March 14, 2022
Rasa Fumagalli JD, MSCC, CMSP-F & Samantha Webster
Many Medicare Set-Aside (MSA) arrangements today are funded with structured settlements. There are some very good reasons for doing so, which are discussed below. However, it is critical to understand the different ways a set aside can be funded so your client can make the best decision possible of how to fund it if a structured settlement will be utilized. According to CMS, an MSA may be funded by either a lump sum payment or by a structured settlement. Although a lump sum MSA may be simpler to administer, there are several benefits to funding an MSA with a structured settlement annuity. One primary benefit is cost savings: it is not uncommon to see a 20-30% cost savings by using a structured settlement to fund an MSA as opposed to a lump sum. Another benefit is that rated ages, used for structured settlements, also reduce funding cost as well as the total amount needed to be set aside as rated ages are accepted as evidence of reduced life expectancy by CMS. Lastly, and probably most importantly, a structured settlement typically funds the set-aside on an annual basis which acts as a yearly deductible that once temporarily exhausted triggers Medicare to pay in that calendar year (assuming seed is exhausted as well). Contrast this with lump sum funding which requires total exhaustion of the entire set-aside amount before Medicare ever pays for any injury related care.
CMS Guidance on MSA Funding
The Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) Reference Guide, Version 3.5 (1/10/2022) discusses structured WCMSAs in several areas. Section 5.0 of the Reference Guide explains that in a structured WCMSA, the initial seed deposit should cover the first surgery or procedure for each body part and /or replacement along with the first two years of annual payments. This means that if the WCMSA includes projections for surgeries to three different body parts, the seed must cover the cost of these three surgeries along with the first two years of annual payments. The greater the initial seed deposit, the smaller the cost savings to be gained through annuity funding although they may still be significant.
It is important for practitioners to review the type of funding that is being proposed in the WCMSA submission to the Centers for Medicare & Medicaid Services (CMS). This information will appear on the CMS submission cover letter. Since Section 10.2 of the Reference Guide requires the claimant/beneficiary to confirm their review and understanding of the submission package, practitioners should be provided with these documents by the defense. If the WCMSA proposal cover letter seeks CMS approval of a lump sum, when the intention was to fund through a structure, the submitter will have to seek a revised CMS determination letter that changes the funding to a structure. This may result in an unnecessary delay.
CMS determinations that provide for funding of the WCMSA via a structure, will list the initial seed deposit and the annual payments. If the seed deposit that is recommended by CMS is within 5% of the seed that was proposed in the WCMSA submission, CMS will approve the seed in the submission. CMS determinations will also use the claimant’s life expectancy from the submission, if properly calculated, to identify the number of years that will require an annual payout. If a person lives longer than the number of years that are identified in the CMS determination, the annual payments will cease after the specific number of years has expired.
Funding a WCMSA with an annuity is like having an account for the claimant’s insurance deductible. Each year a payment is made from the structured settlement annuity into WCMSA; that payment, plus any carryover from prior years, must be spent down before Medicare will pay for accident-related services in any given year. Section 19.3 of the Reference Guide addresses the administration of the WMSA when it is funded through a structure. When a WCMSA proposal is funded through a structure, the deposited funds if not properly exhausted, are carried forward in the WCMSA account. The entire amount of the funds available in the WCMSA must be properly spent before Medicare is presented with any injury related Medicare covered bills. If the WCMSA funds temporarily deplete before the next annual payment, Medicare will pay as the primary payer for additional injury related medical expenses until the account is funded again. This concept is called “temporary exhaustion.” The claimant does not need to postpone care, as a temporary exhaustion of the WCMSA account obligates Medicare to potentially pay something towards injury related care each year.
Structured Settlement Funding Considerations for MSAs
Because structured settlement annuities are tax-free and reduce the amount needed to fund the set-aside substantially, they should be considered as the funding mechanism for nearly every set aside arrangement. Once the parties to a settlement agree to fund a WCMSA with a structured settlement, they must agree on the type of structured settlement annuity to use. There are several structured settlement annuity options available for funding a WCMSA, and the option chosen will depend on several factors including agreement by defense, the cost, and the preference of the claimant.
Traditionally, the defense will propose a specific type of structured settlement to fund the WCMSA known as a temporary life annuity. A temporary life annuity provides payments only if the claimant is living and only for a certain number of years. The number of years required is tied to the claimant’s life expectancy and expressed in the MSA allocation report or the CMS determination. The rationale for using a temporary life annuity stream is two-fold. First is the cost. Using a temporary life annuity is the least expensive annuity option for funding a WCMSA. Second, the annual payments to the WCMSA are intended to cover the injury related care that normally would be covered by Medicare which would end upon the death of the claimant. When a claimant dies there is no reason to replenish the WCMSA so no additional payments should be made. With the temporary life annuity, payments cease upon the death of the claimant.
