Abstract
Effective January 1, 2012, Medicare will require insurers and self-insured companies to report settlements, awards, and judgments that involve a Medicare beneficiary to the Centers for Medicare and Medicaid Services (CMS). In the first year of the law's implementation, claims resolved for less than $5,000 will be exempt from the reporting requirement. In the second year, the threshold for reporting will fall to $2,000 and then $600. In the third year, all claims will have to be reported regardless of payment size. As a first step toward informing the policy debate about the costs of compliance, the amounts likely to be available for recovery under the Medicare Secondary Payer (MSP) Act, and the effects of different thresholds on these quantities, the researchers analyzed the effects of the eventual phaseout of the $5,000 threshold. The results of the analysis suggest that collecting on low-value claims provides Medicare with relatively little revenue and that such claims represent a substantial fraction of the reporting burden.
Effective January 1, 2012, Medicare will require insurers and self-insured companies to report settlements, awards, and judgments that involve a Medicare beneficiary to the Centers for Medicare and Medicaid Services (CMS). This reporting requirement results from amendments to the Medicare Secondary Payer (MSP) Act of 1980, which stipulates that Medicare is the secondary insurer on all claims involving another source of insurance and hence must be reimbursed for any payments it makes that are also covered by another insurer.* In the first year of the new amendment's implementation, claims resolved for less than $5,000 will be exempt from the reporting requirement. In the second year, the threshold for reporting will fall to $2,000 and then $600. In the third year, all claims will have to be reported regardless of payment size.**
Proponents of this new reporting requirement view it as a way for Medicare to obtain funds that it is legally owed by Medicare beneficiaries but has traditionally been unable to collect, and thus as providing a new source of revenue to enhance the program's fiscal sustainability.*** However, some attorneys and insurers have expressed concerns that the compliance costs of the new reporting requirement may be high relative to the amounts collected by Medicare. Unfortunately, the current policy debate occurs against a backdrop of almost no empirical information on the costs of compliance, the amounts likely to be available to Medicare through the collection process, or the effects of different thresholds on these quantities.
As a first step toward informing this discussion, we examined one aspect of the new reporting requirement: the eventual phaseout of the $5,000 threshold for reporting settlements. Using the Insurance Research Council's (IRC's) Paying for Auto Injuries: A Consumer Panel Survey of Auto Accident Victims datasets for the years 1992, 1997, and 2002 (IRC, 1994, 1999, and 2004), we approximated how much Medicare could potentially recover from payments made to auto injury victims under the MSP Act and then examined how much of this recovery would be lost to CMS if it continued its $5,000 reporting threshold. We found that the amount recovered under the new requirement will not be greatly diminished if claims under $5,000 are exempt from reporting, even when we assume that beneficiaries will not reimburse Medicare for any payments it is owed for these claims. Although we were unable to directly estimate compliance costs, we were able to glean information about their potential size from interviews with property casualty insurers.
To be clear, we were not able to evaluate the costs and benefits of the new reporting requirement and hence cannot examine whether the policy is beneficial, with or without the threshold. We had no data on non-auto cases and hence could not estimate what the ratio of benefits to costs is overall. However, as we show below, a substantial number of cases under the $5,000 reporting threshold are auto cases, which allowed us to estimate what reductions in MSP Act recovery would be if the current threshold were maintained.****
Notes
The MSP Act (42 U.S. Code [USC] 1395y(b)(2)) is itself one of many amendments to the Social Security Act (Public Law [PL] 74–271 [49 Stat. 620]), which was approved on August 14, 1935.
The thresholds exempt those making payments to a Medicare beneficiary from the reporting requirement but do not represent a safe harbor from other obligations under the provisions of the MSP Act's statutes. In this article, we assume that without the reporting requirement, Medicare would not recover any money owed to it by beneficiaries who receive payments from liability insurers. Since we cannot determine the fraction of Medicare payments that would be reimbursed without the reporting requirement, our estimates represent an upper bound on possible recovery.
It is important to note that all health, liability, no-fault, and workers' compensation insurers that make a payment to an eligible Medicare beneficiary will be required to report that payment to CMS. Recovery is distinct from reporting. The beneficiary owes CMS reimbursement for payments he or she receives, but CMS may recover from the primary payer or anyone who receives payment from a primary payer.
Determining the relative costs and benefits of the overall reporting requirement would require examining the MSP Act's 2003 amendments that made liability insurers a first-party insurer with respect to Medicare. Evaluating those amendments is more difficult than examining the reporting threshold because, as discussed extensively by Swedloff (2008), they generally have a greater impact on the functioning of the civil justice system. If enforced completely, the amendments would likely alter the composition of cases in the civil justice system. In particular, because plaintiff's attorneys often cannot identify the extent to which Medicare may have paid for a client's injuries resulting from an accident and because Medicare is reportedly slow to respond to inquiries, the MSP Act likely delays payments and/or the resolution of claims and may make some smaller claims uneconomical. Although retaining the threshold would eliminate this issue for cases resolved for less than $5,000, it would do nothing in larger cases. The threshold will also not alter the need for plaintiffs (and their attorneys) and liability insurers to resolve Medicare liens, so delay will remain an issue even if the threshold is retained. It should also be noted that the 11th Circuit has recently taken up these issues. In Bradley v. Sebelius, 2010 WL 3769132 (11th Cir. Sept. 29, 2010), the court ruled against Medicare's interpretation of the 2003 amendments. The decision appears to put Medicare in a position closer to the subrogation standards that exist for other secondary insurers with regard to the liability system. The court found that Medicare was entitled to a proportionate share of a settlement rather than to a dollar-for-dollar reimbursement, in effect requiring Medicare to share the risk associated with litigation. The court suggested that Medicare's current approach to recovery could have the unintended consequence of reducing its ultimate recovery under the MSP Act because potential plaintiffs would simply not find it worthwhile to pursue a claim.
Reference
- 42 USC 1395y(b)(2), Medicare Secondary Payer.
- Insurance Research Council (2004, 1999, and 1994). Paying for Auto Injuries: A Consumer Panel Survey of Auto Accident Victims.
- Swedloff, Rick (2008). “Can't Settle, Can't Sue: How Congress Stole Tort Remedies from Medicare Beneficiaries,” Akron Law Review 41: 558–608. [Google Scholar]