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
As we reflect on the 20th anniversary of the devastating September 11, 2001, terrorist attacks on US soil and all the lives lost, we cannot forget the heroic efforts of all the first responders and workers involved in the clean-up of the devastation sites. Since then, many have developed a whole host of health conditions due to the exposure to toxic chemicals and the gruesome nature of the work. This month’s “Since You Asked” column will address the interplay between workers’ compensation claims, the World Trade Center (WTC) Health Program, and the Medicare Secondary Payer Act.
My client sustained a workers’ compensation injury during the clean-up of the World Trade Center Ground Zero site. Should I have a Medicare Set-Aside proposal submitted to CMS for review or is there a different process for this?
The clean-up of the September 11, 2001 devastation sites exposed many workers to dust and toxic chemicals for a prolonged period. This resulted in the development of respiratory illnesses as well as different cancer types and other conditions. No cost medical monitoring and treatment for certain medical conditions may be available through the federal World Trade Center (WTC) Health Program for qualified workers that provided rescue, recovery, debris clean up or related services after the 9/11/2001 attacks during the period between 9/11/2001 and 7/31/2002. By way of background, the WTC Health Program was developed in connection with the passage of the James Zadroga 9/11 Health and Compensation Reauthorization Act. The Act is named after a New York City police officer who developed a respiratory disease after his prolonged exposure to dust at the WTC Ground Zero Site. The WTC Health Program is administered by the National Institute for Occupational Safety and Health (NIOSH) and is funded through 2090. Details regarding eligibility and enrollment into the WTC Health Program may be found here.
Workers that are enrolled in the WTC Health Program may also have a companion workers’ compensation case. The coordination of benefits between the WTC Health Program and the workers’ compensation plan is addressed in the WTC Health Program’s “Policy and Procedures for Recoupment Lump-Sum Workers’ Compensation Settlements” (Policy) guide that was last revised on July 7, 2016. When a settlement releases an employer/insurer from responsibility for future medical expenses, the WTC Health Program will seek to recover its cost of providing health care and pharmacy benefits “either from the member or from the individual/entity designated to administer any set-aside established to pay for future medical expenses.” The WTC Health program “will follow best practices for WC recoupment as outlined by the Centers for Medicare & Medicaid Services (CMS) in its “Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) Reference Guide.”
The Policy guide also provides information on how to estimate the amount of money to be set aside to protect the WTC Health Program. If CMS reviewed and approved a WCMSA for expenses related to the same conditions that were certified for treatment under the WTC Health Program, the CMS determination will be given deference. The funds in the CMS reviewed WCMSA however must be used to reimburse the WTC Health Program annually for the cost of the treatment that was provided in the case. The Policy Guide also provides for the submission of proposed set-asides to the WTC Health program for review.
In your case, I would recommend that you determine whether your client qualifies for the WTC Health Program. This would then guide you in deciding how to address future injury related medical expenses in a settlement that closes out future medical care.
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.
April 8, 2021
The nature of the Workers’ Compensation Medicare Set-Aside (WCMSA) has evolved over the years since the 2001 Patel Memo. That evolution has seen us move from every WCMSA that met the Center for Medicare and Medicaid Services (CMS) internal workload review threshold being submitted to CMS for review, to now a practitioner may be offered an evidence-based medicine WCMSA, a “certified” WCMSA or a compromise WCMSA. An understanding of the differences between these various types of proposed WCMSAs and their projection methodology is important when it comes to settlement discussions.
The WCMSA that most practitioners are familiar with is the “traditional” WCMSA. This type of WCMSA is submitted to CMS for review when CMS’ internal workload review threshold is met. Although CMS recommends that parties seek Agency (CMS) review of the WCMSA, the WCMSA Reference Guide (Guide) specifically states: “There are no statutory or regulatory provisions requiring that you submit a WCMSA amount proposal to CMS for review.” The Guide further states that “if you choose to use CMS’ WCMSA review process, the Agency requests that you comply with CMS’ established policies and procedures.”
The Guide includes the general frequency schedules for various diagnostic studies, implants, and drugs used by the Workers Compensation Review Contractor (WCRC) in determining future treatment costs. Given the “cookie-cutter” projection methodology that is used by the WCRC, the CMS-determined WCMSA may, at times, overfund the future treatment. The benefit to CMS review, however, is the assurance that CMS will become the primary payer upon review/approval of the allocation and proper exhaustion of the WCMSA funds.
