Sharwood, Suzanne; Smith, Lauren --- "Show me the money: navigating compensation delays" [2017] PrecedentAULA 41; (2017) 141 Precedent 8

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SHOW ME THE MONEY: NAVIGATING COMPENSATION DELAYS

By Suzanne Sharwood and Lauren Smith

The journey to judgment or settlement of a personal injury claim can be long and is often stressful. Once resolved, the time between resolution and ‘money in the hand’ is frequently not as quick as claimants expect and hope. This is typically due to delays experienced in complying with statutory obligations to the Commonwealth (Centrelink and Medicare), in relation to the payment of lump sum compensation.

Standard settlement terms effectively give the compensation payer 28 days to pay compensation to the claimant once it receives a ‘clearance’ from Centrelink. Standard terms also still tend to apply the 28-day payment rule from the date that a signed Medicare Notice is received by the insurer, although claimants have not been required to sign this Notice since mid-2016.

This article addresses the statutory obligations of compensation payers and claimants in relation to notifying and attending to paybacks to Centrelink and Medicare following resolution of a claim, and the issues that arise as a result of these requirements.

CENTRELINK – THE LEGAL STUFF

Part 3.14 of the Social Security Act 1991 (Cth) (SS Act) creates an obligation for a ‘compensation payer’ to repay to the Commonwealth any ‘compensation affected payments’ (CAPs) received by a ‘compensation recipient’ during the ‘lump sum preclusion period’ (LSPP). Simply put, this means that a person responsible for payment of damages to a claimant (usually an insurer – herein referred to as insurer) must reimburse the Commonwealth for any income payments made to a claimant during the LSPP. The LSPP is worked out with reference to s1170 of the SS Act, and depends on whether the claimant received periodic compensation payments, a lump sum compensation payment, or both. The LSPP can extend beyond the settlement date for the damages claim.

CAPs include a range of benefits, including the age pension, various disability pensions, a parenting payment, carer payment, telephone allowance, education entry payment, and a mature age allowance. A full list of relevant payments can be found in s17 of the SS Act.

Section 1178 of the SS Act provides authority for the Commonwealth to determine liability for repayment of CAPs. A Preliminary Notice may be sent by the Commonwealth to the insurer that it may wish to recover an amount from them: s1182.

Once issued with a Preliminary Notice, an insurer must notify the Commonwealth of its liability to pay compensation within seven days after it becomes liable to pay the compensation, or after it receives the Notice, whichever happens later. Failure to comply with this obligation is a strict liability offence.

The liability to pay compensation will generally arise when the requisite steps under the settlement agreement have been completed by the parties. Typically, these include when settlement documents are filed and the judgment is entered by the court; receipt by the insurer of a copy of the judgment initialled or signed by the Registrar; receipt by the insurer of an appropriate authority to receive; or receipt by the insurer of a notice for any required charge or payback.

If a claimant has been in receipt of CAPs, the Commonwealth may give written notice to the insurer that it proposes to recover an amount specified in a Recovery Notice. Upon receipt of a Recovery Notice, the insurer becomes liable to repay any amount specified in the notice: s1184.

The SS Act provides that liability for the insurer to pay settlement funds is suspended in circumstances where the Commonwealth has issued a Preliminary Notice or Recovery Notice: s1184B. It is a strict liability offence for an insurer to make a payment to a claimant before any monies owing to the Commonwealth have been reimbursed: s1184D. This includes if a Preliminary Notice has been issued and the Commonwealth has not been notified of the settlement before settlement funds have been disbursed. In addition to the insurer remaining liable for any amounts owing to the Commonwealth, penalties may also apply: s1184E. The insurer’s liability to the Commonwealth is discharged upon payment of any amounts specified in a Recovery Notice: s1184C.

Typically speaking, CAPs will be recovered from the insurer. Recovery directly from the claimant occurs only in limited circumstances; for example, when settlement monies have been disbursed by the insurer, the claimant failed to notify Centrelink that they claimed compensation, and a Preliminary Notice was not served; or the claimant notified Centrelink that s/he was claiming compensation but a Preliminary Notice was not served or was served incorrectly.

The obligations in practice

In order to obtain what is commonly referred to as a ‘clearance’ (Recovery Notice) from Centrelink, an insurer or its lawyer completes a ‘Compensation Advice of Lump Sum Payments’ form. This is faxed to Centrelink together with the signed settlement documents (or a copy of the judgment) and any other relevant information, such as a schedule of payments made by an insurer. This process cannot begin until the requisite settlement documents have been completed correctly (often not the case) and returned to the insurer or its lawyer.

Upon receipt of the clearance, the insurer must then discharge its liability by paying Centrelink any amount specified in the clearance. If the amount recoverable is nil, it can then account to the claimant.

The issues

It is not unusual for Centrelink to take weeks, even months, to provide a clearance. This delay can be due to a number of things, including a backlog of requests waiting to be processed and requests purportedly not being received and/or actioned by Centrelink.

