You can use a letter or you can report the information by telephone to 1-800-999-1118 Monday through Friday from 5:00 a.m. to 5:00 p.m. Pacific time. Reporting by telephone is fast but leaves no paper trail. It is a quick check to determine whether your client has been a Medicare beneficiary. The phone reporting is limited to three clients per call.

Your report of the pending case will be made to the Coordination of Benefits Contractor. All later correspondence will be with the Recovery Contractor assigned to your client’s claim by the Coordination of Benefits Contractor.

A specimen Reporting Letter is here.

2. Send Proof of Representation. Your report should include Proof of Representation so that Medicare can supply to you the same information Medicare sends to your client. You can submit your retainer agreement as Proof of Representation. It must be a fully-executed copy and you should write the client’s name and Health Insurance Claim Number at the top of the retainer agreement. If you prefer not to send you Retainer Agreement, then you can create a form.

A specimen Proof of Representation is here.

3. Receive a Rights and Responsibilities Letter. That Recovery Contractor will respond to your report by sending you a “Rights and Responsibilities” Letter.

A specimen Rights and Responsibilities Letter is here.

4. Receive a Correspondence Cover Letter. With the Rights and Responsibilities Letter will come a Correspondence Cover Letter.

A specimen Correspondence Cover Letter is here.

You should copy that letter and use it whenever you are writing to Recovery Contractor. You will also receive a brochure and Privacy Act notice.

5. Receive a Conditional Payment Letter. Within 65 days after your Rights and Responsibilities Letter is issued, you will receive a Conditional Payment Letter with an interim amount due to Medicare. You do not need to request the Conditional Payment Letter. Issuance of the Conditional Payment Letter is automatic and is triggered by your initial report and the subsequent Rights and Responsibilities Letter.

A specimen Conditional Payment Letter is here.

You should not pay the amount in the Conditional Payment Letter because the amount is interim. Every 90 days, Medicare updates the amount in that letter. Your client can see the amounts and the updates at MyMedicare.gov. As attorney, you will not have access to that site, except through your client. You should review the Conditional Payment Letter to be sure that the letter only includes Medicare payments relating to your client’s injuries.

6. Report the settlement. Report the settlement to the Recovery Contractor using the Final Settlement Detail Document.

A Final Settlement Detail Document is here.

7. Receive a Final Demand Letter. The Final Demand Letter requests payment, which you should send within 60 days to avoid interest.

A specimen Final Demand Letter is here.

MSPRC – NGHP
P.O. Box 138832
Oklahoma City, OK 73113

The Medicare Secondary Payer Recovery Contractor will distribute any excess funds it has collected over and above the lien of Medicare.

The best procedure to avoid having Medicare named as a payee is to include the payee provision in the settlement agreement or release. Defendants and their insurers have no financial liability for the unpaid liens.

No Wait Time – With the Self-Service Information Feature, there is no wait time to get case information. Callers no longer have to experience the wait time associated with speaking to a Customer Service Representative.

Unlimited number of cases inquiries on one phone call – Callers involved with multiple recovery cases can request information on additional cases with the same call.
Callers will need the following information to utilize the Self-Service Feature:
- Case identification number (found on all MSPRC correspondence)
- Beneficiary’s date of birth
- First five letters of the Beneficiary’s last name as it appears on their Medicare card
- Last 4 digits of Beneficiary’s Social Security number (or full Medicare number)
The Self-Service Feature goes live on September 30, 2011.

As of September 6, 2011, if you’ve received a lump sum settlement of $300 or less, and your case meets certain conditions, Medicare will not recover from that settlement. These conditions include:

1. Your settlement is related to an alleged physical trauma-based incident, not an alleged exposure, ingestion, or implantation, and
2. You do not have any additional settlements related to the same alleged incident.

Please note that this threshold specifically excludes settlements where an insurer is paying your medicals bills directly or on an ongoing basis. This threshold also does not apply if a demand letter was already issued for your case.

In order to elect this option, the following criteria must be met:
1. The liability insurance (including self-insurance) settlement is for a physical trauma based injury. (This means that it does not relate to ingestion, exposure, or medical implant), and
2. The total liability settlement, judgment, award, or other payment is $5000 or less, and
3. The beneficiary elects the option within the required timeframe and Medicare has not issued a demand letter or other request for reimbursement related to the incident, and
4. The beneficiary has not received and does not expect to receive any other settlements, judgments, awards, or other payments related to the incident.

A full explanation, including instructions on how and when to elect this option, will be available November 7, 2011 at http://www.msprc.info/.

Please Note: When a beneficiary elects this option, he/she must understand that as part of choosing the option he/she will be giving up the right to appeal the fixed payment amount or request a waiver of recovery for the fixed payment amount.

            The 1996 taxation of emotional distress.  The inclusion in income of damages received on account of emotional distress has been clear since section 104(a)(2) was amended in 1996 to limit the exclusion to physical personal injuries.  The legislative language taxing emotional distress damages is straightforward:

“For purposes of paragraph (2) [section 104(a)(2)], emotional distress shall not be treated as a physical injury or physical sickness.”  Section 104(a) (flush language) of the Internal Revenue Code of 1986, as amended (“Code”).

            The legislative history.  That language was inserted in 1996 by P.L. 104-188, Small Business Job Protection Act of 1996, section 1605(b).  The legislative history of that provision in the House Committee on Ways and Means Report introduces the concept that a “symptom” of emotional distress is included in the term emotional distress, and therefore taxes, as follows:

            “The bill also provides that emotional distress is not considered a physical injury or physical sickness. ²⁴   Thus, the exclusion from gross income does not apply to any damages received (other than for medical expenses as discussed below) based on a claim of employment discrimination or injury to reputation accompanied by a claim of emotional distress.”  H. R. Conf. Rep. No. 737, 104^th Cong., 2d Sess. (1996), 1996 C.B. 741, 1041 (1996)).