The cost of the structured settlement annuity can also be a factor when choosing an option for funding the WCMSA. The cost consideration may depend on whether defense has agreed to fund the WCMSA in addition to or inclusive of the settlement offer. If the WCMSA is in addition to the settlement, defense will focus on the least expensive option which would be the temporary life annuity. If the WCMSA is inclusive of the settlement offer, the claimant may have an opportunity for other options, but would need to consider whether there are enough proceeds to cover any additional annuity funding expenses for guarantees.
While the temporary life annuity option may be preferred by defense or by a claimant looking for the most cost-effective way to fund the WCMSA, there are other options that can benefit the claimant’s family in the event of a premature death. An option that satisfies the funding requirement for the WCMSA and provides the claimant’s family with some additional security is a period certain annuity. The terms are very similar to a temporary life annuity with the added benefit of all payments being guaranteed. A guarantee provides the claimant with an opportunity for their death beneficiaries to receive any remaining payments upon death. This can be an important feature for a claimant concerned about using settlement proceeds to fund a structured settlement annuity that does not benefit their family if they die before all the scheduled payments are made. With a settlement inclusive of the WCMSA funding, using a structured settlement can create cost savings that benefits the claimant. The savings can be used for non-Medicare expenses or replacement of indemnity benefits.
Post Settlement Administration of the MSA
Since the administration of an MSA is complicated, CMS “highly recommends” the use of a professional administrator for their funds. Consideration should be given at the time of settlement to the benefit of professional administration for both sides and who shall be responsible for the cost. At the claimant’s election, professional administration may be chosen and paid for from settlement proceeds. Like funding the set-aside itself, there is also a benefit to funding the professional administration annual expense using a structured settlement. Professional administration benefits the claimant in that the funds in the account are property spent, record keeping and attestations (“annual reporting”) are done correctly and timely, bills paid from the WCMSA are in line with the appropriate workers’ compensation fee schedules or lower, and temporary exhaustion or final depletion of the WCMSA is properly reported. In certain cases, insurance carriers may insist on professional administration and bear the cost on behalf of the claimant. The primary benefit to the insurance carrier is control over any remaining balances in the WCMSA account upon the death of the claimant. Practitioners should be aware that insurance carriers may seek to have any funds that remain in the professionally administered account revert back to the carrier upon death of the claimant. In light of this, it is important to make sure “reversion” is discussed in the settlement negotiations. It should be clearly spelled out in the settlement documents and in the professional administration agreement to avoid any confusion.
Settlements that involve a WCMSA do not have to be complicated. Making the decision to fund the WCMSA with a lump sum or a structured settlement annuity is the first step. If the decision is made to fund with a structured settlement annuity, understanding the different funding options is the next critical step. The defense and the claimant each have priorities, and the parties need to agree on an option for the settlement to proceed. The final consideration is whether the claimant will self-administer the WCMSA or opt for professional administration. While the professional administration may benefit the claimant, the insurance company may insist on it as a means to control the funds remaining in the WCMSA after the death of the claimant. Each of the items mentioned should be considered by the parties to the settlement and be outlined in the settlement documents. For practitioners, it is important to find a strategic partner to help guide you through the process and provide guidance on each of these critical steps for a WCMSA.
 and  Lazarus, Jason D. and Pettingill, B. Joshua, “WCMSA Funding Mechanisms: Maximizing Recovery & Cost Savings,” Legal News by Jason D. Lazarus, Esq. A legal examiner Affiliate, 6 July 2020.
By: Joanna Wynes, J.D., Partner Planner
The primary goal of a plaintiff’s attorney in a personal injury or workers’ compensation action is to achieve the greatest possible financial recovery given the facts and circumstances of the case. Once there is an agreement on the amount to settle the case for the injury victim or workers’ compensation claimant, there is a one-time opportunity for the plaintiff to invest a portion of the recovery in a structured settlement annuity. The decision to purchase a structured settlement with a portion or all of a victim’s settlement must be made before receipt of the proceeds.
What is a Structured Settlement and Why is it Used?
A structured settlement is an investment vehicle where the settlement proceeds are paid as a periodic stream of payments instead of a lump sum payment or in addition to a lump sum.