Centrelink has advised that there is no requirement to obtain a clearance unless a Preliminary Notice has been served. This is because a Preliminary Notice confirms that CAPs have been made to the claimant and may need to be recovered. However, Centrelink becomes aware of the potential entitlement to recover CAPs only if the claimant notifies it that a compensation claim is being made. This is done either at the time of applying for benefits, or at a later stage if the injury occurs while benefits are already being received.

Centrelink attributes the delays in processing clearances to the fact that requests are being made when a Preliminary Notice has not been served. That said, Centrelink is not able to advise an enquiring party as to whether or not it has served a Preliminary Notice in order to reduce the number of clearance requests being made.

An insurer cannot be satisfied that it has met its obligations in the absence of a mechanism to confirm or deny the existence of a Preliminary Notice. This includes circumstances where a claimant may have forgotten to inform Centrelink of a compensation claim made after he or she is already in receipt of CAPs. For that reason, the insurer will request a clearance in order to protect itself from being exposed to a liability to repay the Commonwealth in the future, as well as to avoid offences or penalties for failing to comply with the SS Act.

It is not unusual for an insurer’s lawyer to follow up the status of a request for a clearance from Centrelink, only to be told that the request was never received. The request is then sent again, sometimes repeatedly. Situations have arisen where a request has not been ‘picked up’ by Centrelink in a timely manner, leaving it ‘sitting in cyberspace’ – that is, it disappears and is not actioned. The process is therefore heavily reliant on parties consistently contacting Centrelink to ensure that the request has not only been received, but is being actioned, which in turn contributes to delay, as Centrelink staff must constantly field these enquires.

For claims that resolve without a component for economic loss, the process of requesting a clearance is often superfluous and generally results in a clearance confirming that no payback is required. However, as described above, CAPs include a wide range of benefits and are not restricted to income-type payments. For this reason, insurers will generally proceed to request a clearance to ensure that they discharge any liability.

What’s the fix?

The delay in obtaining a Centrelink clearance is the main reason why the time between resolving a claim and paying settlement funds to a claimant can be so long. It is frustrating for claimants and insurers alike, and a claimant can be left without a source of income for an extended period if income ceased being paid from the day the settlement was agreed.

One solution for a claimant is to request that the insurer remove the usual settlement terms in relation to the requirement for a Centrelink clearance. Alternatively, the terms could be drafted to include an indemnity in favour of the insurer should a Recovery Notice be served at a later date.

Insurers, however, are unlikely to agree to this request. Removing the requirement to obtain a Centrelink clearance may not properly discharge the insurer’s liability in circumstances where the obligation to notify and reimburse Centrelink arises in statute. More relevantly, the insurer would likely have difficulty in enforcing an indemnity against a claimant after monies have been disbursed, meaning that it would ultimately end up paying any amount owed.

It is recommended that lawyers who act for claimants ensure the speedy execution and return of documentation by arranging to see their clients in that regard as soon as possible. Lawyers should also ensure that the documents are completed properly.

For claimants who may be in financial hardship or have other extenuating circumstances, it is advisable to contact Centrelink directly to request that a clearance be given priority. Similarly, this information should be conveyed to the insurer or its lawyer who can draw this to the attention of Centrelink at the time the request for a clearance is made.

Centrelink has previously raised the possibility of an online portal to facilitate the request for clearances. This is different to the current online calculator, which is not customised to a claimant’s circumstances and provides no guarantee as to the accuracy of the information provided. An online portal which takes into account a claimant’s specific circumstances (including Centrelink history) would be an ideal way to manage the process better, particularly if it could identify whether or not a Preliminary Notice has been served. Unfortunately, it seems that funding for this project has been withdrawn and there are presently no plans to reinitiate the portal.

MEDICARE – THE LEGAL STUFF

The Medicare payback scheme is governed by the Health and Other Services (Compensation) Act 1995 (Cth) (Health Act). If a claimant has received benefits arising from medical expenses related to the injuries for which compensation has been claimed, the value of the benefits must be repaid to the Commonwealth if the claim resolves for more than $5,000 (including all costs).

The ‘notifiable person’ (usually the insurer and herein referred to as the insurer) must notify Medicare in writing within 28 days of the date of judgment or settlement: s23. In most circumstances, this will be 28 days after both parties sign the settlement agreement and/or an order is made by the court giving effect to the settlement. Notification is achieved by completing a ‘Medicare Compensation Recovery Notice of Judgment or Settlement’, also referred to as a s23 Notice.

The insurer is also required to pay Medicare the value of relevant benefits received (if any), a ‘deemed’ amount (discussed below), or an ‘advance payment’, being of 10 per cent of the value of the settlement or judgment sum. In the event of an advance payment being made, notice must be given to the claimant under s33A of the Health Act of the intention to make the advance payment. Any payment due to Medicare must also be paid within 28 days of the judgment or settlement.

It is an offence for the insurer to pay the claimant any part of the compensation awarded unless the required payment has been made to Medicare, or the amount otherwise withheld from the claimant. In the event that settlement monies are disbursed prior to the payment to Medicare being made, the insurer is liable to make the payment over and above the settlement funds: s29. There are also criminal sanctions for the failure to comply with the obligations: s32.

