Many parties to a settlement turn to professional administration of future medical funds because it helps protect everyone involved in a settlement; it’s The Centers for Medicare and Medicaid Services (CMS)’ “highly recommended” method for the management of Medicare Set Aside (MSA) funds for injured workers. See Sec. 17.1 of the WCMSA Reference Guide. The service helps many parties to a settlement and ensures there is proper coordination with Medicare to protect the worker’s Medicare coverage for their lifetime. For these reasons, the use of professional administration is growing rapidly. Many CMS and legal considerations dictate the terms of the administration during the lifetime of the beneficiary, but what happens after their death? This article addresses the common question, “what happens to any remaining funds in the administered account upon death?”
When medical funds are professionally administered, the first step is for the administrator to set up a custodial bank account for the injured person, often referred to as their “member.” The funds are used for injury-related care that would otherwise be paid for by Medicare. Funds in an MSA are allocated to cover treatment for the member’s entire life.
Upon the death of the member, the administrator needs instructions on where to send remaining funds in the account, if there are any. Typically, there is a waiting period of twelve months which corresponds to the timeframe in which Medicare or other insurance payers may accept a bill after treatment. This ensures there no pending bills remaining after the final disbursement of the remaining funds. At the end of the waiting period, the administrator will disburse remaining funds to the named beneficiary(ies) which are typically designated in the settlement documents.
Where and how do beneficiaries get named in settlement documents?
Many times, during settlement negotiations the topic of the account beneficiary will come up. The parties negotiating can decide on language that dictates that any remaining funds might pass to the member’s estate, another beneficiary designated like family or friends, or sometimes to entities like nonprofits, etc. In certain instances, Ametros has observed attorneys designated to receive a portion of the remaining balance. In other instances, Ametros has noted that parties negotiated a provision where the insurance company or employer resolving the claim, often referred to as the “payer,” receives remaining funds after death.
Designation of the beneficiary is typically accomplished by the parties including language in the settlement order or as an addendum clearly outlining where the funds should go. When the payer is designated as a beneficiary the practice is often referred to as a “reversionary interest.” This is because the funds will “revert” back to a particular entity that made payment. In these instances, and in some other circumstances, parties may also negotiate to include terms in the settlement documents that protect the dissipation of the account prior to death such as imposing limitations on withdrawals from the account or limiting early termination of the account before death.
There are a number of ways parties can negotiate where funds go after death. Unspent MSA funds upon death may go in whole or in part to:
- The member’s estate or family
- Designated third party individuals or organizations
- Designated charities
- The payer / insurance carrier / employer
- The plaintiff attorney
- In the case of a special needs trust - funds may be required to go to Medicaid to payback prior medical expenses paid for by Medicaid
At Ametros, we follow the direction provided in the settlement agreement that was signed and agreed to by all parties. If there is no indication of a beneficiary in the settlement agreement, then Ametros' default provision in our member agreement is to send the remaining funds to the member’s estate.
It’s important to note that the beneficiary of the account can be negotiated along with any of the other terms in a settlement. Ametros has no role in determining who the beneficiary is or to whom any remaining funds may pass. Ametros' top priority is to help the member get the medical care they need during their lifetime and to make sure we disburse the remaining funds to the appropriate party(ies) after death.
How much money could be leftover?
In theory, if the medical allocation or MSA is projected perfectly and spent entirely according to plan, there should be no funds remaining in the account when the member passes away. Of course, an MSA or life care plan is just an anticipated projection. Over time, treatment patterns may change and pricing for healthcare expenses may fluctuate over the member’s lifetime. Ametros’ data reflects the average anticipated life expectancy of an individual from settlement to death is approximately 24 years. This is based upon the anticipated life expectancy indicated in the underlying MSA reports we receive to administer. It is extremely difficult to predict how much money could be left in an account nearly a quarter of a century later. To come up with an approximation, there could be many factors to take into consideration. These include age, overall health, treatment patterns, the price and inflation of the treatment being provided, etc.
At Ametros, each year we release the average percent of money that our members save against what they would otherwise have paid if they paid cash for their various treatments; these figures are shared in our Member Impact Report. In general, the amount saved per bill may be in the roughly 20% to 40% range.
Ametros is not aware of any publicly available dataset that tracks usage of MSA settlement funds and what remains, if anything, upon death. MSAs have only existed in a common way as a vehicle to protect Medicare's interests since 2001 when the Patel Memorandum took first steps to establish a formalized MSA program. Ametros’ data only dates back to 2010 when our company was founded, which is only about half of the typical lifespan of a MSA account holder so we currently have a limited dataset. The examples below are only for illustrative purposes and have not been tested for statistical significance nor should they constitute advice (*see disclaimer).
In reviewing actual spending by members compared to what is projected to be spent each year in an MSA, Ametros’ data has shown so far, in general, that MSA account holders are spending about ~70% of what would be anticipated each year. This means that on average about ~30% of the funds are remaining in the account and are rolling over to the following year. For purposes of an example, if a trend of spending 70% of what was anticipated continued each year, then if an MSA settled for $100,000, and the member lived their full life expectancy, there would be $30,000 remaining unspent at death. This is only an illustrative example.
What are Medicare’s guidelines on where remaining funds go?
CMS has provided clear guidance that the settling parties can negotiate this as a term of the settlement and include language to dictate what happens to funds after death in the settlement documents. In Medicare's Standard MSA Decision Letter, which they mail in response to approving an MSA, they include an FAQ section that addresses the topic.
Source: WCMSA Decision Letter FAQ section, #10
CMS also includes guidance on this topic in Section 19.2 of the WCMSA Reference Guide:
19.2 Death of the Claimant
If a claimant dies before the WCMSA is completely exhausted, the RO and the BCRC will ensure that all claims have been paid. Then any amount left over in the WCMSA may be disbursed pursuant to state law, once Medicare’s interests have been protected. This may involve holding the WCMSA open for some period after the date of death, as providers, physicians, and other suppliers are permitted to submit their initial bill to Medicare for a period of 12 months after the date of service. Often, the settlement itself will dictate the appropriate dispersal of funds upon the death of the claimant and settlement of care-related expenses. (See WCMSA Reference Guide, v3.6, Sec. 19.2)
CMS further confirms its view that the parties should negotiate where funds go in a video entitled: “Top 10 Workers’ Compensation Medicare Set-aside Arrangement (WCMSA) Questions” at 3:32.
When it comes to where funds will go upon death, the terms of each settlement can vary. It’s important to make sure these terms are clear so that all parties are aligned for the proper disbursement.
If you have any questions regarding these settlement terms, we recommend you first contact your attorney on the matter. If you have questions about Ametros' services or agreements, please contact us at 877-275-7415.
*Disclaimer: Any Ametros figures or trends presented in this article are strictly for educational purposes and are by no means guarantees or indicative of precise past or future performance. Any content provided by Ametros is presented for educational, general reference and informational purposes only; is not intended to serve as legal or other advice; is not intended to be a full and exhaustive explanation in any area; should not be used to replace the advice of your own legal counsel; and Ametros makes no representation or warranty that the content is accurate, complete or current for any specific or particular purpose or application.
 First uses of the term “reversionary” originate from an established practice under the Federal Tort Claims Act (FTCA). While not entirely analogous in the area of WCMSAs, in the FTCA context, the term designates unspent funds established for future medical expenses reverting to the federal government. See Robak v. United States, 503 F. Supp. 982, 983 (N.D. Ill. 1980).