Indemnified Medicare Set-Asides:  A Dangerous Deal for Carriers, Beneficiaries, and Taxpayers 

What You Need to Know Before You "Buy" In

The market for guaranteed Medicare Set-Aside arrangements in workers' compensation cases remains complex and often opaque. This complexity has unfortunately created opportunities for products promising simplicity and cost savings, but which may carry substantial risks. One such product is the Indemnified Medicare Set-Aside (iMSA). While the concept of an iMSA—an evidence-based estimate of future Medicare-covered medical expenses designed for the purpose of sidestepping CMS review—is appealing, potential downsides require careful consideration. Particularly in a new era of heightened compliance scrutiny in which Medicare will be notified as of April 4, 2025, of not only those iMSA values, but also that the parties chose not to submit them for Medicare’s approval.

The Allure and the Growing Danger:

iMSAs are frequently marketed as offering certainty in workers' compensation settlements.  The promise: a clear, upfront calculation eliminating CMS review, saving time and money. This is especially attractive in high-stakes settlements.  However, this simplicity masks significant risks.

The ongoing emphasis on combating government waste, fraud, and abuse in Washington, D.C., intensifies scrutiny.  iMSAs, by avoiding CMS review, could be perceived as a potential burden shift to Medicare, attracting heightened regulatory attention and potential legal challenges. In recent years, Medicare officials have specifically cautioned that non-submit products could be construed as attempts to shift the burden of post-settlement claim related medical treatment payments to Medicare. Historically, Medicare did not receive any iMSA data and was none the wiser. As of April 4, 2025, this changes with CMS now requiring that WCMSA values and other related data be transmitted to them via Section 111 reporting, a powerful statutory obligation. And if an iMSA does exhaust prematurely, the fact that the MSA was never sent to CMS for review may create a presumption of deliberate underfunding.

Indemnification, Legal Exposure, and the False Claims Act:

A critical concern is whether the iMSA provider's indemnification truly protects all parties. Does it safeguard carriers and Medicare beneficiaries against potential False Claims Act (FCA) lawsuits? An iMSA's methodology, if later found flawed or intentionally misleading, could result in an insufficient allocation. This exposes both the provider and the parties relying on the iMSA to significant legal and financial risks, including potential FCA liability.  This exposure is amplified by the fact that standard errors and omissions insurance, and even legal malpractice insurance, typically do not cover underfunded MSAs resulting from fraud or miscalculation.

Due Diligence is Non-Negotiable:

Choosing an iMSA provider requires rigorous due diligence. Before committing to a purchase:

1. Scrutinize Indemnification: Thoroughly examine the indemnification clause, noting limitations and exclusions. Independent legal counsel is strongly advised.
2. Assess Insurance Coverage: Confirm in writing that the iMSA vendors errors and omissions and legal malpractice insurance covers potential underfunding scenarios, as well as any losses that could be incurred under the False Claims Act. If not, the risk is substantial and the iMSA does not properly address the risk.
3. Demand Cost Transparency: Request a detailed, itemized cost breakdown and challenge any claims of "average savings" without specific justification. Consider the function of an MSA and what it is designed to accomplish, not what the iMSA vendor is promising to “save”.  Doing what is right for the Medicare beneficiary and funding an appropriate MSA should be the goal.  
4. Seek Independent Verification: Obtain a separate MSA calculation from a different reputable MSA vendor for comparison.

In sum, the simplicity and potential cost savings of iMSAs must be weighed against considerable financial and legal risks.  The regulatory focus on accountability and transparency makes avoiding CMS review a potentially disastrous decision.  Thorough due diligence, including a careful assessment of insurance coverage and legal ramifications, is not just recommended—it is essential—to protect your interests.

To learn more about best practices for Medicare Set-Asides, contact info@allankoba.com. 

References:

• Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) Reference Guide (Version 4.2) – Published January 17, 2025 (See: https://www.cms.gov/files/document/wcmsa-reference-guide-version-42.pdf)
• MMSEA Section 111 Medicare Secondary Payer Mandatory Reporting, Liability Insurance (Including Self-Insurance), No-Fault Insurance, and Workers’ Compensation USER GUIDE (Version 7.9) – Published January 6, 2025 (See: https://www.cms.gov/medicare/coordination-benefits-recovery/mandatory-insurer-reporting/user-guide)