Workers Comp Zone


A recent California Workers Compensation Appeals Board panel decision highlights some of the challenges in settling cases with a Medicare Set Aside.

Kaiser and Sedgwick appealed when the WCJ approved the workers’ comp settlement but refused to approve the proffered Medicare addendum language.

In the case, Irma Dufelmeier v. Kaiser Foundation Hospitals (see link at close of this post), the WCAB panel denied reconsideration sought by Kaiser Permanente and its administrator, Sedgwick. In denying reconsideration the WCAB panel adopted and incorporated the report of the assigned workers’ compensation judge. According to the WCJ, along with nine pages of Compromise and Release forms settling the case, the parties had attached another eight pages of Medicare language, but did not actually attach the proposed MSA (Medicare Set Aside) when it was filed in the WCAB EAMS computer system. 

Although the panel decision does not include details on the proposed settlement addendum, the parties apparently did propose a MSA that would not be submitted to Medicare. According to the WCJ, the terms purported to resolve “all right of CMS against parties and placing all liability on the applicant should there be any adverse action by Medicare at a future date“.

The WCJ stated that:

“I do not believe I have either jurisdiction or obligation to provide a blanket approval and ratification to contracts between parties extraneous to the actual jurisdiction of the WCAB, especially to jurisdiction enjoyed by the Federal Government over Medicare. In fact, petitioner in the 17 page settlement states they don’t believe Medicare has an interest in the settlement. Apparently their belief is insubstantial as they proceed to hedge their position.”

Over the years I’ve seen settlements with Medicare Set Asides handled in many different ways. If a Medicare Set Aside was required because the settlement met threshold levels and the worker was on Medicare or soon eligible for Medicare, some employers, carriers and MSA vendors would settle only after the MSA was submitted and approved by CMS. Sometimes this process has resulted in substantial delays while parties waiting for CMS approval.

But some defendants have not required CMS approval before settling. They obtain a MSA analysis by a vendor and designate an allocation of the settlement funds for the worker to self-administer, but propose that the MSA not be submitted to CMS. They may attach the “non-submit” MSA to the Compromise and Release settlement document along with an addendum they draft. The quality of these MSAs may vary.

Sophisticated, ethical and careful applicant attorneys have often been concerned about what would happen if CMS/Medicare later determines that an allocation in a non-submit MSA was insufficient. Likewise they have been concerned (whether the MSA was submitted to CMS or not) if the client misuses MSA funds the client agreed to sequester and self-administer.

There is a risk to clients if all of this is done thoughtlessly. The risk? The client could lose their Medicare coverage.

Some workers’ comp judges may be reluctant to approve Medicare addendum language, particularly if it is a non-submit and the language seeks to have the injured worker indemnify the employer/carrier from any reimbursement claims made by Medicare. That was the situation in Dufelmeier. Some judges may be uncomfortable with the task of reviewing Medicare addendums and MSAs and may question (as in Dufelmeier) whether it is beyond the scope of their charge and expertise to analyze the MSA to determine whether an MSA adequately considers Medicare’s interest. 

But I’ve communicated with other workers’ comp judges who are willing to approve settlement language from MSA addendums. An example might be language in a WCAB settlement approval order that indicates a finding that the settlement adequately considers Medicare’s interest.

While there is real question whether CMS is bound by a WCAB settlement approval including language that a workers’ comp settlement adequately considers Medicare’s interests, such a finding may add to the comfort level of the parties and encourage settlements.

There is no overarching statutory or regulatory guidance from the California DWC and WCAB on how judges should process MSA settlement addendums.

Various employers, carriers, MSA vendors and attorneys have different comfort zones as to how much risk they will undertake in order to move workers comp claims to settlements. Clients typically want the settlement money and the niceties of MSA language and Medicare rules are not top of mind.

It is not clear whether the Dufelmeier settlement addendum had language which clearly explained to the injured worker the future risk she could have if Medicare questioned the settlement terms.

The Dufelmeier case is a panel decision, and I don’t read it as a blanket WCAB condemnation of WCJ approvals of MSA settlement language. But on these facts the WCAB was not willing to reverse the action of the WCJ. 

Yet, it is a cautionary tale, and a reminder that at least some judges may believe that it is not the WCAB’s role to get involved in Medicare issues. I suspect that we will see many of the workers comp judges talking about this case, as this topic is ripe for discussion. 

Here is the panel decision in Irma Dufelmeier v. Kaiser Foundation Hospitals:


Stay tuned.

Julius Young