Since their inception in 1982, structured settlement annuities have been considered one of the safest financial options at settlement for personal injury and workers’ compensation victims. Prior to the creation of structured settlements, plaintiffs could only receive their settlements in the form of a one-time lump sum cash payment. As a result of limited financial expertise and the fact that many plaintiffs receive more funds from a settlement than they have ever had in their lifetime, there is a significant risk of quick dissipation of settlement funds. In fact, there is anecdotal evidence that ninety percent of claimants quickly dissipate lump sums received for personal injuries within five years of receipt of the lump sum. A structured settlement provides financial management for settlement funds and can be designed in various ways to meet a plaintiff’s needs. Depending on the type of structured settlement plan selected, it can ensure that the settlement proceeds will last for the rest of an injury victim’s life.
A structured settlement has many advantages over taking an entire settlement as a lump sum, as discussed in more detail below:
- A structured settlement offers valuable tax incentives: Although personal injury and workers’ compensation settlement proceeds are tax-free, any interest earned on traditional investments is fully taxable. To promote the use of structured settlements, Congress amended the federal tax code to make 100% of every structured settlement payment received on account of personal physical injury or sickness exempt from income taxes.
- A structured settlement helps provide financial security: Traditional investments typically do not offer a guaranteed return. A structured settlement, on the other hand, creates a fixed stream of guaranteed income with a guaranteed rate of return, which allows a personal injury victim the ability to recover without spending time and resources determining investment strategies. Additionally, a structured settlement can help protect funds from creditors, relatives, friends and others seeking money when they learn of a large settlement.
- A structured settlement is flexible in design: A personal injury or workers’ compensation victim can design a structured settlement to provide a monthly check to help pay for basic needs such as food, clothing, transportation and/or housing. Alternatively, it can be used to provide for the future cost of college, retirement funds and/or a down-payment on a home.
- A structured settlement is backed by the highest-rated insurance companies: A structured settlement is contractually guaranteed by a highly rated, well-capitalized life insurance company.
Cases in Which a Structured Settlement Should Be Considered:
Structured settlements are ideally suited for many types of cases including: 1) cases that involve minors or persons found to be incompetent; 2) people with temporary or permanent disabilities; 3) severe injuries necessitating extensive future medical care and income replacement; 4) wrongful death cases where the surviving spouse and/or children need monthly or annual income, or assistance with education expenses; and 5) workers’ compensation cases.
20-Year-Old Female: Anna Parker (name changed for privacy and confidentiality)
Ms. Parker was significantly injured in an automobile accident. Although she was not completely disabled, her injuries significantly diminished her future employment capacity. Ms. Parker’s case settled for policy limits, and after the payment of attorneys’ fees and costs, she was going to net $350,000.00. Ms. Parker elected to take $40,000.00 of her net settlement proceeds in a lump sum at the time of settlement to buy a used car and rent a new apartment. She also elected to invest $310,000.00 in a structured settlement, which would provide her with guaranteed monthly payments of $1,169.27 for thirty years to help her with monthly bills as her earnings capacity was diminished. The contractually guaranteed payments under the plan selected totaled $420,937.20. Accordingly, her structured settlement was guaranteed to earn $110,937.00 of tax-free interest on her investment.
9-Year-Old Female: Lisa McDonald (name changed for privacy and confidentiality)
Lisa McDonald sustained a severe arm fracture as a result of medical negligence as a young child. Her case settled when she was 9 years old for $750,000.00. After attorney’s fees and costs, she was going to net $400,000.00. Because she was a minor at the time of settlement, and not disabled, her parents had two choices for her settlement funds under Maryland law. One option was to place her funds in a statutory “Title 13 Trust.” With this option, her funds would be in a restricted bank account, earning little to no interest until she reached the age of 18. The funds would not be available for use without Court Order prior to the age of 18, and upon age 18, Lisa would be able to withdraw all of her money at any time. The other option was a structured settlement, which could start paying her at or after the age of 18 on a schedule selected by her parents and was guaranteed to earn significant interest. After speaking with her parents, we designed a structured settlement so that Lisa would receive semi-annual payments of $20,000.00 for four years starting in the summer following her 18th birthday, with the intention that those payments would assist with college tuition. Her parents also elected for her to get a guaranteed lump sum of $45,000.00 on her 23rd birthday, $30,000.00 on her 25th birthday and $322,918.47 on her 27th birthday. The contractually guaranteed payments under the plan selected totaled $557,918.00. Accordingly, her structured settlement was guaranteed to earn $157,918 of tax-free interest on her investment.