The obligations in practice

The amount of any payback to Medicare can be ascertained by obtaining what is called a ‘Medicare History Statement’. This is a list of all benefits received by the claimant since the date of the compensable injury. The claimant indicates which of the benefits are related to the injury and returns the history statement to Medicare, which then issues what is called a Notice of Past Benefits (NOPB). When a matter resolves, this becomes known as a Notice of Charge (NOC). A claimant is only required to complete the history statement to the best of his/her recollection, and does not need to cross reference each individual benefit with records from treatment providers. Medicare will contact the claimant if it is not satisfied that the identified services are correct.

The NOPB is valid for six months from the date of issue. In the event that a history statement is provided by Medicare but not returned by the claimant within the prescribed time (28 days), Medicare will deem all listed benefits as being related to the injury and will issue a Deemed NOPB. This is also valid for six months.

If there is a valid (whether or not deemed) NOPB/NOC at the time of settlement, the insurer can discharge its liability to repay Medicare by paying the amount stated in the notice. In the absence of a valid notice, the insurer must make an advance payment of 10 per cent.

The issues

The standard process of obtaining a NOPB can take up to three months. Medicare has 28 days to issue a history statement following a request from the claimant. The claimant then has 28 days to return the completed statement, after which Medicare has a further 28 days to issue the notice.

When an advance payment is made, Medicare will automatically (if it has not recently done so) issue a new history statement to the claimant (or his/her lawyer). Once the statement has been completed and returned to Medicare, a refund for any difference between the 10 per cent advance held by Medicare and the actual value of accident-related benefits is reimbursed to the claimant. This process can also take months which can be problematic in circumstances where an advance payment has been made on a large settlement sum.

Where the amount of a deemed NOC has been paid to Medicare (which can also exceed the value of accident-related benefits), Medicare will not automatically issue a new history statement. The claimant must request a new history statement (within two years) and obtain an amended NOC. Only then will any refund to the claimant be processed, which again can take months.

What’s the fix?

To avoid any delays in claimants being paid the full amount of their settlement or judgment monies, lawyers acting for claimants should ensure that there is always a valid and accurate (not deemed) NOPB on file and avoid the need for advance payments. A copy of a valid notice should also be provided to the insurer (or its lawyer) to avoid an advance payment inadvertently being made.

Unfortunately, claimants often do not return the completed history statements to Medicare within the prescribed time, and deemed notices are common. To help prevent this situation, a claimant’s lawyer should request that their client complete a third-party authority to Medicare which will allow them to receive a copy of the history statement. This will also prompt the lawyer to advise the client about the importance of completing and returning the history statement, and to follow up to ensure this is done within the prescribed time.

A relatively recent policy change by Medicare now means that if a history statement is not completed and returned to Medicare within the prescribed time, resulting in a deemed notice being issued, the same history statement can be completed and returned to Medicare during the six month period of the deemed notice. Medicare will not issue a NOPB at that stage, but will hold on to the newly completed history statement and process a refund if the matter resolves before the deemed notice expires. If settlement documents are not provided and the deemed notice expires, a new history statement will need to be requested.

Claimants can avoid the need for an advance payment in circumstances where there is an expired NOPB, but no additional injury-related benefits have been paid since the NOPB was issued. In such circumstances, the claimant can complete a s23A Statement and return it to the insurer with the other settlement documents. The insurer will then be required to pay only the amount specified in the expired NOPB, and avoids the need to request, complete and lodge and process a new history statement. A s23A Statement can also be completed if no NOPB has ever been issued and no relevant benefits have been received by the claimant.

Ideally, it would benefit both claimants and insurers if this process could be streamlined via an online portal. This would allow claimants to instantly fill out the history statement, significantly reducing the time for a NOC/NOPB to be issued. It would also assist insurers to meet their notification obligations more efficiently.

CONCLUSION

It is imperative that claimants have an understanding at the outset of a claim of the potential delays that may occur between resolution of a claim and receipt of their settlement or judgment monies. This is particularly important if they are intending on making a financial commitment that is reliant on their settlement funds.

There is unfortunately little that can be done in the present landscape to facilitate the speedy provision of Centrelink clearances, or to otherwise avoid the need to request clearances while still complying with statutory obligations.

Delays with Medicare refunds can be avoided by ensuring that claimants return history statements within the prescribed timeframe so that a valid NOPB is always available. A copy of each NOPB should also be provided to the insurer or its lawyer.

Further information in relation to the obligations on parties to refund to the Commonwealth certain payments following resolution of personal injury claims, including the relevant forms and guides, can be found on the Department of Human Services (DHS) website. Please note that the policies of DHS are subject to regular review and change.

Suzanne Sharwood is an Associate at Snedden Hall & Gallop Lawyers, ACT. PHONE [phone] EMAIL [e-mail].

Lauren Smith is a Senior Associate at Moray & Agnew Lawyers, ACT. PHONE [phone] EMAIL [e-mail].