The Industry Voice

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Thanks to all of our members for a great year! 

Table of Contents

• Liability Medicare Set-Aside Arrangements: Explainer and Regulatory Update

• Member Spotlight: Q&A with Tory Owens

• Unraveling Five of the Most Common Myths About MSAs

• What is a Spend Down? 

• Owning a Home with a Special Needs Trust

• The Perils & Pitfalls of Individual Security Selection

• Inflation: The Medical Settlement's Silent Killer

• AASC Year in Review

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Unraveling Five of the Most Common Myths About MSAsBy Andrea Mills and Carla Roberts, Ametros

An MSA is an account used to pay for injury-related, Medicare-covered medical services and prescription expenses. It seems simple enough, but a couple of caveats serve to complicate the idea of MSAs.

First is the term, ‘injury-related.’ The MSA can only be used for medical treatment and prescriptions related to the incident (typically work-related), not all medical conditions the injured individual has. Secondly, only ‘Medicare-covered’ services may be funded through the MSA. For example, many intermittent home health care expenses can be covered by Medicare, however, daily home health care services such as a personal care for daily living activities would not be covered. Home health care expenses that are occasional and for intermittent use such as intermittent skilled nursing care, and physical or occupational therapy in the home would be covered by Medicare. To determine if there would be Medicare coverage for certain home health care expenses, it’s important to understand the type of care and the duration for those needs.

According to Kathleen Correia, Senior Claims Manager at Ametros, knowing what is covered can often be confusing for the injured individual. Injured individuals that need someone to come in daily and do blood work, or wash the dishes, or all of those chores are not things that Medicare covers.

Failing to comply with the rules and regulations of The Centers for Medicare & Medicaid Services (CMS) guidelines for MSAs can land an injured individual in a heap of trouble, jeopardizing Medicare benefits. If you misuse your Medicare Set Aside, Medicare can say ‘we’re not going to treat you until you make up this money that you’ve misspent, Correia added. If we don’t keep our members compliant when they do get to Medicare, Medicare will not pay for any injury-related services if that MSA was not used properly.

Managing MSAs is no easy task. That’s why the Centers for Medicare and Medicaid Services (CMS) has ‘highly recommended’ that injured workers use professional administrators to assist with their MSAs after they’ve settled their claims. Here are some of the most common myths and realities about MSAs:

1) Medicare covers everything

There are a variety of medical treatments and modalities that Medicare does not cover, and it’s often complicated for people to understand what they can and cannot get coverage for with their settlement funds.

Some inaccurately believe, for example, that everything that the insurance carrier previously paid for can be funded through the MSA, which is not the case. That can be extremely frustrating when people learn some of the treatment they were receiving pre-settlement is suddenly not covered.

The injured individual may need to find alternatives and ensure treatments are covered. An experienced professional administrator can be invaluable by offering discount networks for non-MSA services and medications, thereby limiting out-of-pocket expenses.

2) MSAs cover the same items universally

Each injured individual who settles their claim has unique needs; no two MSA allocations are the same. The MSA outlines the specific injury(ies) covered, treatments, prescriptions, etc. and includes the associated funding amounts.

One of the misconceptions is that if MSA funds are unspent for a time period, the funds can be used on unrelated items, which is incorrect. Unspent MSA money cannot be used for recreational spending money, for example, buying a new car or paying down debts, and must still be used for ‘injury-related’ and ‘Medicare-covered services’ purposes.

MSAs are often funded via an annuity where there is a set annual amount to fund the injury-related treatment. This fact alludes many injured individuals and others alike. Some believe that an unused portion of the annual MSA amount can be spent on something other than Medicare-covered services for the specific injury.

3) Next year’s MSA funds can be used if this year’s allocation is depleted

Temporary MSA fund depletion can be complicated for injured individuals to understand. They may wonder why they can’t tap into additional funds to pay for treatment in a given year when they have exhausted allotted funds for the year. Support from a professional administer can be helpful during the process to ensure that the correct documentation is sent to Medicare, which demonstrates the settlement funds were exhausted correctly, as is required by CMS. Additionally, it should also be noted that when Medicare pays, the injured individual is responsible for 20-percent copays. Contrary to what some believe, the MSA does not pay these copays.

A lot of times the member was told that they won’t [have to pay] out of pocket ever again, and they’re like, ‘why am I paying for this? It should come out of my account?’ said Ana Parks, Assistant Manager for Member Care for Ametros. Medicare doesn’t cover copays. So being compliant, we wouldn’t be able to cover those anyway. An injured individual who opts to self-administer their own money would still not be able to use MSA funds for copays.

