SETTLEMENT CONSULTING

In this two-part article, we are discussing the most common types of mass tort cases. By design, mass tort cases help trial attorneys consolidate the best interest of several people (claimants) who suffered damages into a civil action against the entity that caused this occurrence (the defendant). Because this is an extremely tedious and time-consuming process for an attorney, hiring a specialized professional to assist with the settlement process can be greatly beneficial. As the attorney focuses on the legal nuances of the case, our experts maximize the value of the settlement while also providing settlement planning services that protect those assets long-term.

In the first section of this two-part series, we discussed mass tort cases that involve pharmaceutical drugs. Whether it’s a defective drug that was manufactured and sold, there were unknown side effects associated with the drug, or the drug was poorly marketed, these are common cases. Here are four other common types of incidents that affect several people and can result in a mass tort case.

Medical Devices

Similar to pharmaceutical drugs, another serious issue in the medical field is injuries that occur after a medical procedure. Unfortunately, the medical device industry is poorly regulated and in many cases, devices that are utilized do not undergo significant testing before they are applied. If a defective device is implanted in a patient, this can seriously impact their health and wellness in a variety of ways.

Product Liability

Many people suffer damages because they utilized a defective or harmful product. Whether the manufacturer was at fault, the design of the product was inherently dangerous, or the product failed to provide the consumer with proper instructions or warnings, these negative experiences can lead to a mass tort case. Product liability claims can span from the automotive industry to retail products to the medical industry.  

Environmental and Toxic Contamination

There are a variety of ways that the environment and chemical exposure can damage the health of public bystanders. Here are some examples of toxic or environmental contamination mass torts:

• Asbestos, silica, mold, chemical, and fumes exposure
• Contaminated natural resources like soil, water, and air
• Long-term pollution in a redeveloped toxic area
• Failure to mitigate emergency contamination accidents

Large Scale Catastrophe

When a disaster happens, like when a fire occurs in an apartment complex or manufacturing plant, this tragic occurrence can be consolidated into a mass tort. During a large scale catastrophe, a variety of injuries occur that can uniquely impact each victim.

For more information about settlement planning services or to schedule a consultation, please submit our contact request form.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

What happens when someone suffers a serious or catastrophic personal physical injury causing permanent disability? Do they get the proper counseling regarding the form of the settlement so as to protect their current assets, preserve public benefits and safeguard the physical injury recovery? Will the recovery be sufficient to pay for all of the victim’s future medical needs without public assistance? Can they recover physically? Can they recover emotionally? All of these issues can be very difficult to face for someone that is seriously injured. Personal injury practitioners who represent disabled clients should be aware of their obligations to advise these clients properly and also understand the hurdles faced by the injury population in terms of recovery both financially as well as physically. This article addresses the issues of major importance when dealing with the form of settlement for a personal injury matter involving a disabled client.

Public Assistance Primer

Because most of a lawyer’s malpractice exposure at settlement is related to public benefit preservation, I think it is important to understand the basics of these benefits. Ethically, a lawyer must be able to explain these matters to the extent that client is informed sufficiently to make educated decisions. There are two primary public benefit programs that are available to those that are injured and disabled. The first is the Medicaid program and the intertwined Supplemental Security Income benefit (“SSI”). The second is the Medicare program and the related Social Security Disability Income/Retirement benefit (“SSDI”). Both programs can be adversely impacted by an injury victim’s receipt of a personal injury recovery. Understanding the basics of these programs and their differences is imperative to protecting the client’s eligibility for these benefits.

Medicaid and Supplemental Security Income (hereinafter SSI) are income and asset sensitive public benefits that require special planning to preserve. In many states, one dollar of SSI benefits automatically provides Medicaid coverage. This is very important, as it is imperative in most situations to preserve some level of SSI benefits if Medicaid coverage is needed in the future. SSI is a cash assistance program administered by the Social Security Administration. It provides financial assistance to needy aged, blind, or disabled individuals. To receive SSI, the individual must be aged (sixty-five or older), blind or disabled and be a U.S. citizen. The recipient must also meet the financial eligibility requirements. Medicaid provides basic health care coverage for those who cannot afford it. It is a state and federally funded program run differently in each state. Eligibility requirements and services available vary by state. Medicaid can be used to supplement Medicare coverage if the client is eligible for both programs (“dual eligible”). For example, Medicaid can pay for prescription drugs as well as Medicare co-payments or deductibles. Because Medicaid and SSI are income and asset sensitive, creation of a special needs trust may be necessary which is discussed in greater detail below.

