Of all the federal government programs facing severe financial distress, perhaps none is in a more precarious position than Medicare, the national health insurance program serving the elderly and certain other individuals.
According to estimates, the Medicare trust fund will be completely depleted sometime in the next decade unless there are substantial increases in financing and/or cuts in benefits.
In the meantime, the federal government is seeking to shore up Medicare’s finances by empowering the agency to pursue an aggressive collection and subrogation strategy against other potential sources of medical claim payments.
Theoretically, that’s been the case for nearly 30 years, since a 1980 federal law made Medicare a secondary payer on claims covered by other forms of insurance. To date, however, complete coordination of multi-party benefit payments has been more an aspiration than a reality.
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The information below was summarized and provided in a web seminar for AAIS member companies by Perr & Knight, a Los Angeles-based insurance services firm.
For a complete file of the exhibits from the web seminar, go to www.AAISonline.com and click on the icon at the upper right for “Medicare Section 111 Claim Reporting.”
For authoritative information on the new law and implementing regulations, go to the website of the Center for Medicare and Medicaid Services (CMS) at www.cms.hhs.gov.
Section 111 of the Medicare, Medicaid, and SCHIP Extension Act (MMSEA) of 2007 requires that group health plan providers and property/casualty insurers report all bodily injury and medical payments claims involving Medicare-eligible claimants to CMS.
The identity of a Medicare beneficiary whose illness, injury, incident, or accident is at issue, plus any other information specified by the U.S. Secretary of Health and Human Services.
Under the law, P/C insurers fall within the category of “applicable plans,” which expressly includes liability insurance (including self-insurance), no-fault insurance, and workers compensation laws or plans.
Reporting requirements include but are not limited to automobile, homeowners, and commercial plans.
May 1, 2009 - Sept. 30, 2009: Registration
July 1, 2009: Test and production query input files accepted; liability insurers must commence data capture for claims with ongoing medical responsibility (OMR)
Jan. 1, 2010: Claim input file testing begins; production claim input files accepted
April 1, 2010 - June 30, 2010: Initial Production Claim Input File Submissions Due
COBC, Coordination of Benefits Contractor
GHP, Group Health Plan
MIR, Mandatory Insurer Reporting
MSP, Medicare Secondary Payer
MSPRC, Medicare Secondary Payer
Recovery Contractor
NGHP, Non-Group Health Plan (e.g., a P/C insurer)
RRE, Responsible Reporting Entity
Whoever is funding the payment to the claimant is the entity responsible for reporting it. For example:
- Under a guaranteed cost or fully insured policy,
the carrier is the RRE
- Under a deductible program, if a carrier funds the losses within and above the deductible and above, the carrier is the RRE
- If an account funds within the deductible, the account is the RRE
- Under a self-insured program, the account
is the RRE
- Under a self-administered program, the account
is the RRE
- Under an excess policy, the excess carrier could become the RRE if the excess carrier takes over
the handling and funding of the claim
- If an account is receiving reimbursement from
the carrier, and the account continues to fund
payments to claimant the account is the RRE
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So, in December 2007, Congress acted to bolster Medicare’s efforts to identify primary payers and eliminate duplicate payments by enacting the Medicare, Medicaid, and SCHIP Extension Act (MMSEA).
Section 111 of that law requires group health plans, liability insurers, and other entities to report medical-related claims payments (including bodily injury and med pay claims) made to or on behalf of people enrolled in Medicare.
This is the requirement the P/C carriers are now scrambling to comply with as deadlines approach (see sidebar on page 9). The statutory penalty for failing to comply is stiff: $1,000 for each day that a claim payment is not reported.
While property/casualty insurers are focused on the impending reporting requirement, “to consider this as just a
reporting requirement is a big mistake,” says Martin Cassavoy, director of legal services for Crowe Paradis, Danvers, Mass.
Crowe Paradis is a firm that specializes in helping life, health, disability, and, now, P/C insurers manage coordination of benefits with Social Security and Medicare.
According to Cassavoy, Section 111 is part of a larger effort by Medicare to “close all the loopholes” that allow potential primary payers, including auto, homeowners, and other liability carriers, to avoid paying medical claims for people enrolled in Medicare.