We get hired to keep the account compliant, said Robin Kavanaugh, Assistant Manager, Voice of Customer. If [the injured individual] self-administers and was spending it on things that are not compliant, they would be at risk. Ensuring the right treatment is paid for with the right funds – whether MSA or non-MSA, is vital to the process so Medicare can become the primary payer when and if funds are exhausted.

4) Non-Medicare beneficiaries can ignore the rules

The injured individual who settles their claim and is not on Medicare at the time often thinks, ‘Medicare has nothing to do with my settlement funds,' or ‘I don’t need to worry about Medicare’s interests,' 'I’m not on Medicare right now,’ or, ‘I can just use my spouse’s insurance,' At some point, most will be Medicare beneficiaries. If MSA money has not been used for treating the specific injury, Medicare may not pay until it can be shown, through attestation, that money has been depleted appropriately. Otherwise, Medicare can demand that the person refund that money, possibly with penalties.

5) My medical treatment needs are unlikely to change

Medical treatment needs do change over time. Physicians may add new medications and/or change the dosages. Or a surgery may be needed to treat the work-related injury. Treatment plans can and do change – often. One thought is that the person can pay out-of-pocket for unexpected, additional treatments. That could become extremely expensive, especially since the prices paid post-settlement of the claim may be much higher than what the insurance company paid.

Leveraging discount providers and pharmacies offered by reputable professional administrators can be key to unexpected changes in treatment regimens by helping to extend and protect the injured individual’s MSA funds. Finding the right pharmacy and manufacturer, for example, can save substantial amounts of money on prescriptions. We do know that treatment changes over time. Sometimes we’ll see that they might have just one medication listed on their account, where later the doctor may prescribe other medications, Parks said. As long as it’s related to the injury and Medicare-covered, we will continue to pay for the services that they have.

Conclusion

One of the most important decisions in settling a claim with future medical is determining how the MSA will be administered—whether an individual will choose to administer their own funds or have professionals manage them. With the complexities of MSAs, it’s common for individuals to become overwhelmed by the responsibility of having an MSA or misunderstand how it needs to be managed according to Medicare’s guidelines. This is particularly true if self-administration is their chosen path after settlement.

 If an individual opts to manage their own funds, it’s critical they understand how to properly administer them, without the support of their case manager, adjuster, and attorney. This is where professional administration is a helpful tool. As the main resource and support for an individual’s medical care after settlement, the administrator ensures common mistakes made with medical settlement funds caused by preliminary misconceptions are completely avoided. Navigating the world of MSAs is challenging, except for the few experts who specialize in them. Professional administrators are a crucial component to preserving, appropriately expending the MSA account, and providing ongoing support for the injured individual after settlement.

What is a Spend Down?

By Cameron Lindahl, Secured Futures

Can you ever have too much money? While most of us would excitingly say of course not! Recipients of Supplemental Security Income (SSI) or Medicaid could risk losing their eligibility if they have too much cash, or too many assets, which put them over the income and asset limits for eligibility. This is when a Pooled Special Needs Trust comes in, and in some cases a Spend Down.

A Spend Down is a spending plan designed to ensure any assets over the established eligibility limits are spent in the same calendar month it is received. This spending plan is ideal when a person is receiving means-tested benefits which they can comfortably spend in one calendar month on themselves– no gifting or paying back is allowed.

While a Pooled Special Needs Trust is a great way for children and adults with disabilities to receive an inheritance or settlement and maintain their needs-based government benefit eligibility, there are some situations when a Pooled Special Needs Trust doesn’t make sense and in these cases, we recommend a spend down to satisfy immediate needs while keeping eligibility intact.

What can a Spend Down Pay for?

• Paying off debts
• Purchasing a primary residence or vehicle
• Rent or utilities within the calendar month
• Purchasing furniture or appliances
• Prepaid burial arrangements
• Legal fees
• Educational expenses
• Medical expenses and equipment not covered by Medicaid
• Entertainment, recreation, or vacation expenses
• Personal products

This list is intended to give you a general idea of commonly allowed purchases but is not all-inclusive.

Money is spent, now what?

Government Agencies generally require notification of the funds received along with documentation of all expenses paid to avoid eligibility violations. This notice may include receipts, settlement or inheritance information, and bank statements. If you have additional questions or need assistance, we encourage you to contact your local Social Security and Medicaid office for details or consult a Special Needs Attorney.

