Posted by: Karen Hauser on Oct 4, 2017

Contributed by Commonwealth Community Trust


Congratulations! You’ve won the award. Now what? Your client who receives means-tested government benefits – Medicaid and SSI – may lose eligibility due to the injury award. Perhaps, due to the nature of the injury, the client may need professional assistance to manage their funds even in the absence of public benefits. And, your client may also have future Medicare expenses stemming from the injury. How can you protect current and future benefit eligibility, help your client manage the funds, and plan for future Medicare expenses? The coordinated use of a Medicare Set-Aside Account (MSA) within a Pooled Special Needs Trust (PSNT) can help solve these problems.

Public Benefits Primer
Medicare, Medicaid, SSDI, and SSI stem from disabilities as defined by the Social Security Administration. To be disabled within the meaning of the Social Security Act (42 U.S.C. Section 1382c(a)(3)(A)), the individual must have a severe, medically determinable physical or mental impairment which has or is expected to last for one year or to result in death. In addition, the impairment must make the individual unable to engage in “substantial gainful activity.”

Under Title XVI of the Social Security Act, an adult is eligible for Supplemental Security Income (SSI) if they are disabled, have no more than $2,000 in countable resources AND are below 133% of the federal poverty income level (around $12,000 for an individual). This benefit provides a monthly allowance (currently $735) that is intended to pay for food and shelter. Social Security Disability Insurance (SSDI) is based on one’s work history, specifically, the number of quarters of withholdings as well as the amount of those withholdings.

Medicare and Medicaid are intended to provide health coverage. Medicare is a federal health insurance program for people who are permanently disabled (as well as for those 65 and older), while Medicaid is a federal program administered by the States for the aged, blind and disabled, who are also impoverished. A cap on resources and income very similar to SSI, determines Medicaid eligibility. Medicare eligibility is based on one’s work history and withholdings. An individual can be dual eligible for Medicare and Medicaid.

The Problem
Due to eligibility resource limits, an injury award will disqualify an individual for means-tested benefits. In addition, the Medicare Secondary Payer Act (MSPA) (42 U.S.C. 1395y and 42 C.F.R. 411:20, et.al.) recommends that a portion of a workers’ compensation award be “set aside” in a Medicare Set-Aside Account (MSA) when the plaintiff is on Medicare, or is predicted to begin Medicare coverage within 30 months of the settlement, and will have ongoing medical expenses related to the injury that would otherwise be covered by Medicare. MSAs are countable resources and will also put the client over the resource limit. The coordinated use of an MSA within a PSNT will solve both the Medicare and Medicaid issues.

How a First-Party PSNT Works and How an MSA Works Within It

Created under the Omnibus Budget Reconciliation Act of 1993 (42 U.S.C. Section 1396p d(4)(C), a first-party PSNT is managed by a non-profit organization that often delegates investment decisions to a financial institution. It is a cost-effective way to preserve funds that must be used solely to enrich the quality of life of an individual with special needs. The award funds the trust and the funds are pooled together for investment purposes. The trust then funds the MSA. Separate sub-accounts are maintained and financial statements are provided. Pooling of funds reduces administrative fees and increases the principal for investment purposes – much like a mutual fund. The MSA within the PSNT is administered by a professional MSA administrator that has been hired by the PSNT. The trust becomes irrevocable when funded and must contain a payback provision at the beneficiary’s death to repay the states for Medicaid benefits received during the life of the beneficiary.

Is a PSNT the Right Option for Your Client?
Ask yourself, is the award more than $5,000? Does the individual lack someone to act as a Trust Administrator who has knowledge of the rules governing SSI and Medicaid to make sure eligibility is maintained? Due to the nature of the special need, could the individual benefit from
assistance of a Trust Administrator regardless if they utilize means tested benefits? If the answer is yes, then a PSNT is a viable option for your client.

The PSNT non-profit organization will act as Trust Administrator and make disbursement decisions. Income and principal are distributed on behalf of the Beneficiary at the sole discretion of the organization. The trust can pay for the following expenses, but is not limited to:

  • Medical and Dental Services not covered by insurance
  • Caregiver expenses
  • Eyeglasses, Hearing Aids, and Prosthetic Devices
  • Pre-paid Burial Expenses
  • Computer and Internet Services
  • Clothing
  • Home Modifications
  • Educational Expenses
  • Television and Telephone Services
  • Home Furnishings
  • Vehicle and Transportation

If the beneficiary is receiving SSI, disbursements cannot be for food, shelter or in cash.

Fees and Funding
Fee schedules and minimum funding requirements vary among pooled trusts. Initial funding can be as little as $5,000 (with no maximum) where banks or financial institutions may require accounts to have a minimum of $350,000-$750,000. Funding can be in the form of a lump sum or part of a structured settlement. Enrollment fees typically range from $850-1,500. Trust administration and investment fees are affordable when compared to financial institutions and other professional trustee options.

Remainder Policy

A First Party PSNT is subject to a Medicaid payback provision. The remaining funds at the death of the beneficiary are subject to reimbursement to state(s) for medical assistance paid on behalf of the beneficiary. Remainder policies after Medicaid is reimbursed for expenses paid on behalf of the beneficiary varies greatly among pooled trust organizations. For example, the remainder may be distributed to the designated successor beneficiary (the policy of Commonwealth Community Trust), others may retain a percentage of the remaining funds and then distribute the remainder to the designated successor beneficiaries and some may retain it all.

Be Prepared
Your clients with special needs who have received an award and require an MSA face many obstacles related to maintaining benefit eligibility. The ability to nest 
a MSA inside a PSNT will help manage these issues. Even if your client will not need Medicare or SSI, a PSNT is a good option when the client has difficulty managing the funds on his or her own. Special coordination with a professional MSA administrator optimizes all benefit preservation in one place. Working with a pooled trust administrator makes professional administration affordable and available to a wider client base.

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