Medicare and Social Security Disability Income (hereinafter SSDI) benefits are an entitlement and are not income or asset sensitive. Clients who meet Social Security’s definition of disability and have paid in enough quarters into the system can receive disability benefits without regard to their financial situation. The SSDI benefit program is funded by the workforce’s contribution into FICA (social security) or self-employment taxes. Workers earn credits based on their work history and a worker must have enough credits to get SSDI benefits should they become disabled. Medicare is a federal health insurance program. Medicare entitlement commences at age sixty-five or two years after becoming disabled under Social Security’s definition of disability. Medicare coverage is available again without regard to the injury victim’s financial situation. Accordingly a special needs trust is not necessary to protect eligibility for these benefits. However, the MSP may necessitate the use of a Medicare Set Aside discussed in greater detail below.

Laws that Impact Settlement

There are important federal laws that can impact a client’s eligibility for public benefits post settlement that must be explained. There are also financial options provided for under the Internal Revenue Code that should be explored. Below, I will discuss these issues in more detail with a focus on the ethical and malpractice issues raised in discussing the form of a personal injury settlement.

Public Assistance

42 U.S.C. 1396p(d)(4)

The receipt of personal injury proceeds by someone seriously injured can cause ineligibility for needs based government benefit programs. Medicaid and SSI are two such programs. However, there are planning devices that can be utilized to preserve eligibility for disabled injury victims. A special needs trust can be created to hold the recovery and preserve public benefit eligibility since assets held within a special needs trust are not a countable resource for purposes of Medicaid or SSI eligibility. The creation of a special needs trusts is authorized by the Federal law. Trusts commonly referred to as (d)(4)(a) special needs trusts, named after the Federal code section that authorizes their creation, are for those under the age of sixty five. However, another type of trust is authorized under the Federal law with no age restriction and it is called a pooled trust, commonly referred to as a (d)(4)(c) trust.

The 1396p provisions in the United States Code govern the creation and requirements for such trusts. First and foremost, a client must be disabled in order to create a SNT. There are two primary types of trusts that may be created to hold a personal injury recovery each with its own requirements and restrictions. First is the (d)(4)(A) special needs trust which can be established only for those who are disabled and are under age 65. This trust is established with the personal injury victim’s recovery and is established for the victim’s own benefit. It can only be established by a parent, grandparent, guardian or court order. The injury victim can’t create it on his or her own. Second is a (d)(4)(C) trust typically called a Pooled Trust that may be established with the disabled victim’s funds without regard to age. A pooled trust can be established by the injury victim unlike a (d)(4)(A).

The Medicare Secondary Payer Act (“MSP”)

A client who is a current Medicare beneficiary or reasonably expected to become one within 30 months should concern every trial lawyer because of the implications of the Medicare Secondary Payer Act (“MSP”). The MSP is a series of statutory provisions enacted in 1980 as part of the Omnibus Reconciliation Act with the goal of reducing federal health care costs. The MSP provides that if a primary payer exists, Medicare only pays for medical treatment relating to an injury to the extent that the primary payer does not pay. The regulations that implement the MSP provide “[s]ection 1862(b)(2)(A)(ii) of the Act precludes Medicare payments for services to the extent that payment has been made or can reasonably be expected to be made promptly under any of the following” (i) Workers’ compensation; (ii) Liability insurance; (iii) No-fault insurance.

There are two issues that arise when dealing with the application of the MSP: (1) Medicare payments made prior to the date of settlement (conditional payments) which is beyond the scope of this article and (2) future Medicare payments for covered services (Medicare set asides). Since Medicare isn’t supposed to pay for future medical expenses covered by a liability or Workers’ Compensation settlement, judgment or award, CMS recommends that injury victims set aside a sufficient amount to cover future medical expenses that are Medicare covered. CMS’ recommended way to protect an injury victim’s future Medicare benefit eligibility is establishment of a Medicare Set Aside (“MSA”) to pay for injury related care until exhaustion.