Next Steps: How to send a Spend Down Notice: A 3-Step Guide

Resources

• Utilizing the Spend Down Option to Maintain SSI and/or Medicaid Eligibility: Utilizing the Spend Down Option to Maintain SSI and/or Medicaid Eligibility (specialneedsalliance.org)
• SI 01150.007 Transfer of Resources by Spend-Down: SSA – POMS: SI 01150.007 – Transfer of Resources by Spend-Down – 02/24/2012
• SPOTLIGHT ON RESOURCES — 2021 Edition: SSI Spotlight on Resources (ssa.gov)
• SI 01110.210 Excluded Resources: SSA – POMS: SI 01110.210 – Excluded Resources – 12/15/2008
• SI 01150.121 Exceptions — Transfers to a Trust: SSA – POMS: SI 01150.121 – Exceptions — Transfers to a Trust – 07/12/2010
• SI 01150.125 Exceptions — Transfers for Purposes Other Than to Obtain SSI: SSA – POMS: SI 01150.125 – Exceptions – Transfers for Purposes Other Than to Obtain SSI – 12/24/2013
• SI 01150.001 What is a Resource Transfer: SSA – POMS: SI 01150.001 – What is a Resource Transfer – 07/15/2016

DISCLAIMER: The information provided by Secured Alliance is for informational purposes only and is intended to be used as a non-legal guide before consultation with an attorney familiar with your specific legal situation. Secured Alliance is not engaged in the practice of law or rendering legal advice or counsel. No such legal advice or counseling is either expressly or impliedly intended. This form is not a substitute for the advice or counsel of an attorney. If you require legal advice, you should seek the services of an attorney.

To contact the author: Cameron Lindahl, CLindahl@securedalliance.org

Owning a Home with a Special Needs Trust

By Amy Tripp, Special Needs Alliance

To say that adequate housing options for persons with disabilities is a challenge is an understatement. As a result, in the process of future planning, housing is almost always one of the most important topics. Some people with disabilities would like to continue living in the family home, with appropriate supports, after Mom and Dad are gone, and parents often agree that would best serve their son or daughter’s interest. Other parents anticipate leaving funds that would allow their son or daughter to own appropriate alternate housing. In both cases, it must be determined if it makes sense for the house to be owned by a special needs trust (SNT) that is likely at the center of their plan. And as noted below, individuals and families must also weigh the benefits of home ownership versus renting to determine the best fit.

The short answer is that, in many cases, is does make sense for an SNT to own a home, but there are numerous considerations and caveats that come into play. This is an overview of the rules and issues that can arise when an SNT owns a home.

It is important first to identify what type of trust would own the home. We should distinguish between first party and third party trusts. A first party SNT is funded with the individual beneficiary’s assets and, after the death of the beneficiary, requires reimbursement to the state for Medicaid services. A third party SNT, which is funded with someone else’s assets, such as an inheritance from a parent or proceeds from a life insurance policy, is more flexible and does not require reimbursement to the state.

Options for Titling Homes

A threshold consideration in deciding whether a residence is better owned by an SNT or the individual is whether that person has legal capacity to hold title on their own and what decision-making supports the person might need. Minors simply cannot hold title and would require a guardian (in some states, a conservator) be appointed. Many adults may also need support to manage home ownership. If an adult is under guardianship or conservatorship, the guardian or conservator would likely have legal authority to manage the property. Many other adults with I/DD would benefit from using decision-making supporters to help them meet the obligations of home ownership.

For an adult with I/DD, home ownership can be empowering, as it is for all of us. The responsibilities of home ownership, as well as the status of a property owner, can have very positive impact. Families should take care to ensure that appropriate decision-making supports are in place.

If direct ownership isn’t practical, leaving a family home to a third party SNT, or buying one with trust assets, protects the property from creditors and leaves financial and maintenance issues in the hands of a trustee.

While a residence purchased by a first party SNT gains these advantages during the beneficiary’s lifetime, the home is subject to recovery by the state upon the beneficiary’s death to the extent of the costs paid by Medicaid.

Finally, it is important to look at who else might be living in the home. If the home is owned outright by a first party SNT, there may be complications if other family members also reside there. Distributions from first party SNTs are supposed to be for the sole benefit of the beneficiary, and this may be interpreted differently by various Social Security offices. Depending on the level of caregiving performed by family members, they may be required to pay rent in order to avoid affecting the beneficiary’s eligibility for government benefits. There may even be issues regarding what maintenance the trust should pay for.

Some trustees, seeking to avoid a first party trust payback, arrange for the SNT to purchase a life estate interest in the family residence. By paying a portion of the home’s value, the beneficiary has a right to live there, rent free, as long as he or she lives. In some states, however, this won’t avoid the Medicaid lien, and other family members residing in the home still may need to pay rent to avoid conflict with the sole benefit rule.

Running the Numbers

Of course, as attractive as the idea is, whether it is practical to plan to provide a house to an adult son or daughter with disabilities after you’re gone comes down to dollars.

Any time the purchase or transfer of ownership of a residence is begin considered, it is critical to prepare a detailed budget which takes into consideration things such as the cost of modifications needed for accessibility, long-term maintenance, utilities, taxes, insurance, and general upkeep. A common planning mistake is for people to create SNTs which purchase homes, only to have the housing costs consume such a large part of the available resources that other important purposes of the SNT are compromised, leading to deterioration of the property and forcing sale at a discounted price.

