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Medicare set-aside seed money required despite injured worker's death

Medicare set-aside seed money required despite injured worker's death

An employer must pay part of the money into an employee's Medicare set-aside account for future medical costs, even though the man died before he could receive it, a North Carolina appellate court has ruled.

Washington D. Holmes was a utility worker for laundry machinery firm Solon Automated Services Inc. and suffered an on-the-job back injury in May 1990, court records show. He received workers compensation benefits for his injury, and Solon agreed to settle Mr. Holmes' claim in August 2010.

The Medicare Secondary Payer Act requires self-insured employers and insurers to act as primary payers for workers comp and liability claims involving Medicare beneficiaries. The Centers for Medicare and Medicaid Services advises workers comp payers to set up Medicare set-aside accounts to pay for future medical costs for a beneficiary's injury.

Mr. Holmes' settlement agreement included a cash payment of $250,000 and establishing a Medicare set-aside account to pay his future medical expenses, records show. The set-aside account was to include $186,033, with $19,582 in “seed money” put immediately into the account and $9,247 paid annually through an annuity for 18 years.

Mr. Holmes' set-aside account was to be funded based on a life expectancy of 19 years, but he died unexpectedly of pneumonia in October 2010, court records show.

Solon and its third-party administrator, Hartford, Conn.-based Specialty Risk Services Inc., a unit of Sedgwick Claims Management Services Inc., paid $250,000 to Mr. Holmes' widow, but refused to put the money in the set-aside account, records show.


The North Carolina Industrial Commission ruled that Solon did not have to fund the set-aside account since Mr. Holmes died before he could incur future medical expenses. Mr. Holmes' wife appealed, arguing that refusing to fund the set-aside account would unjustly enrich Solon at her expense.

In a unanimous ruling Tuesday, a three-judge panel of the North Carolina Court of Appeals found that Solon should pay the $19,582 in seed money, but does not have to pay the rest. The court said Mr. Holmes would have benefitted from the set-aside account each year that he remained alive, but the benefit was not guaranteed.

“As plaintiff did not survive a single year, we conclude that plaintiff failed to meet an explicit condition precedent in the contract, survival,” the appellate court panel ruled.

However, the court said the seed money should be paid because it was a guaranteed benefit, and the settlement agreement did not require Mr. Holmes' survival to receive the seed funding.

“We realize that this may have simply been inartful wording of the agreement, but the parties agreed that the seed money would be for Mr. Holmes' benefit, and certainly a benefit to Mr. Holmes' estate is still a benefit to him,” the court ruled.