In certain cases a Medicare Set Aside may be advisable in order to preserve future eligibility for Medicare coverage. A Medicare set aside allows an injury victim to preserve Medicare benefits by setting aside a portion of the settlement money in a segregated account to pay for future Medicare covered healthcare. The funds in the set aside can only be used for Medicare covered expenses for the client’s injury related care. Once the set aside account is exhausted, the client gets full Medicare coverage without Medicare ever looking to their remaining settlement dollars to provide for any Medicare covered health care. In certain circumstances, Medicare approves the amount to be set aside in writing and agrees to be responsible for all future expenses once the set aside funds are depleted.

The problem is that MSAs are not required by a federal statute even in Workers’ Compensation cases where they are commonplace. There are no regulations, at this time, related to MSAs either. Instead, CMS has intricate “guidelines” and “FAQs” on their website for nearly every aspect of set asides from submission to administration. There are only limited guidelines for liability settlements involving Medicare beneficiaries. While there is no legal requirement that an MSA be created, the failure to do so may result in Medicare refusing to pay for future medical expenses related to the injury until the entire settlement is exhausted. There has been a slow progression towards a CMS “policy” of creating set asides in liability settlements over the last seven years as a result of the Medicare Medicaid SCHIP Extension Act’s passage. All of the uncertainty surrounding set asides creates a difficult situation for Medicare beneficiary-injury victims and contingent liability for legal practitioners as well as other parties involved in litigation involving Medicare beneficiaries. There do appear to be regulations on the horizon for set asides based upon Medicare’s renewed focus on it for 2018. For the time being, a set aside analysis should be considered for settlements or judgments involving current Medicare beneficiaries.

Dual Eligibility: The Intersection of Medicare and Medicaid – SNT/MSA

If you have a client that is a Medicaid and Medicare recipient, extra planning may be in order. If it is determined that a Medicare Set Aside is appropriate, it raises some issues with continued Medicaid eligibility. A Medicare Set Aside account is considered an available resource for purposes of needs based benefits such as SSI/Medicaid. If the Medicare Set Aside account is not set up inside a Special Need Trust, the client will lose Medicaid/SSI eligibility. Therefore, in order for someone with dual eligibility to maintain their Medicaid/SSI benefits the MSA must be put inside a Special Needs Trust. In this instance you would have a hybrid trust which addresses both Medicaid and Medicare. It is a complicated planning tool but one that is essential when you have a client with dual eligibility.

Conclusion

So what do trial lawyers do given all of the foregoing to protect clients who are on government assistance programs? You must put into place a method of screening your files to determine which clients are disabled sufficiently to warrant further planning. Once you identify a client as falling into that category, you must determine if outside experts should be consulted. The easiest way to remember the process once you have identified someone as sufficiently disabled is by the acronym “CAD”. The “C” stands for consult with competent experts who can help deal with these complicated issues. The “A” stands for advise the client about the available planning vehicles or have an outside expert do so. The “D” stands for document what you did in relation to protecting the client. If the client decides that they don’t want any type of planning, a choice they can make, then document the education they received about the issue with them signing an acknowledgement. If they elect to do a settlement plan, hire skilled experts to put together the plan so that they can help you document your file properly to close it compliantly.

Disabled clients especially need counseling given the likelihood they will be receiving some type of public benefits. To prevent being exposed to a malpractice cause of action, the personal injury practitioner should understand the types of public benefits that a disabled client may be eligible for and techniques that are available to preserve those benefits. Having this knowledge will help the lawyer identify disabled clients they may want to refer for further consultation with other experts.

Synergy’s settlement consulting group is one of the premier plaintiff focused settlement planning firms offering services nationwide. Our settlement consulting firm assists injury victims and their attorneys in creating innovative settlement plans for personal injury and workers’ compensation case. We specialize in evaluating cases where clients are eligible for public benefits and advising on special needs trusts, settlement trusts, Medicare set-asides, and financial planning options for the personal injury settlement. We can help injury clients plan for the uncertainties they face by maximizing the use of funds available to the client from both the settlement itself and government benefits.