“Insurers are talking about the reporting, but not about the implications of the reporting,” he says. The information reported “will allow Medicare to have visibility in any [applicable] claim or settlement.”
According to Cassavoy, “Medicare will have all the information it needs to demand reimbursement” of conditional payments it makes on behalf of persons covered by other insurance. As for insurers, “You are going to pay more,” he says.
“Medicare wants to get a lot more aggressive,” says Julie Gackenbach, president of Confrere Strategies, a Washington, D.C. firm that monitors federal regulatory policy.
Gackenbach has been utilized by the National Association of Mutual Insurance Companies (NAMIC) to provide input on the development of regulations and procedures for Section 111 reporting.
According to Gackenbach, the Medicare administration’s top priority is to identify potential primary sources of medical payments for individuals with chronic illnesses that are very costly to the program.
Given that, she believes workers compensation writers will be the first to feel the effects of Section 111 reporting on their claims experience. She adds, however, that the subrogation of all actionable claims, no matter how small, will become routine.
In a report in the April 15, 2009 edition of Risk and Insurance (available at www.riskandinsurance.com), consultants for the actuarial firm Milliman explain that Section 111 will give new teeth to Medicare’s existing authority to reopen claims.
To illustrate, the authors ask readers to imagine a worker who sustains a back injury on the job, then settles the claim with his employer’s workers compensation insurer.
Suppose, then, that the worker retires, enrolls in Medicare, and later discovers that he needs back surgery. Under existing authority, Medicare can go back up to 10 years to identify a potential primary payer, and Section 111 reporting will make it easy to identify one.
“The ability of liability and workers compensation insurers to procure full and final medical settlements is likely to be substantially diminished,” the authors write. “The uncertainty surrounding insurers’ decisions to close claims will be magnified.”
Even for insurers with few, if any, claims involving Medicare recipients, Section 111 reporting will be an added operational cost, more so than the federal government may realize.
Under the law, every insurer, no matter how small it is or how few liability claims it pays, has to
develop the capacity to determine whether a medical claim payment was issued to someone enrolled in Medicare.
Insurers, especially small carriers, face a “significant challenge” in modifying their systems and operations to comply with Section 111, said Mark Nawrath, director of business development for the Los Angeles-based insurance services firm Perr & Knight, in a recent web seminar for AAIS member companies.
Section 111 reporting is distinct from traditional P/C statistical reporting; the latter involves aggregating anonymous data for ratemaking and regulatory purposes, while Section 111 reporting involves submission of queries concerning individual claims and the transmission of personally identifiable information.
For example, Section 111 reporting requires the transmission of individual Social Security numbers but, according to Nawrath, “there are many P/C organizations that do not collect and retain Social Security numbers.”
“Many systems used in P/C insurance companies will require significant modification to capture the required data elements and implement edit processing, especially those that do not currently process workers compensation managed care claims” he said.
The deadlines have been extended for insurers to register and test data submissions but, as of press time, insurers must be prepared to make their first Section 111 reports no later than June 30, 2010--not a lot of time, considering how novel the requirements are for insurers.
For now, it is speculation whether Medicare, the nation’s largest health insurer, will inspire other health insurers to institute systematic collection of claims by other third parties, including P/C insurers.
Section 111 reporting, however, is spawning technological infrastructure for ramping up the cost-shifting that is endemic in U.S. health care finance.
Medicare’s collection “could be a model for some state Medicaid programs,” says Cassavoy, noting in particular that California is “desperate for money” in its state programs.
The initial cost of creating claim reporting systems for state-based Medicaid systems will delay their development, he says, but “you’re probably going to see more and more of this (systematic collection from third parties) as the process becomes more automated and standardized.”
Private health insurers, too, are showing an acute interest in recovering payments from third parties, according to Gackenbach, the consultant used by NAMIC.
She knows this from personal experience. When her child recently needed knee surgery, Gackenbach was struck by the detailed and demanding claim form provided by her health insurer.
“It was basically 25 pages asking, ‘Is someone else liable for this?” she recalls. “It was the first time I encountered a form that was clearly looking for someone else to pay.”
It will be a bitter irony for P/C insurers if their investment in Section 111 reporting ends up making it easier for other entities to subrogate claims against P/C policies.
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Dealing with Medicare 
