499 Section 111 Reporting (cont’d) • Medicare status query function available July 1, 2009 for RREs who have completed registration • Reports of Total Payment Obligation to the Claimant (TPOC) amounts with dates before January 1, 2010 not required • Ongoing Responsibility for Medicals (ORM) reports not required if 1) medicals only, 2) lost time of no more than 7 days, 3) all payments made directly to service provider, 4) total payment of $600 or less • TPOCs under $5k not reportable thru 12/31/2010 • Interim Report Record Lay-outs available from CMS along with User Guide and training from CMS • Each RRE assigned an EDI rep to assist • Implementation through CMS web site -No formal regulations to be issued for comment • No formal administrative appeal

14. Continuing 2499 Reporting Issues • Verification of Medicare entitlement • Definition of “Date of First Exposure” • Reporting responsibility • Thresholds for reporting • Adjustment of safe harbors/substantial compliance • CMS Reach Back Recovery • www.cms.hhs.gov/MandatoryInsRep

15. Other Reporting Issues • Report payments made after July 1, 2009 must be reported even if based on settlements, awards or judgments prior to July 1, 2009 • RREs must report information even if not currently captured on data bases • CMS guideline for SSNs acquisition from claimant for reporting purposes • $1,000 per day fine for failing to report will not be imposed until reporting registration and standards are finalized

16. Costs of S 2499 Reporting • Increased risk that old settlements will be reviewed with changes in Medicare recovery, increasing potential costs • The number of RREs is much larger than originally estimated by CMS, pushing back implementation; increasing complexity • Bankruptcy, successorship, WC/liability categorization, and mass torts remain issues • Increases in risk and prospective costs of WC where Medicare interests involved

17. Outlook for 2009, 2010, and thereafter • Registration and development of reporting requirements and implementation will continue through 2010 • Active enforcement and penalties imposed beginning in 2010 • Significant additional Medicare recoveries and cost avoidance above $1.1 billion, shifting Medicare costs to state WC and insurance industry

18. Self Insurers Play Crucial Roles • Sorting through the continually changing requirements and deadlines • Raising legal, administrative and policy issues with members of Congress and the Administration • Understanding and explaining the proper interfacing of WC with Medicare • Advocating for Reform!

19. Join US UWC -- Strategic Services on Unemployment & Workers’ Compensation “The Voice of Business on Unemployment & Workers’ Compensation” 910 17th Street, NW, Suite 315 Washington, DC 20006 holmesd@UWCstrategy.org www.UWCstrategy.org 202-223-8904