By Jason D. Lazarus, J.D., LL.M., MSCC, CSSC

In the confusing landscape of public benefits and planning issues that arise today for trial lawyers, finding your way can be a daunting task.  Should the client seek Social Security Disability (“SSDI”) benefits and become Medicare eligible?  Doesn’t that trigger the need for a Medicare Set Aside?  What if the client is receiving needs based benefits such as Medicaid and/or Supplemental Security Income (“SSI”)?  Is coverage under the Affordable Care Act (“ACA”)[1] a better or even an available option?  How should the recovery be managed from a financial perspective?  Is a trust appropriate?  Should a structured settlement be considered?  There are no easy answers to these questions.  In the paragraphs that follow, you will find useful information related to these issues that will give trial lawyers the ability to issue spot when settling a case for a catastrophically injured client. 

Let’s use a real world example to identify the issues.   Take Jan Smith who was the victim of medical malpractice at a hospital.  Jan was in her early forties when she decided to have elective surgery on her back for degenerative disc disease.  During the surgery, a problem developed while being intubated and the procedure was cancelled.  Mrs. Smith was moved to the ICU and no neurologic monitoring was performed that evening after being moved from the surgical suite.  The next morning Mrs. Smith was found to be quadriparetic.  Unfortunately for Mrs. Smith, her condition was irreversible.  Suit was brought against multiple defendants with a significant seven figure recovery secured.  Mrs. Smith and her family had Medicaid coverage and SSI.  She had also applied for SSDI.  At the time of settlement, there was no Medicare eligibility since she had not been approved for SSDI and she wasn’t sixty five.  How do you protect the client’s eligibility for public benefits?  Is that the right thing to do?  Should ACA coverage be considered?  What about protection of the monies recovered on Mrs. Smith’s behalf?  Should a trust be created?  What about structured settlements?  Let’s explore these questions further.

Public Benefits versus ACA Coverage

As a starting point, the first question is whether it makes sense for Mrs. Smith to give up her needs based benefits completely by taking the settlement in a lump sum and becoming privately insured through coverage under the Affordable Care Act.  This isn’t a question that can be answered with a simple yes or no.    There are multiple considerations before deciding to eschew coverage afforded by Medicaid and Medicare along with the needs based Social Security benefit, SSI.  First is whether the ACA coverage will be around for the long term.  Will it be repealed at some point?  Will portions of it be repealed making it a non-viable option?  Second, does the case involve needs that aren’t provided for by the affordable care act coverage such as in-home skilled attendant care or long term facility care?  These services can be very costly and may be covered by Medicaid in many states but are not covered by ACA plans.  In Mrs. Smith’s case, she will have a significant amount of attendant care needs that can be covered by certain Medicaid programs available in her home state but not by the ACA.  So does that mean she shouldn’t apply for ACA coverage?  Should she create a special needs trust to protect Medicaid and SSI?  The answer lies in an analysis of the costs of the plans available under the ACA and the amount of spendable income that results if a special needs trust is utilized.

According to a 2013 article authored by Kevin Urbatsch and Scott MacDonald entitled “The Affordable Care and Settlement Planning”[2] the numbers favor combining ACA coverage with a special needs trust.  The following chart illustrates the financial benefits of combining an SNT with ACA coverage in California.

PLANNING PROJECTIONS

(40 YEAR OLD FEMALE)

Source: Merrill Lynch Wealth Management Analysis through the Wealth Outlook Program, May 2013.

As the chart demonstrates, there can be some distinct advantages from a financial perspective to utilizing ACA coverage but also keeping Medicaid/SSI eligibility.  While that is true, it also is true that a special needs trust, which would preserve Medicaid and SSI, places many restrictions on how settlement monies may be used.  Accordingly, it isn’t a decision that should be made just for financial reasons.  A careful analysis of all of the issues is necessary.  In the case of Mrs. Smith, other considerations outweighed the use of a special needs trust.  She and her family didn’t want the restrictions that come with the special needs trust.   Since monies were allocated to her spouse and their children, all of the family’s assets disqualified her for needs based benefits.