If you or a family member are anticipating a settlement for personal injury or sickness, speak with your attorney about getting a structured settlement consultant involved to discuss options for your settlement proceeds, and to ensure that a plan is putting in place prior to signing settlement documents and receiving funds. Alternately, reach out to a settlement planner, such as myself, directly, to learn whether a structured settlement might be right for you or your family.
October 14, 2021
Settlement – What to Consider for a Medicare Set-Aside (MSA)
When settling a case involving a current Medicare beneficiary and before finalizing, it is important to understand what actions need to be taken to consider Medicare’s interest. What does this all mean and what are the three most important things to consider?
Medicare Set-Aside Decision
The threshold question is whether an MSA needs to be considered or not. That turns on Medicare eligibility. If they are eligible, then the next question is whether future medicals are funded. If the answer to both questions is yes, then a set-aside allocation should be considered. After determining that the injury victim is a current Medicare beneficiary (or even has a reasonable expectation of becoming Medicare eligible within 30 months) and that future medical treatment is needed for their injuries, the question is what is the cost of future injury-related Medicare-covered care. To determine the amount, either the defense or plaintiff need to request preparation of a Medicare Set-Aside allocation report identifying all future injury-related care and expected costs.
Once the decision is made on the amount necessary to cover future injury-related care, the final things to consider are what, if anything will be set aside in a formal MSA; how will the MSA account be funded and how will the MSA be managed?
How is the MSA Account Funded?
Once the MSA allocation is complete and a decision is made to set money aside for future Medicare-covered services, the injury victim has two options to fund the MSA account. The first is a lump sum. From the settlement proceeds, the full specified sum according to the allocation report or the CMS approval is placed into the Medicare Set-Aside account by the injury victim. The full amount of the allocation is placed into the account and available to pay for injury-related care. The benefit of this funding option is all the funds are placed into the MSA account at once. The downside is that the settlement proceeds directly to the injury victim are reduced by the full amount of the allocation, and the funds may sit in the MSA account untouched for years or until appropriate injury-related care is needed. If and when the account is fully exhausted (the balance is taken to zero), Medicare resumes paying for the injury-related care. The biggest downside is that there is fully exhaustion of the entire set-aside amount before Medicare will pay for any future injury-related care instead of annual temporary exhaustion using a structured settlement.
The second option is to fund the MSA with a structured settlement. The allocation report or the CMS approval generally will provide specific structured settlement annuity parameters. The parameters include an initial cash deposit made to establish the account (seed) followed by a series of annual payments over time. Periodic payments from a structured settlement annuity replenish the account annually. The duration of the periodic payments is specified in the allocation report or CMS approval and is based on the life expectancy of the injury victim. The benefit of using a structured settlement to fund a Medicare Set-Aside is the cost savings for the injury victim. The savings can result in additional cash from the settlement in the pocket of the injury victim that is available for other uses. There really is no downside to using a structured settlement annuity to fund an MSA. It is all upside since a structured settlement with a rated age means less has to go into the set aside for a shorter duration. Additionally, temporary exhaustion on an annual basis is possible which means Medicare will resume paying for the injury-related care each year after the annual amount is exhausted until the account is replenished with the next structured settlement payment.
How is the MSA Account Managed?
Once the decision is made about how the MSA will be funded, the last critical item to be decided during settlement is how the set-aside will be administered. There are very specific requirements for administration of a Medicare Set-Aside as outlined by the two options available are self-administration and professional administration. With self-administration, the injury victim maintains control of the MSA account but is also responsible for paying all bills, at the correct rate, from their providers for injury-related care, tracking all payments from the MSA account, annual attestations (as required), and reporting depletion or exhaustion of the account. While CMS provides a helpful resource in the form of a Self-Administration Toolkit, the administration of the MSA may be a daunting task for many injury victims. For injury victims who want to maintain control over their MSA account but are uncertain about meeting the requirements for self-administration, there are neutral, third-party companies who can offer some relief in the form of self-administration assistance.