Note 24 to the above Report of the House Committee on Ways and Means provided the “symptom” limitation, as follows:

            “The Committee intends that the term emotional distress includes physical symptoms (e.g., insomnia, headaches, stomach disorders) which may result from such emotional distress.”  Id.

            The practical reasons for change.  The reason that nonphysical injuries were taxed beginning in 1996, and that emotional distress was also taxed, was, in part, that the Tax Court had a number of cases involving employees who had been laid off in the reductions-in-force of the 1980’s.  Some of those employees were trying to exclude from income severance packages received as part of their separation from service.  In leaving, those employees were asked to sign releases of all claims they might have for employment discrimination (age, gender, disability, race, etc.), whether or not they actually had such claims.  Since those claims were personal-injury claims under prior law, employees were trying to exclude their severance pay on the ground that the employees had released those claims.  See, e.g. Taggi v. United States, 35 F.3d 93 (2d Cir. 1994); Sodoma v. Comm’r, 71 T.C.M. (CCH) 3178 (1996), aff’d, 139 F.3d 899 (5^th Cir. 1998); Webb v. Comm’r, 71 T.C.M. (CCH) 2004 (1996).

            There was also a dust-up in the Select Revenue Measures Subcommittee, then chaired by Congressman Pete Stark from Oakland, over a famous San Francisco cable-car passenger who clamed the 104(a)(2) exclusion for her $50,000 award, alleging that a cable-car accident had turned her into a nymphomaniac.  The 29-year-old woman was crushed against a pole in the cable car.  Psychiatric testimony was that the collision “unleashed emotions hidden deep in the dark closet of her mind.”  She apparently took 100 lovers thereafter although that left her unsatisfied.  A jury awarded her $50,000.00, instead of the $500,000.00 she sought.   Rather than struggling with whether such a condition is physical or nonphysical, and against that background, Congress acted.

            Symptoms and signs.  Now, we learn, however, that the symptoms of emotional distress, which are all taxable, can be distinguished from “signs” of emotional distress, which still enjoy the exclusion from income.  So what, you might ask, is a nontaxable sign of emotional distress, as distinguished from a taxable symptom of emotional distress?

            Symptoms.  The answer lies in medical literature, and, in fact, is very well settled there, although perhaps not among the political scientists on Capitol Hill.  A symptom is apparently a perception by the patient and not observable by others.  Insomnia is a symptom.  The patient knows he or she is not sleeping.  A visit to the doctor, however, cannot yield an observation of the insomnia.  Similarly for headaches and stomach disorders.  Insomnia, headaches and stomach disorders are observable by the patient but not by the doctor.[1]

            Signs.  A sign, on the other hand, is observable by the doctor, such as a heart attack, stress-induced diabetes, or stress-induced suicide.  According to the Tax Court, damages on account of physical personal injures that are signs of emotional distress, rather than symptoms of emotional distress, are excludable from income.  Parkinson v. Comm’r, T.C. Memo 2010-142, No. 7784-08 (June 28, 2010).  Whether or not that rationale makes sense, the result is consistent with the legislative intent behind taxing emotional distress damages, i.e., to exclude from income only verifiable claims of physical injury, or, as the Service rules privately “observable bodily harm.”  Priv. Let. Rul. 200041011 (July 17, 2000).  This breakthrough reasoning to permit the exclusion of compensation for signs of emotional distress was achieved by the taxpayer pro se. 

            Although a breakthrough, the utility of the symptoms/signs rationale may be somewhat limited, based on the emotional-distress symptom cases decided to date.  Below is a list of some of those and how they might be decided if the Parkinson rationale is correct.  Not many that would be reversed. 

[2] Selected cases are in this table because many cases are decided using the allocations in the settlement document, rather than the facts.  There is generally no tension between the parties in determining the allocation between taxable and nontaxable elements.  Even with punitive damages, there is no tension.  Neither side wants them.  They are taxable to plaintiffs.  They may not be reimbursable from insurance for defendants.  Defendants don’t want to be seen as paying punitives for bad behavior.  Insurers are delayed n deducting them (they might correctly treat them as bulk or IBNR reserve additions for statutory purposes, but that treatment will not flow through to the tax return as a “loss incurred” under section 832(b)(5) under State Farm Mutual Automobile Ins. Co. v. Comm’r, 135 T.C. No. 26 (No. 5426-05, Nov. 8, 2010)).

[3] Hypertension might be a sign since it is observable by a physician.  That the holding would have been reversed on that ground is a bit speculative.  Many of the signs, including the sclerotic condition of Mr. Parkinson might well have origins in genetics, eating habits, exercise, etc. and were simply aggravated by the emotional distress. 

[4] The Court noted that some of the signs may have been the result of diet and lifestyle.  On that basis, the Parkinson conclusion could also be criticized.

Let’s assume that you earn a $450,000 fee in 2010.  By using that fee to cover future case expenses through a structured fee, your income tax liability may be zero.  Suppose you can cover your expenses for the next 12-18 months but would like a predictable income stream in 2012 for future case expenses.  The two alternatives below illustrate the net income you would earn by taking the lump-sum in 2010 and then investing in Treasury Bonds versus structuring the fee with annual monthly payments during 2012.  As you can see, the end result is over $135,000 to you if you structure and match case expenses.

Alternative 1.  Take the fee in 2010 and invest for 2012 in 2-year Treasury Bonds yielding 0.40%.

Alternative 2.  Structured fee.