A second type of WCMSA is the evidence-based medicine WCMSA. This may or may not be submitted to CMS for review. Rather than projecting future treatment based on the Guide’s frequency schedules, the projections instead focus on evidence-based medicine guidelines, such as those that may be found in the Official Disability Guidelines (ODG) or American College of Occupational and Environmental Medicine (ACOEM) guidelines. It is generally lower than a “traditional” WCMSA and will also limit projections based on state law arguments. If the evidence-based medicine WCMSA is submitted to CMS for review and approved by CMS, the WCMSA may more accurately allocate funds for the future treatment.
A practitioner may also be presented with a “certified” WCMSA that is not submitted to CMS for review. The “certified” WCMSA projection methodology looks to evidence-based medicine guidelines. It also comes with an assurance that the reasonableness of the certified WCMSA projections will be defended against any challenges by CMS. The WCMSA funds, however, must be either professionally administered or “self-administered with support” in order to extend the life of the funds. Since this type of WCMSA is not submitted to CMS for review, CMS is not bound by it.
The compromise WCMSA is used in disputed settlements and is never submitted to CMS for review. It is based on the calculation methodology that is outlined in 42 C.F.R. § 411.47. Although this provision discusses conditional payments, it should equally apply to the apportionment of future medical damages in a compromise settlement.
Although the majority of WCMSAs are prepared by the defense, it is important that the practitioner scrutinize the methodology used in the WCMSA projections. If the WCMSA is not going to be submitted to CMS for review, an evidence-based medicine projection methodology is more appropriate than the “cookie cutter” projections used in the traditional WCMSA. This difference is particularly significant when the WCMSA is to be carved out from the settlement rather than added to the settlement. When in doubt as to the best approach, Synergy’s team is available to guide you through your Medicare Secondary Payer compliance options.
March 11, 2021
Medicare Secondary Payer compliance issues in workers’ compensation cases are generally straightforward when the parties seek review of the Workers’ Compensation Medicare Set-Aside (WCMSA) proposal and proposed settlement by the Centers for Medicare and Medicaid Services (CMS). Oftentimes the employer/carrier will elect to fund the CMS-approved WCMSA in connection with the settlement. If the settlement also includes the injury-related, non-Medicare covered future medical expenses and other incidental damages, the injured employee’s attorney has fully maximized his/her client’s recovery for future medicals. But what about situations where an employee will require future injury-related, Medicare-covered treatment, but the CMS workload review threshold has not been met? Or the CMS determination is much higher and the employer refuses to fund it? Is it reasonable for the employer/carrier to demand that the entire settlement be used to fund a WCMSA?
Let’s consider the under-threshold scenario first. Although CMS review of a WCMSA is purely voluntary, it is recommended by CMS. At the moment, CMS is willing to review a proposed settlement involving a current Medicare beneficiary that exceeds $25,000.00. If the proposed settlement involves a claimant with a “reasonable expectation” of Medicare entitlement within 30 months of settlement, CMS is willing to review a proposed settlement that exceeds $250,000.00. Section 8.1 of the WCMSA Reference Guide (Version 3.2) cautions that the CMS internal workload review thresholds are “not intended to indicate that claimants may settle below the threshold with impunity. Claimants must still consider Medicare’s interests in all WC cases and ensure that Medicare pays secondary to WC in such cases.” The Reference Guide then goes on to give an example where a failure to include the cost of current injury-related Medicare covered drugs for life may result in exposure for injury-related payments up to the total value of the settlement.
Although some employer/carriers may only offer an MSA when the proposed settlement meets the CMS internal workload review threshold, it is important for the practitioner to consider whether their client is likely to need post settlement injury-related, Medicare-covered treatment. If so, the settlement should include funds for this treatment to avoid an improper cost shift of these expenses to Medicare. The decision to either include or omit a WCMSA should also be properly documented. In cases where the injury victim has a chronic injury-related condition, yet is neither on Medicare, nor has a reasonable expectation of Medicare entitlement within 30 months, a future medical allocation that projects from the age of Medicare entitlement forward may be prudent.
