Do You Need a Medicare Set Aside for Your Longshore or Defense Base Act Settlement?

In every case where a Longshore worker or Defense Base Act contractor agrees to close or limit their right to future medical benefits, the parties must consider whether a Medicare Set Aside is needed.  What is a Medicare Set Aside and why is it needed?  Essentially, the Centers for Medicare and Medicaid Services (“CMS”) does not want to pay for workers’ compensation injuries.  The Medicare Secondary Payer laws protect CMS from workers’ compensation litigants who may want to shift the liability for payment of future medical benefits to CMS.

Consequently, in certain situations, the parties to a workers’ compensation settlement must prepare “a financial agreement that allocates a portion of a workers’ compensation settlement to pay for future medical services related to the workers’ compensation injury, illness or disease.  These funds must be depleted before Medicare will pay for treatment related to the [injury].”  Moreover, CMS will want proof (in the future) that the injured worker actually spent the settlement proceeds devoted to future medical expenses on those expenses.

So, when is a Medicare Set Aside needed?  Although CMS’s and Medicare’s interest must be considered in every settlement, a Medicare Set Aside is only needed when certain criteria are met.  The following questions may help you determine if you need an MSA for your Longshore or Defense Base Act settlement.

Does the settlement close or limit future medical benefits? 

If so, CMS’s or Medicare’s interests must be considered.

Is the claimant 65 years old or older, or has the claimant been on SSDI for 24 months or longer?
Is the total value of the settlement (including indemnity, liens, future medical benefits and attorney’s fees) more than $25,000?

If so, a Medicare Set Aside is likely needed, and CMS review of the MSA is recommended by CMS.

Is the claimant on SSDI but not yet Medicare eligible?
Has the claimant applied for SSDI benefits?
Has the claimant been denied for SSDI but is appealing the denial?
Is the claimant 62 1/2 years old?

If the answer to all of the preceding questions was, “No,” then CMS review of the Medicare Set Aside is not necessary.

However, if any of the preceding questions can be answered in the affirmative, then a Medicare Set Aside may be necessary.  There is one more question to ask:

Is the total value of the settlement (including indemnity, fees, future medical benefits and attorney’s fees) over $250,000?

If not, then CMS review of the MSA is not necessary.

If so, then CMS review of the MSA is recommended by CMS.

In conclusion, the government is very clear that it does not want to pay medical benefits for an on-the-job injury.  Stiff penalties exist for parties who fail to secure a Medicare Set Aside.  In the event an MSA is needed, hire an expert to prepare the document and take care of the submission process.

The Effect of Section 905(b) on the Parties’ Agreement to Indemnify

U.S. United Ocean Services, LLC (“United”) entered into a General Services Agreement (“the Agreement”) with Buck Kreihs Company, Inc. (“BK”) whereby BK would perform ship-repair work for United.  BK agreed to indemnity United for all liabilities arising out of or related to any way to the work or services performed by BK or to BK’s presence on United’s property, even if the liability at issue was partially caused by United’s fault or negligence.  The Agreement did not apply to liability caused solely by United’s fault or negligence.  The Agreement also required BK to procure a general liability policy and to name United as an additional insured under that policy.  Pursuant to the same, St. Paul issued a general marine liability policy in which BK was the Named Insured and United was an additional insured under the policy.

One of BK’s employees was injured removing a gangway that led from BK’s dock to a barge owned and operated by United.  The injured employee sued United, who made a demand against St. Paul as an additional insured.  United and the injured employee settled.  St. Paul denied coverage to United on the ground that the policy’s Watercraft Exclusion excluded coverage. The District Court granted summary judgment to St. Paul and United appealed.

On appeal, the Fifth Circuit noted Section 905(b) of the Longshore and Harbor Workers’ Compensation Act voids BK’s agreement to indemnify United under the Agreement.  Section 905(b) states, in pertinent part, in the event of injury to a person covered by the Longshore and Harbor Workers Compensation Act caused by the negligence of a vessel, then such person, or anyone otherwise entitled to recover damages by reason thereof, may bring an action against such vessel as a third party, and the employer shall not be liable to the vessel for such damages directly or indirectly and any agreements or warranties to the contrary shall be void. 33 U.S.C. §905(b).

The general insuring clause of the policy extended coverage only to those obligations that the insured was “legally obligated to pay.”  Since BK could not, as a matter of law under Section 905(b), be “legally obligated to pay” injured employee’s claim against United, the policy’s coverage provision did not encompass BK’s attempted assumption of liability as to the claim.  The Fifth Circuit, therefore, affirmed the District Court’s grant of summary judgment in favor of St. Paul and against United, holding there was no coverage pursuant to the Agreement between BK and United and as a matter of law.

Paul Holden, et al. v. U.S. United Ocean Services, LLC, et al., 2:09-CV-3670 (5th Cir. 08/19/2014)

Consolidation of Baltimore Longshore District Office Into the Norfolk Longshore District Office

From the Department of Labor’s e-mail service:

The Baltimore Longshore District Office will physically close on September 30, 2014.  It will be consolidated into the Norfolk District Office.  Prior to the physical closure of the Baltimore District Office, the case work will transition to the Norfolk District Office for maximum efficiency.

Therefore, effective September 1, 2014, the Norfolk District Office has jurisdiction over past and future cases under the LHWCA, and its extensions, arising in the states of Delaware, Maryland, Pennsylvania, Virginia, West Virginia and the District of Columbia.

All forms submitted for the creation of a new case should still be submitted to the Longshore Central Case Create site in New York City.  After a case has been created, all case-specific mail should still be sent to the Longshore Central Mail Receipt site in Jacksonville, FL.

For more specifics about this consolidation, including the consolidation’s affect on the DOL’s scanning facilities, review Industry Notice 146.

Defense Base Act Claimant’s Temporary Job Was Not Suitable Alternative Employment

When an injured Longshore or Defense Base Act claimant cannot return to their usual work, an employer must demonstrate the availability of suitable alternative employment (“SAE”).  In many cases, the employer must establish that there are realistically available jobs within the geographic area where claimant resides, which the claimant is capable of performing, considering their age, education, work experience, and physical restrictions.  If the employer successfully demonstrates SAE, then the claimant must demonstrate that they diligently tried to secure employment.

A potential problem can arise when the claimant actually has obtained work following their injury, but the employment is temporary in nature.  That is what happened in McMiller v. Serv. Employees Int’l, a recent unpublished decision from the Benefits Review Board.  There, the Board noted that:

[W]here an injured employee obtains various temporary jobs following her injury, such fact does not necessarily defeat a claim for total disability. Carter, 14 BRBS at 97; see also Edwards v. Director, OWCP, 999 F.2d 1374, 27  BRBS 81 (CRT) (9th Cir. 1993), cert. denied, 511 U.S. 1031 (1994) (court held that short-lived employment did not establish that suitable alternative employment was realistically and regularly available on the open market)Mendez v. National Steel and Shipbuilding Co., 21 BRBS 22 (1988).

In McMiller, the claimant held a “short-lived position with Rose International” but that was insufficient employment to establish SAE.  And the employer failed to submit  any additional evidence concerning the availability of SAE, thus failing to satisfy its burden.  Accordingly, the claimant remained totally disabled.

What’s the takeaway?  Employers and carriers should always commission a labor market survey; and claimants should always continue their diligent search for work.

McMiller v. Serv. Employees Int’l, Inc., BRB No. 13-0579 (Jul. 29, 2014)