Even though she was currently ineligible for needs based benefits, that didn’t mean she could never become eligible again in the future.  Because she might need means tested benefits such as Medicaid/SSI in the future and could become a Medicare beneficiary at some point as well, a trust with provisions that would protect these benefits was created.  The trust was created had provisions that would allow the trustee to move money into a “special needs sub-trust” and a “Medicare set aside sub-trust”.  The set aside sub-trust was contained within the “special needs sub-trust” so that in the event that the client was “dual eligible”, the set aside wouldn’t cause an eligibility problem for needs based benefits.  This planning technique will make more sense after the explanation below about the different types of public benefits and planning that can protect such benefits.  Also, let’s now make the assumption that the ACA coverage isn’t an option or perhaps might not be around well into the future.  What are the types of benefits an injury victim should be concerned about preserving and what are the techniques used to preserve them? 

Public Assistance Primer

Because Mrs. Smith is eligible for Medicaid and SSI as well as having applied for SSDI, further explanation of these benefits makes sense to adequately understand the issues involved in planning for her recovery.  There are two primary public benefit programs that are available to those that are injured and disabled.  The first is the Medicaid program and the intertwined Supplemental Security Income benefit (“SSI”).  The second is the Medicare program and the related Social Security Disability Income/Retirement benefit (“SSDI”).  Both programs can be adversely impacted by an injury victim’s receipt of a personal injury recovery.  Understanding the basics of these programs and their differences is imperative to protecting the client’s eligibility for these benefits.

Medicaid and Supplemental Security Income (hereinafter SSI) are income and asset sensitive public benefits that require special planning to preserve.  In many states, one dollar of SSI benefits automatically provides Medicaid coverage.  This is very important, as it is imperative in most situations to preserve some level of SSI benefits if Medicaid coverage is needed in the future.  SSI is a cash assistance program administered by the Social Security Administration.  It provides financial assistance to needy aged, blind, or disabled individuals.  To receive SSI, the individual must be aged (sixty-five or older), blind or disabled and be a U.S. citizen.  The recipient must also meet the financial eligibility requirements.[11]  Medicaid provides basic health care coverage for those who cannot afford it.  It is a state and federally funded program run differently in each state.  Eligibility requirements and services available vary by state.  Medicaid can be used to supplement Medicare coverage if the client is eligible for both programs (“dual eligible”).  For example, Medicaid can pay for prescription drugs as well as Medicare co-payments or deductibles.  Because Medicaid and SSI are income and asset sensitive, creation of a special needs trust may be necessary which is discussed in greater detail below.

Medicare and Social Security Disability Income (hereinafter SSDI) benefits are an entitlement and are not income or asset sensitive.  Clients who meet Social Security’s definition of disability and have paid in enough quarters into the system can receive disability benefits without regard to their financial situation.  The SSDI benefit program is funded by the workforce’s contribution into FICA (social security) or self-employment taxes.  Workers earn credits based on their work history and a worker must have enough credits to get SSDI benefits should they become disabled.  Medicare is a federal health insurance program.  Medicare entitlement commences at age sixty-five or two years after becoming disabled under Social Security’s definition of disability.  Medicare coverage is available again without regard to the injury victim’s financial situation.  Accordingly a special needs trust is not necessary to protect eligibility for these benefits.  However, the MSP may necessitate the use of a Medicare Set Aside discussed in greater detail below.

How Do We Protect Mrs. Smith Current and Potential Future Benefits? 

Planning Techniques for Keeping Mrs. Smith Eligible for Medicaid/SSI

Since Mrs. Smith receives Medicaid/SSI, a special needs trust can be created to hold the recovery and preserve public benefit eligibility since assets held within a special needs trust are not a countable resource for purposes of Medicaid or SSI eligibility.  The creation of a special needs trust is authorized by Federal law.[12]  Trusts commonly referred to as (d)(4)(a) special needs trusts, named after the Federal code section that authorizes their creation, are for those under the age of sixty five.[13]  However, another type of trust is authorized under the Federal law with no age restriction and it is called a pooled trust, commonly referred to as a (d)(4)(c) trust.[14] 

