Could Settling an Employment Case Cost You a $1,000 Per Day Fine?
Employment Law Strategist
Imagine settling an employment discrimination claim for $450,000 and then getting a bill for $90,000 more three months later. As of January 1, 2012 this is possible and most private employers have no idea this could happen. Employers need to report details of certain settlements to the federal government. This requirement has been in existence for years, but now it may apply to the settlement of employment related cases. And to make sure the government has your attention, Section 111 of the Medicare, Medicaid, and SCHIP Extension Act, imposes a $1,000 per day penalty for any failure to report such settlements or other claim resolutions to the federal government.
Medicare, the federal health insurance program for those over 65 or who meet certain disability standards, makes “conditional” payments for medical treatment when a Medicare beneficiary is injured by a third party. If the injured party later receives payments related to the injury, Medicare can exert a lien on the funds to recoup its payouts. Thus, if you pay an employment settlement to a Medicare beneficiary, it is possible Medicare has a lien on the settlement funds. If you fail to advise Medicare of the payment you made (and thus let them secure their lien), they may come after you for that hefty $1,000 per day fine. Here’s what you need to know to stay out of trouble.
Who Has to File the Report – the Responsible Reporting Entity
You are required to report a settlement to Medicare only if you are a “Responsible Reporting Entity.” Responsible Reporting Entities include group health plans, liability insurance plans (including self-insurance), no-fault insurance plans, and workers’ compensation plans. Importantly, and totally counterintuitively, you are considered “self-insured” if you do not have insurance or if your claim resolution (e.g., settlement, court award, etc.) is not covered by your insurance. For example, if you do not meet your deductible, you are “self-insured” and therefore a Responsible Reporting Entity. Also, when there are multiple defendants, all are responsible for reporting, not just the one making the payment.
How to File the Report
In situations where an employer is required to report, the report is made by calling the Medicare Coordination of Benefits Contractor and providing basic information about the injured party and the injury. You will need to report the ICD-9 diagnosis code, which is typically included on paperwork from the physician. In cases where there is no known injury, such as employment discrimination cases, use code NOINJ. If you have insurance, consider contracting with your insurer to report cases to Medicare even when your claim is below the deductible.
Circumstances that Require a Report
Whether you or your insurance company is the Responsible Reporting Entity, you need to understand which claim resolutions must be reported (whether you or your insurer makes the report). There are three basic deciding factors: (1) whether the recipient is or was a Medicare beneficiary, (2) whether the matter has a medical component, and (3) whether the amount at issue is sufficient to require reporting. Assessing these three factors is your roadmap to compliance.
Whether the Recipient Is or Was a Medicare Beneficiary
Section 111’s reporting requirements apply only if the injured party is or was a Medicare beneficiary. You should not assume an individual is not covered. There are situations where individuals under age 65 can qualify for Medicare, and you might never know. This determination should be made as close as possible to the date the resolution of the claim is executed so no recent claims are missed. This also helps ensure newly covered individuals (due to age or medical condition) are not missed.
Determining an individual’s Medicare status is relatively simple. If you have insurance, provide the insurer with the injured party’s Social Security Number or Medicare Health Insurance Claim Number, first name, last name (including maiden name as appropriate), date of birth, and gender. Be extremely careful when providing this information – a typographical error could negate the entire process. If you are self-insured, call the Medicare Coordination of Benefits Contractor and provide the Social Security Number. The agency will tell you over the phone whether the injured party is a Medicare beneficiary. If the injured party is not a Medicare beneficiary, you have no further obligations. Be sure to fully document this discussion and maybe confirm it in writing.
Whether the Matter Has a Medical Component
Because Medicare covers only medical (including mental health) costs, the general rule is only resolutions of medical claims need to be reported. An important caveat is a resolution must be reported if “the settlement, judgment, award, or other payment has the effect of releasing medicals.” Since most well drafted settlement agreements will require the release of all claims, a settlement likely meets this standard, even if medical issues were never raised in court or any other forum and even if the release does not specifically mention medical matters. If the case does not have a medical component and you can accept the risk of specifically excluding medical claims from the release, you will not be responsible for reporting the settlement.
What about cases involving multiple claims, only some of which are medical? You should not attempt to exclude part of a settlement from reporting on the theory that part of the settlement was for a non-medical purpose, even if a court has approved the allocation. Likewise, although Medicare will normally defer to a court-issued allocation after a jury verdict or a hearing on the merits, you must still report the entire amount. Absent unusual circumstances, the safest approach is to treat the full value of any claim resolution involving a Medicare beneficiary as reportable.
Whether the Amount at Issue Is Sufficient to Require Reporting
Liability and workers’ compensation insurers (including self-insurers) are “exempt from reporting” where the “Total Payment Obligation to the Claimant” is less than certain dollar-amount thresholds. The Total Payment Obligation to the Claimant is the total amount of the settlement, judgment, award, or other payment, not counting Ongoing Responsibility for Medicals. For example, if you pay an injured party $10,000 and promise to cover her injury-related medical bills for life or a set time period, only the $10,000 is considered the Total Payment Obligation to Claimant. The threshold where the release was executed or the court ordered payment prior to July 1, 2012, was $5,000. This low threshold overloaded the system and therefore, as of July 1, 2012, the threshold was raised to $25,000. On October 1, 2012, the threshold will return to $5,000 and is currently scheduled to be reduced even further over the next 2 years. We need to wait to determine if this will actually happen. However, subject to very limited exceptions, if there is Ongoing Responsibility for Medicals, there is no reporting threshold. There is also no reporting threshold for no-fault insurance. These claim resolutions must be reported, regardless of amount, if they meet the other requirements.
After the Report
Once you report the final resolution of a matter, you have no further obligation to Medicare. The sole purpose of the reporting requirements is to provide Medicare the information it needs to collect its share from the injured party. Unless specifically requested, you will not receive information regarding the amount of the lien and you will not be expected to make any payments directly to Medicare.
While only a small minority of cases employers encounter will ever need to be reported to Medicare (i.e., it probably will be the rare case where the injured party is a Medicare beneficiary), the risks inherent in ignoring the issue are high. The Section 111 reporting requirements were created to draft defendants and their insurers into the Medicare collections process because Medicare beneficiaries were not fulfilling their duties to notify the agency of reimbursements. While it is unfortunate employers and their insurers must take on this burden and potential fines, compliance with the steps outlined above should protect you from having to empty your pockets twice when settling an employment related case.