Pennsylvania State Court Finds MSA Funds Subject to Subrogation When Employer Remains Responsible Fo


In Marshall v. Workers’ Compensation Appeal Bd, (2019 Pa. Commw. Unpub. LEXIS 192, (Commonwealth Ct. of Penn. March 14, 2019)), the Commonwealth Court of Pennsylvania was faced with the issue of whether or not the Claimant’s partially funded Medicare Set-aside (MSA) was subject to subrogation by the Employer. The Claimant, a bus driver who was injured on the job, received a settlement of approximately $1.3 million from the Employer’s UIM carrier. The UIM settlement also provided the Claimant with money to fund a portion of a CMS-approved Medicare Set-aside, with the idea being that the workers’ compensation settlement would fund the remainder of the MSA. Ultimately, the workers’ compensation settlement fell through. Following disbursement of the UIM funds, the Employer requested that the Claimant execute a Third-Party Settlement Agreement (TPSA), which outlined the information necessary to calculate the Employer’s subrogation interest. In calculating the TPSA, the Claimant excluded the MSA funds that he had received from the UIM settlement. Unhappy with this exclusion, the Employer filed a modification petition asserting that the parties were unable to agree to the terms of the TPSA.

In deciding that the funds earmarked to partially fund the MSA should be subject to subrogation, the Workers’ Compensation Judge found that a “valid” MSA had not been created, as the Medicare Set-aside approval from CMS was contingent on CMS receiving a copy of the final settlement documents. The Judge also concluded that the proposed MSA was “prepared in contemplation of resolving both the third-party claim and the workers’ compensation claim,” which did not occur. Further, because the workers’ compensation settlement never occurred, workers’ compensation remained responsible for future medical treatment.

After an unsuccessful appeal to the Workers’ Compensation Board, the Claimant appealed to this Court, arguing that there is no requirement for the workers’ compensation claim to have settled for the MSA to be valid. On the contrary, the Employer asserted that no liability was shifted to Medicare because it remained responsible for the Claimant’s future work-related medical treatment. Therefore, according to the Employer, there was no need for an MSA and the funds designated to create an MSA should be subject to subrogation.

In determining that the Workers’ Compensation Judge and Board did not err in the decision that the MSA funds were subject to subrogation, the Court noted, “it is not until there is a settlement in which the employer is released from paying future medical benefits that the parties are required, or need, to protect Medicare’s interests in remaining the second payer.” Because there was no need for a Medicare Set-aside in this case, the funds provided for the MSA were found to be subject to subrogation by the Employer.

It is important to note that the Court’s decision was based on the fact that no burden was being shifted to Medicare due to the ongoing workers’ compensation benefits. If medical benefits had not remained open, this case would likely have a different outcome. If you have questions about whether or not a Medicare Set-aside is needed in a given case, please let us know and we will be happy to assist with the evaluation.


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