The 1396p[15] provisions in the United States Code govern the creation and requirements for such trusts.  First and foremost, a client must be disabled in order to create a SNT.[16]  There are two primary types of trusts that may be created to hold a personal injury recovery each with its own requirements and restrictions.  First is the (d)(4)(A)[17] special needs trust which can be established only for those who are disabled and are under age 65.  This trust is established with the personal injury victim’s recovery and is established for the victim’s own benefit.  It can only be established by a parent, grandparent, guardian or court order.  The injury victim can’t create it on his or her own.  Second is a (d)(4)(C)[18] trust typically called a Pooled Trust that may be established with the disabled victim’s funds without regard to age.  A pooled trust can be established by the injury victim unlike a (d)(4)(A). 

Planning Techniques for Making Sure Mrs. Smith Will Not Lose Medicare Coverage in the Future

Mrs. Smith has applied for SSDI which means technically, according to CMS guidance, she has a “reasonable expectation of becoming a Medicare beneficiary within 30 months”.  A client who is a current Medicare beneficiary or reasonably expected to become one within 30 months should concern every trial lawyer because of the implications of the Medicare Secondary Payer Act (“MSP”).  Under the MSP, Medicare isn’t supposed to pay for future medical expenses covered by a liability or Workers’ Compensation settlement, judgment or award.  CMS recommends that injury victims set aside a sufficient amount to cover future medical expenses that are Medicare covered.  CMS’ recommended way to protect an injury victim’s future Medicare benefit eligibility is establishment of a Medicare Set Aside (“MSA”) to pay for injury related care until exhaustion. 

In certain cases, a Medicare Set Aside may be advisable in order to preserve future eligibility for Medicare coverage. A Medicare set aside allows an injury victim to preserve Medicare benefits by setting aside a portion of the settlement money in a segregated account to pay for future Medicare covered healthcare. The funds in the set aside can only be used for Medicare covered expenses for the client’s injury related care. Once the set aside account is exhausted, the client gets full Medicare coverage without Medicare ever looking to their remaining settlement dollars to provide for any Medicare covered health care. In certain circumstances, Medicare approves the amount to be set aside in writing and agrees to be responsible for all future expenses once the set aside funds are depleted.

Dual Eligibility: The Intersection of Medicare and Medicaid – SNT/MSA

Since Mrs. Smith is potentially a Medicaid and Medicare recipient, extra planning is in order.  If it is determined that a Medicare Set Aside is appropriate or needed in the future, it raises some issues with continued Medicaid eligibility.  A Medicare Set Aside account is considered an available resource for purposes of needs based benefits such as SSI/Medicaid.  If the Medicare Set Aside account is not set up inside a Special Need Trust, the client will lose Medicaid/SSI eligibility.  Therefore, in order for someone with dual eligibility to maintain their Medicaid/SSI benefits the MSA must be put inside a Special Needs Trust.  In this instance you would have a hybrid trust which addresses both Medicaid and Medicare.  It is a complicated planning tool but one that is essential when you have a client with dual eligibility.

Financial Settlement Planning Considerations

While we have discussed Mrs. Smith’s public benefit preservation issues above, what about the management of her significant recovery?  Should a part of it be in the form of a structured settlement?  What about ongoing management of her financial affairs?  Will she need help from a fiduciary such as a corporate trustee?  There are noright or wrong answers to these questions.  Instead, there are options for Mrs. Smith to consider and they should be presented so that she can make an informed decision. 

The first option is to take all of the personal injury recovery in a single lump sum.  If this option is selected, the lump sum is not taxable, but once invested, the gains become taxable and the receipt of the money will impact his or her ability to receive public assistance.[19]  A lump sum recovery does not provide any spendthrift protection and leaves the recovery at risk for creditor claims, judgments and wasting.  The personal injury victim has the burden of managing the money to provide for their future needs be it lost wages or future medical. Needs based public benefits would be lost if a lump sum is taken and any reduction in the premium costs for the ACA insurance programs would also be lost. 

The second option is receiving “periodic payments” known as a structured settlement[20] instead of a single lump sum payment.   A structured settlement’s investment gains are never taxed[21], it offers spendthrift protection and the money has en