March 12, 2012

Medicare Set-Aside as Marital Asset?

Here is a truly bizarre case from Illinois that will likely send our many attorney readers scrambling for their statute books.

Christopher Washkowiak worked as a pipefitter. He suffered a serious work-related injury in 2009. The following year, his marriage broke up (dissolved as of August) and he settled his workers comp case in December. The settlement totalled $365K, plus a Medicare Set Aside (MSA) for an additional $70K. Washkowiak's wife, Rosana, was entitled to 17.5% of the marital assets. She claimed not just 17.5% of the $365K lump sum settlement, but the same percentage of the MSA.

The initial trial court and the Illinois Appellate Court, 3rd District, ruled that Rosana was entitled to the money. Here is the Appeals Court ruling:

Unless there is something about an MSA that removes the MSA funds from the definition of "net proceeds," the funds fall squarely within the dissolution decrees's definition of "net proceeds" (paragraph 10).

The court goes on to say that "there is no question that the money is his [Christopher"s] and further that "it is not Medicare's or [the employer's] money" (paragraph 15).

Finally, the ruling goes on to state that "if he incurs no such [medical] bills, he gets the money back" (paragraph 17).

It is worth noting that Rosana apparently does not have to wait to see if the funds are needed for future medical expenses. The court has foreshortened this process to the point where she gets the money now, as part of the divorce settlement.

Attention All Attorneys!
There are a number of parties who will be alarmed by this ruling:
The Federal Government: Medicare will surely object to the expenditure of MSA funds for non-medical purposes, diluting what is available for future expenses (and thereby defeating the purpose of the MSA).
Insurers and self-insureds: will be shocked to see funds set aside for future medical expenses being used for other purposes; this will inevitably lead to further inflation of future MSAs. (Indeed, Medicare might hesitate to sign off on any settlement prior to determining the relative strength of the marriage - and we all know how much stress disability puts on a marriage...Yikes!)

What if this divorce entailed the conventional 50/50 division of assets? Half the money in the MSA could be spent before the account even got started.

I have never heard MSAs referred to as claimant assets. In my limited understanding, the amount awarded to the claimant is separate and distinct from the MSA. Funds in an MSA can be used only to pay medical bills. In addition, I have never heard of a situation where unspent MSA funds reverted directly to claimants; they would likely revert to the insurer or the self-insured, whoever set aside the money. (If any of our attorney readers have any knowledge to the contrary, please let us know!)

MSAs carry a lot of baggage already: the MSA process slows down settlements while stakeholders wait for federal bureaucrats to check the numbers; MSAs seriously inflate the current cost of settlements, complicating an already complicated process. If this ruling in Illinois is upheld, if MSAs are truly marital assets, then, as the saying goes, "we ain't seen nothing yet."

| 1 Comment

1 Comment

Any unspent monies in the MSA in any given year roll over to the next year and so on. The claimant does not receive that money it stays in the MSA account. Upon his demise the estate would get the balance.

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This page contains a single entry by Jon Coppelman published on March 12, 2012 1:28 PM.

Risk roundup, pill wars, odd lot, obesity & more was the previous entry in this blog.

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