On March 2, 2020, the New York State Workers’ Compensation Board issued a notice indicating “it will not approve any Section 32 Waiver Agreement that requires a claimant to indemnify and/or hold harmless the carrier.” A link to the notice can be found here.
In New York, Section 32 agreements are:
[a] negotiated agreement between the injured worker and the insurance carrier to settle indemnity and/or medical benefits on a [workers’ compensation] claim. A waiver agreement ends the right of an injured worker to ongoing and future benefits in exchange for a lump sum payment or an annuity. If agreed upon and approved by the Board, whatever is settled (indemnity and/or medical benefits) is closed forever. The insurance carrier will no longer be responsible for that part of the claim and it cannot be reopened. If indemnity benefits are settled, no further payments for lost wages will be made. If medical benefits are settled, the insurance carrier will no longer pay for medical care. A waiver agreement is not binding unless it is approved by the Workers’ Compensation Board.
By way of background, in New York, there had been a prior policy dating back to 2009 (Subject No. 046-37, dated November 13, 2009), where Section 32 agreements could not contain language where the claimant agreed to hold the carrier harmless for Medicare payments made prior to a settlement (conditional payments).
Subsequent to the 2009 policy:
Section 32 Waiver Agreements have been submitted to the Board for approval containing similar provisions whereby the claimant has agreed to indemnify and hold harmless the carrier for its potential financial liability. Recently, the Board has received Section 32 Waiver Agreements which provide that the claimant will indemnify and hold harmless the carrier in the event that the carrier incurs liability as the result of the claimant’s failure to safeguard the funds in a self-administered Medicare set-aside account established pursuant to the agreement.
See Subject Number 046-372, March 2, 2020 (emphasis added).
As a result, the New York Workers’ Compensation Board has determined, “that it will not approve any Section 32 Waiver Agreement that requires a claimant to indemnify and/or hold harmless the carrier.” The Board’s rationale is due to “…the disparity in bargaining power and financial resources between individual claimants and insurance carriers…” Therefore, “the Board believes such provisions, regardless of the particular liability for which the carrier seeks indemnification, are unfair and unconscionable (see WCL § 32[b]), and have no place in an agreement settling a claim for workers’ compensation benefits.” Id.
Utilization of Hold-Harmless & Indemnification Language for MSAs
When an MSA is incorporated in a settlement, understandably, the primary payer wants to ensure that the funds are going to be appropriately expended on injury-related treatment otherwise covered by Medicare. In administering the MSA post-settlement, the following must occur:
- Establish a separate interest-bearing account at an FDIC-insured institution
- Expend funds only on Medicare-covered items casually connected to treatment related to the underlying workers’ compensation or bodily injury claim
- Coordinate with providers to transmit invoices to be properly billed against the MSA funds
- Maintain proper records and accounting of the MSA
- For every transaction with the account, the following needs to be tracked:
- Transaction date
- Check number
- Payable to or health care provider name
- Date of service
- Description (procedure, service, or item received; deposit; interest; other allowable expense)
- Amount paid
- Any deposit amounts
- Account balance
- Submit annual reporting and attestation (manually or electronically) with proper documentation and receipts; and/or when the funds are exhausted (either permanently or temporarily)
If the claimant fails to execute on the above, it is possible there could be adverse consequences (i.e. Medicare may refuse to pay for a particular item or service, funds prematurely exhaust, claimant could lose Medicare benefits, etc.). The primary payer may have indirect / collateral risk and exposure due to the claimant’s mishandling of the MSA. Therefore, hold-harmless and indemnification language is utilized to mitigate against this liability.
Professional Administration as a Solution
In the event there was liability towards a primary payer due to the mishandling of an MSA by a claimant, it’s difficult to say what weight the hold-harmless / indemnification language would play in protecting the carrier from exposure. On a case-by-case basis, questions would persist relative to whether:
- the claimant is in a financial position to indemnify the primary payer
- the claimant would voluntarily agree to abide by the provisions - absent court involvement / intervention
- a court would uphold the hold-harmless / indemnification provision
In New York, it appears that this language will not be an option to mitigate against this potential exposure. The crux of the hold-harmless and indemnification provision is a way to safeguard liability against the primary payer for a claimant’s potential mishandling of the MSA funds. A solution to this is to remove the potential for mishandling of the MSA entirely by having the MSA professionally administered.
Professional administration ensures proper handling of the MSA and eliminates the potential that the claimant may mismanage the funds. Professional administration:
- Removes the burden and risk of the claimant mishandling
- Ensures compliance with respect to all CMS guidelines and management of the funds, including reporting and attestation to Medicare
- Maximizes the life of the funds through potential savings and discounts
Professional administration is a more tangible, immediate solution (in addition to or in lieu of) hold-harmless and indemnification language. If you’d like to discuss settling workers’ compensation claims in New York and professional administration, please contact Ametros.