For those injury victims concerned about the many requirements of administration and prefer help, there are numerous companies offering professional administration services. The professional administrator vendor employs a team of professionals to manage the custodial account created on behalf of the injury victim. The vendor has a clear understanding of the requirements for administration of the MSA account including the need to maintain records of every transaction, adequately reporting depletion or exhaustion, and other requirements. Additional benefits provided by the professional administration vendors may include helping injury victims find care, knowing the appropriate Medicare-approved rates for care, and receiving potential discounts on treatment and prescriptions. In certain cases, professional administration using a Medicare Set-Aside trust might be a preferred solution due to the longevity of a trust arrangement and additional legal protections of having a fiduciary. For those injury victims who may be dual-eligible (Medicare and Medicaid eligible), it is necessary to have professional administration through a Special Needs Trust since the MSA needs to be wrapped in an SNT in this situation. The benefit of a trust arrangement for someone on Medicaid and Medicare is keeping both benefits and having the fiduciary duty of the Trustee along with an MSA administrator.
Piecing it All Together
When settling cases involving someone who is a Medicare beneficiary or someone who might be in the near future, it is important to determine whether there is a need to consider Medicare’s interest. If you determine there is a need, then doing an analysis of the future Medicare-covered injury-related care (an allocation) is a recognized method of doing. Once you do an allocation, the next question is whether to fund a formal MSA. If you do, then consideration should be given as to whether it is done with a lump sum versus a structured settlement annuity. Most times, the benefit of funding via a structured settlement will make it the overwhelmingly logical choice. Once funding decisions have been made, then the last question is how the set-aside will be administered. Typically, these are really good reasons to professionally administer an MSA due to the complexities of doing self-administration.
That probably sounds complicated but having an expert on your side makes it a whole lot easier. Synergy’s team of experts can provide guidance on these difficult issues making it a simple decision for your client to make. Synergy can consult with the client about these issues, prepare a Medicare set-aside allocation report, provide funding options and assist with professional administration options. It is part of our MSP 360 suite of services and a way for law firms to have an end-to-end solution for MSP compliance.
 Helpful information regarding self-administration and a link to the Self-Administration Toolkit can be found here: https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Workers-Compensation-Medicare-Set-Aside-Arrangements/WCMSA-Self-Administration
September 30, 2021
Josh Pettingill, MBA, MS, MSCC
All structured settlements are not created equal. There is a strong possibility you are leaving money on the table for your client with your existing settlement consultant or worse, relying on the insurance carrier’s structure broker. In this brief article, I will explain some of the methods we employ to obtain the highest payouts on structured settlements.
To read more, download the article below:
September 9, 2021
Structured settlements may be used to fund a Workers’ Compensation Medicare Set-Aside (WCMSA). Samantha Webster, Synergy’s Director of Case Management, addresses two common questions that come up about funding of a WCMSA with a structured settlement annuity.
“Are there different structured settlement options to fund a Medicare Set-Aside and what is the difference?”
Yes, there are different types of structured settlement payment plans that can fund a Medicare Set-Aside. After an initial cash deposit is made to start the Medicare Set-Aside account (seed), a structured settlement will make annual payments to replenish/ add to the account. The most common structured settlement option offered by the carrier is a temporary life payment stream. With a temporary life payment stream, the annual payments to the MSA account are payable only as long as the injury victim is alive and for a maximum number of years (the life expectancy used for the MSA allocation). If the injury victim dies before reaching the maximum number of years, the payments stop. There are no structured settlement payments payable to their beneficiaries. A great alternative, but higher cost, is a period certain payment stream. With a period certain payment stream, the annual payments to the MSA account are paid for a certain number of years (generally the life expectancy used for the MSA allocation). Every payment is “guaranteed,” which means that in the event of the injury victim’s death before all payments are made, the remaining payments would go to designated death beneficiaries or the injury victim’s estate. While there are other options, these are the two most common.
“My client’s CMS-approved MSA is being funded with a structured settlement, but the payments do not add up to the total on the CMS approval, is that acceptable?”
CMS will provide parameters for the funding of an approved MSA using a structured settlement. In providing the initial seed amount and the annual payments, CMS rounds the numbers down. In doing so, the initial seed/deposit and the sum of all annual payments may be less than the total amount approved. If an MSA is funded with a structured settlement and the proposal follows the recommendation of CMS with regard to the initial seed/deposit and the annual payment amount, CMS will consider the MSA as being fully funded. If you or your client are concerned about the discrepancy, you can add the difference to the seed or ask your settlement planning professional to include the difference in the annual structured settlement payment stream. Both options will allow your client to match the total CMS-approved MSA amount.
CMS Approved MSA $345,687.00
Initial seed/deposit $48,549.00
Annual Payments $14,149.00
Duration per CMS 21 years
In this case, the seed/deposit plus the annual payments equals $345,679 which is $9 less than the CMS-approved MSA. To relieve any concerns, $9 can be added to the seed/deposit or the annual payments can be increased to $14,149.43.
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