Medicare Liens and How They May Affect Your Settlement or Award
As you may be aware, Medicare is a federally funded program that provides some health insurance assistance to individuals with disabilities and citizens receiving Social Security benefits. Medicare is classified as a “secondary” payer. In other words, this government program will not pay for medical treatment until all other avenues are exhausted. These avenues are generally personal coverage plans. Typically, Medicare liens are placed on the personal injury case of a person whose treatment is paid for by the program. Essentially, if you are injured in an accident and Medicare covers any part of your medical expenses, the government will receive reimbursement directly from your settlement or award for your injuries. Also, Medicare is entitled to be reimbursed for everything that it has paid stemming from a personal injury claim.
How Are Medicare Liens Established?
As a federally funded program, Medicare has a priority right of recovery. This means that Medicare will be reimbursed from recovery proceeds before any other party. Moreover, Medicare liens attach to the proceeds of a personal injury claim as soon as medical care is covered by the program. Medicare has a right to reimbursement as soon as you receive your settlement or award and does not need to give notice of their lien. This is unique, as most lien holders must give some form of notice that a lien exists. Please be aware, however, that you should notify Medicare of a personal injury settlement or judgment, as failing to do so can result in penalties and fines. See here for a step-by-step guide on how to process your own claim. [“How To Notify Medicare of a Personal Injury Claim”]
How Will Medicare Liens Affect Disbursement of Your Recovery?
Medicare liens will greatly affect the disbursement of recovery proceeds, as they take precedent over all other liens. As previously mentioned, if there is a Medicare lien attached to your recovery proceeds, the program must be reimbursed before any other liens. Medicare also does not have a cap as to how much of your recovery they can claim; thus, the program is capable of receiving all of your settlement proceeds. Medicare does, however, allow for a reduction for reasonable attorney’s fees before claiming their share. A one-third or less contingency fee is seen as reasonable in most circumstances. This is generally known as a reduction for procurement cost. In other words, Medicare will reduce their lien amount by 1/3 (this only plays a role when the lien amount is less than the settlement amount). Let’s look at the following two hypothetical situations to help illustrate how Medicare liens affect disbursement.
Let’s assume Steve receives Medicare benefits and is injured in an accident. Steve’s medical treatment costs $20,000 and Medicare covered the entire amount. Therefore, Medicare would have up to a $20,000 lien on Steve’s recovery proceeds. Steve also visits the chiropractor, which receives a $2,000 physician lien. Steve hires an attorney for a one-third contingency fee. Steve eventually agrees to an $18,000 settlement. Under these circumstances, Steve’s attorney would receive his 1/3 share ($6,000), and Medicare would receive the remaining amount ($12,000). In this example, the chiropractor and Steve would receive nothing from the recovery because Medicare liens receive priority over all other liens, with no cap amount as to how much the program can receive. Also, it is important to reiterate that Steve will still be obligated to pay the chiropractor’s bill. A breakdown can be found below.
Settlement Amount: $18,000
Amount Paid to Attorney: – $ 6,000 (1/3 Settlement amount)
Amount paid to Medicare: $12,000
Chiropractor = $0
Steve = $0
Let’s now assume that Jason’s settlement amount was for $60,000 with only a $22,000 Medicare lien attached (no chiropractor). Under these circumstances, Jason’s attorney would receive $20,000 (1/3 of 60,000), leaving $40,000. Medicare would then be fully reimbursed in what is known as procurement cost (explained above) for their $22,000 lien and Jason would receive the remaining balance.
Settlement Amount: $60,000
Amount Paid to Attorney: -$20,000 (1/3 Settlement amount)
Amount paid to Medicare = $22,000 less 1/3 for procurement (7333.33) =
– $14299.66 = amount paid to Medicare
Amount Jason Receives: $25,700.34
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