CMS Releases Additional Information Regarding Computation of Liability Threshold
Heather Sanderson
December 9, 2015

We recently blogged on CMS’ announcement regarding maintaining the $1000 settlement threshold for liability insurance (including self-insurance) wherein CMS would not require reimbursement of conditional payments and would not require Section 111 reporting. CMS is required to annually produce a liability threshold amount pursuant to the SMART Act. Our prior blog can be accessed here.

Since then, CMS has released its Report to Congress with additional information on how it calculated the 2016 threshold amount. The Report to Congress can be accessed here.

Appendix B provides the methodology and results regarding CMS’ costs of collection and estimated recovery amounts. With this information, CMS created an estimated cost of collection so that it would ensure that its costs would be equal to the estimated recovery amount. Some notable numbers from the Report to Congress are that CMS spent $73,009,459 in 2014 on NGHP recoveries in total. CMS’ average cost of recovery per liability case was $420, and additionally found that the average demand amount was $436. CMS then analyzed the amount demanded for liability settlements within five threshold ranges, and determined that the threshold should be $1000, in that the average demand amount for settlements over $1,000 were at least $473, therefore the $1000 threshold would ensure that its recovery threshold was revenue neutral.

Commentary: Quite notable within this Report to Congress is the fact that CMS comments three (3) times within the Report that it is required to evaluate whether similar thresholds should be established for obligations arising from workers’ compensation and no-fault insurance. The Report to Congress even goes as far to state that CMS is currently evaluating workers’ compensation and no-fault data to determine whether similar thresholds should be implemented for workers’ compensation and no-fault (see Executive Summary 1st and 3rd paragraph, and Conclusion 3rd paragraph). While CMS acknowledges that a $750 reporting threshold is in place for workers’ compensation, CMS seems to be acknowledging that a similar in-depth analysis of thresholds should be pursued and implemented for workers’ compensation and no-fault. We hope to see a similar analysis report for workers’ compensation and no-fault in the future.

Also notable from the Report to Congress is that CMS states that “[t]he reported costs for liability insurance represented 84.5% of the total $73,009,459 spent on NGHP benefit coordination” (in 2014). It is interesting to realize that in 2014, workers’ compensation and no-fault coordination and recoveries only comprised 15.5% of CMS’ expenditures in 2014. One would expect with the new Commercial Repayment Center coming about and pursuing ORM recoveries as of October 2015, that the amount spent on workers’ compensation and no-fault recoveries will increase in future Reports to Congress. CMS, through the CRC, will be devoting more time and money to pursuing coordination and recoveries in workers’ compensation and no-fault cases on a go-forward basis.

Heather Schwartz Sanderson, Esq., MSCC, CHPE, CLMP, CMSP
Chief Legal Officer
Franco Signor LLC