Now let’s look at a situation where the CMS-approved WCMSA is unacceptable to the employer/carrier. This may occur, for example, when a WCMSA proposal in the amount of $20,000.00 is submitted to CMS for review and CMS returns a counter higher proposal of $60,000.00. Rather than funding the CMS-approved WCMSA, the employer/carrier provides settlement documents that describe the previously agreed upon gross settlement amount of $40,000.00 as the WCMSA. This approach however deprives the injured employee of any free-spending funds.
In this situation, the practitioner may instead request that the defense obtain a certified WCMSA to fund the future medical in the case. The certified WCMSA would more likely be in line with the original WCMSA proposal of $20,000.00 or possibly lower. By securing a certified MSA, the burden of defending the reasonableness of the lower WCMSA would be placed on the vendor should the WCMSA funds be prematurely exhausted. Given the issuance of a higher CMS approval letter, the certified WCMSA would have to be professionally administered in order to extend the life of the funds.
Synergy’s team is available to assist you in overcoming Medicare Secondary Payer compliance challenges in your workers’ compensation and liability cases. Contact our team at 877.960.2131 or on our website.
October 21, 2020
By now, most workers’ compensation practitioners are familiar with the Centers for Medicare & Medicaid Services (CMS) voluntary review process involving Workers’ Compensation Medicare Set-Aside Arrangements (WCMSA). CMS is currently willing to review settlements that exceed $25,000.00 in cases involving a Medicare beneficiary. Settlements that involve a claimant with a reasonable expectation of Medicare entitlement within 30 months must exceed $250,000.00. Parties that wish to secure CMS review of the WCMSA are expected to comply with CMS’ guidelines as set forth in CMS’ WCMSA Reference Guide (Guide). The Guide is a compilation of information contained in prior WCMSA Regional Office memos, CMS’ Operating Rules, CMS’ website, and from the Workers’ Compensation Review Contractor. It is periodically revised throughout the year. Although the impact of many of the revisions are often negligible, some are more significant.
One of the more significant changes in the Guide was initially introduced in Version 3.0 of the Guide that was published on October 10, 2019. The change involved the consent-to-release note and submission process that would be implemented for any submission after April 1, 2020. Section 10.2 of the Guide provides that “as of April 1, 2020, all consent-to-release notes must include language indicating that the beneficiary reviewed the submission package and understands the WCMSA intent, submission process, and associated administration.” The consent form must also include the beneficiary’s initials to “indicate their validation.” The language in the new consent-to-release note specifically states: “Further, I have had the Workers’ Compensation Medicare Set-Aside Arrangement need and process explained to me, and I approve of the contents of the submission.” Prior to the change in the consent-to-release note and submission process, claims handlers would often submit a proposal to CMS for review without a full discussion or any discussion with the claimant’s counsel. This would be done in order to assess the potential exposure in the claim. By requiring the claimant to approve of the submission, CMS essentially put a halt to this practice.
The change in the consent-to-release note and submission process adds another layer to the practitioner’s handling of the workers’ compensation case. Rather than automatically returning an executed consent to release note to the employer’s defense counsel or MSA vendor, the practitioner should review the submission packet and go over it with the claimant to ensure that informed consent is given. Careful attention should be paid to the way disputed or denied conditions are addressed in the WCMSA in order to prevent any subsequent issues with Medicare’s denial of post-settlement treatment. Practitioners should also consider the way non-Medicare covered injury-related future treatment expenses will be handled in the settlement since the WCMSA will only include Medicare-covered services. A counter WCMSA proposal may also be appropriate in certain cases depending upon the nature of any disputed future treatment. Once the discussion of the WCMSA itself is completed, the practitioner must also discuss the proper administration of the WCMSA funds once the case settles. This last requirement should not be overlooked since a failure to properly exhaust the WCMSA will result in Medicare’s denial of injury-related benefits until the amount that was misspent is used for injury-related Medicare-covered expenses. In certain cases, it may be prudent to have your own MSP compliance expert do the informed consent explanation with the claimant to avoid potential liability for the law firm.
Synergy’s team is available to assist you with your discussion of the WCMSA, submission process, and administration requirements. We also offer independent review of the defense WCMSA and preparation of a counter WCMSA. Our Medicare Expert Case Evaluation service allows you to have one of Synergy’s MSP compliance attorneys explain all about the WCMSA to the claimant so you can document your file properly.
Contact our team at 877-242-0022 or on our website.
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