An insurer typically enters a workers' compensation settlement expecting that the agreement is full and final in the absence of fraud or mutual mistake of fact by the parties to the settlement. However, the insurer may face additional liability exposure even after the settlement is signed and approved. This potential exposure comes from Medicare's statutory subrogation rights, at times referred to as the "super lien."
Medicare's subrogation rights arise out of the Medicare Secondary Payer (MSP) program, which was enacted by Congress in 1981, but rarely enforced until recently. Under the MSP program, non-Medicare coverage such as a group health, workers' compensation, automobile, liability or no-fault insurance policy is considered the primary payer, Medicare the secondary payer. Regulations prohibit Medicare from making a payment when there is a primary payer involved. If a primary payer exists and Medicare makes payment, Medicare may recover the payments from the primary payer. The MSP program empowers the United States to bring an action against any entity which is responsible directly, as a third party administrator, or otherwise, to make payment under a primary insurance plan or against any entity that has received payment. An insurer must reimburse Medicare even if it has already reimbursed the beneficiary or other party.
The danger arises when an insurer enters into a full and final settlement with a claimant, who subsequently exhausts the settlement proceeds and then seeks public benefits through Medicare. The MSP program regulations state that Medicare could retain secondary payment status after a workers' compensation future medical settlement if Medicare's interests are not considered in the future medical settlement. Red flags for an insurer should be allegations by the claimant of permanent total disability, application and/or entitlement by a claimant for Social Security disability benefits, and settlement negotiations.
To avoid future exposure after a full and final settlement, insurers must be able to demonstrate that the settlement properly considers Medicare's interests with regard to future medical benefits. This may be accomplished by using techniques such as structuring the settlement for future medical benefits through the use of set-aside funds, pre-approved by the regional Health Care Financing Administration. Carriers are advised to contact their legal counsel if any red flags arise prior to entering into a full and final settlement. In addition to reimbursement for benefits paid, Medicare may also seek additional remedies in the form of costs, interest, attorney fees and penalties. Caution is warranted to protect respondents' interest and ensure that settlements remain not only full, but also final.