On occasion the solution may be as simple as finding a roommate. The trend today is for families to consolidate resources and purchase housing that provides for more than one adult. While there are some great examples of these types of arrangements, there are also many situations in which such plans simply don’t work. And many trustees are unwilling to deal with their complexity.

Beyond the numbers, persons with disabilities and their families should consider other pros and cons to homeownership, including whether the person may in the future want to live in a different neighborhood or area, the suitability of the home for future family configurations and the potential for aging in place.

Effect on Benefits

The ownership of property and the payment of housing expenses can impact the government benefits the individual may be receiving, including Supplemental Security Income (SSI) and Medicaid.

Notably, for persons who receive SSI, mortgage payments, property taxes, utilities and other housing costs paid on their behalf by an SNT are considered in-kind support and maintenance (ISM) and will reduce SSI. Good planning can often reduce the impact of these rules, but not always.

Likewise, depending on how a home is titled, the purchase or sale of a home can trigger interruptions or reductions in benefits in the months in which these events occur. While the home is an exempt asset for SSI and Medicaid benefits, the sale of the home in the future, if titled to the individual, will result in converting an exempt asset into countable resources. If the home is titled to the SNT, then the sale of the home would have no impact on eligibility.

Medicaid liens and other estate recovery claims are potential pitfalls when persons receiving benefits own their own homes, or have homes held in some SNTs. When a first party SNT owns the home, extra attention needs to be provided if other family members are living in the home and providing support to the beneficiary. When the beneficiary dies, Medicaid is reimbursed from the remaining assets in the first party SNT. If the Medicaid lien exceeds the balance of the assets in the first party SNT and the house is owned by the SNT, then the house may be lost. This can be a great hardship for some families who provide support and services to the beneficiary.

Conclusion

Housing is always a challenge in future planning for persons with disabilities. Arranging for a stable living environment is a high priority, but the considerations are many and complex, and families and their counselors are becoming increasingly creative as they struggle with the housing shortage. Whether an SNT can or should own a house involves a number of considerations, and families should seek advice from a qualified attorney to ensure that their objectives are met.

Amy Tripp is a member of the Special Needs Alliance, a national nonprofit dedicated to assisting individuals with disabilities, their families and the professionals who serve them. SNA is partnering with The Arc to provide educational resources, build public awareness and advocate for policies on behalf of people with intellectual/developmental disabilities and their families.

Reprinted with permission of the Special Needs Alliance – www.specialneedsalliance.org.

The Perils and Pitfalls of Individual Security Selection

By Marjorie Smith, CFP ®,  Pacific Wealth Management, Sage Settlement Consulting

The allure of stock selection or stock picking attracts many investors. Picking stocks can be wildly lucrative, as Warren Buffett has demonstrated or as anyone who invested in Apple or Costco during those companies’ infancies knows. On an emotional level, it gratifies and thrills to invest directly in a company and to see it thrive. It makes us feel smart to identify a winner, and we enjoy participating directly in a company’s success.

While there is no universally right way to invest, investors should know that individual stock carries more risk than relying instead on asset class allocation. Asset class allocation means investing across different classes of securities, rather than focusing on specific securities within the asset classes. It means allocating a percentage of assets respectively to equities, bonds, cash, and sometimes commodities. Because thoughtful asset class allocation spreads risk through diversification, the odds of long-term success increase when contrasted with the person who invests solely in individual securities.

Stock picking is challenging for many reasons. First, it takes time and focus to monitor the individual securities. No company or industry does well all the time and it is difficult for even expert investors to anticipate and act on challenges to an individual company’s financial well-being. Betting that a struggling company will recover can work out, but sometimes it does not. Even when a company is destined to succeed, many investors do not have the discipline to hold a stock that has declined in value. They make devastating emotional decisions and sell at the worst time. Other individual investors simply do not have the aptitude for successfully navigating the volatility of security selection. Even seasoned investment professionals who have access to a wealth of data and resources generally advise against stock picking as a sustainable long-term investment strategy.

While stock picking can seem glamorous and potentially high-yielding, we at Pacific Wealth Management do not recommend it for our clients’ long-term financial security. It is simply too difficult and too luck-dependent for most people to maximize returns via individual security selection. Instead, we recommend a well-constructed, balanced portfolio that reflects an investor’s own risk tolerance and investment time horizon. Such diversification will smooth out volatility over time, maximizing the chances for greater performance than one would experience by day trading or riding individually selected securities to the finish line.

To contact the author: Marjorie Smith, margie@sagesettlements.com