Structured settlements can be beneficial in resolving workers’ compensation claims involving Medicare Set Asides (MSAs), according to industry experts.
Workers’ compensation injuries involving permanent disability are prime candidates for structured settlements because a structured settlement takes into account a person’s age, life expectancy and future medicals to come up with a set amount of money to release at specified times, according to Vinnie Polinsky, director of operations for Ringler Medicare Solutions.
“These are workers’ comp claims where there’s future medicals involved. So somebody is injured at work or something to that extent…and there’s future medicals involved where they’re not going back to work…pretty much for their life expectancy,” Polinsky said.
To handle the growing need for expertise in dealing with MSAs associated with claims that involve structured settlements, Ringler Associates, a national structured settlement company, created Ringler Medicare Solutions in 2010.
The injured worker has to be Medicare or Social Security Disability eligible or there must be a reasonable expectation that he or she will be eligible within 30 months, the structured settlement expert said.
“I think MSAs in work comp cases, yes, more often than not, are structured, if the size of the case makes sense. If it’s a little tiny MSA, then I think most companies will just pay a cash sum,” said Christine Buechner, vice president of the structured settlement consulting firm of James E. Logan & Associates.
“The use of structures has been around for a while. It’s a way that the injured worker and all parties involved can come to a resolution on a claim that actually puts money aside for the injured worker,” said Jeff Kuss, global claims manager of employee injury at Chartis.
Structured settlements can benefit all parties involved, including the insurer.
“Especially on a workers’ compensation file, when there’s lifetime medical or future medical that’s associated with the claim, it allows the injured worker the ability to set that money aside so that they can utilize that for future medical down the road. They have that money secured. It sets up a separate account for them so that they know that that money that’s allocated to those funds, or to the medical aspects, are set aside from their indemnity settlement dollars. It breaks it out, and it gives the injured worker, and Medicare, the comfort to know that that money’s sitting out there for those future medicals,” Kuss said.
“You’re able to design a settlement plan that is responsive to the needs of the claimant, which I think is probably the biggest benefit,” Buechner said.
Buechner said a structured Medicare set aside can be less costly for both the Medicare beneficiary and the defendant or insurance carrier because it takes advantage of the time value of money. “So, a $100,000 cash MSA might only cost $60,000 if you annuitize it,” Buechner said.
Ringler utilizes third party professional administration companies to oversee fund disbursements because doing so helps account for how the money is spent.
“If a claimant has an MSA and they receive a lump sum amount, and whatever the amount is, let’s say $100,000, what’s to keep them from spending that money inappropriately?” Polinsky asked.
“There isn’t anything. That’s how the Medicare trust fund is losing money, because you have situations like that where money is being expended appropriately and it’s not getting paid back and they’re losing funds. The benefit…is you have a period of life expectancy for the structure, and a certain amount is being paid out annually. Let’s say the MSA is for $100,000 over 20 years. That $5,000 is being apportioned for that MSA, and it needs to be accounted for. Instead of them getting all the money at once, they’re only getting a certain amount of it that is supposed to go for that MSA,” Polinsky said.
“You take this debit card, and you go to a doctor’s office. You pull it out, give them the card, the funds for whatever that visit costs come right out of there. They’re getting their prescription drugs at Walgreen’s. They use that card to pay for it. Those funds are coming right out of that professional administration MSA account,” Polinsky said.
“I think that professional administration can be very helpful for people who don’t understand how to manage the funds, or maybe would mismanage the funds. Professional administration can be a very good idea, particularly if you have somebody who’s dealing with a complicated medical treatment plan. It can be overwhelming, I would imagine, to have to keep track of all of your expenses, and make sure that the ones that you’re using your MSA to pay for are, in fact, Medicare related expenses. It’s helpful to have someone guide you through that process for those more complex cases,” said Buechner.
MSAs are structured so that they follow a payment stream over time.
“The needs of a Medicare beneficiary aren’t going to end after one year. Chances are, someone who’s being treating medically will have ongoing medical issues, medical expenses and needs, so by structuring the MSA so that an annual payment is deposited into the account every year, they’re able to have the money there when they need it,” Buechner said.
“The money’s there for the purposes they’re intended to be there for and the claimant is less likely to squander the money. They will be able to maintain their eligibility for Medicare benefits if they do, in fact, use up all of the funds in the MSA.”
Automatic reporting is another benefit of this approach.
“It’s like your bank statement. It’s so much better for tracking, and a way to make sure those funds are being spent properly. A lump sum can be put into a professional administration account, but it’s so much different because it’s sitting there,” Polinsky said. “There’s no guarantee that those funds will be spent properly, even if they’re being handled by a professional administrator.”
Polinsky said there is no guarantee but the automatic reporting adds another layer of security that the funds are being spent appropriately.
“There’s no LoJack on their account that says, ‘Oh, this is being spent on vacations or football tickets.’ Polinsky said.
There’s anther reason Polinsky likes professional administration.
“It’s that the funds will be handled correctly and there’s no liability on the carrier on the attorney side that they didn’t do what they were supposed to do as far as the implementation of those funds,” he said.
There are also tax saving advantages.
“You can structure a certain amount, and because it’s a structure, it’s a tax free account. There’s no tax involvement there. That’s another plus,” Polinsky added.
Kuss, Chartis’ Global claims leader, said history has shown that if the medical portion is not separated and set aside from the indemnity portion of a settlement, the medical has a tendency to get exhausted sooner.
“It’s beneficial for the injured worker. In some aspects, it even sets up a checking account when they don’t even have one or they’ve never had the ability to have a checking account or an account, even, to draw money from,” Kuss said.
Medicare also benefits because future medical expenses associated with the injury are considered for the lifetime of the claimant.
“From a Medicare employer standpoint, it sets aside that money to ensure that they’re going to be taken care of for those medicals that are outlined through the life of the claim. And then, everybody has to sign off on it, from Medicare to the employer to the injured worker, so that way they know that that medical that’s included within that lump sum settlement or that’s been structured out is to be allocated for those future medical opportunities,” the Kuss said.
Medicare response time from the government on structured settlements is taking longer since the number of structured settlements has risen and the Centers for Medicare and Medicaid Services (CMS) started requiring notification of bodily injury liability claim settlements.
However, steps are being taken to address the backlog.
“They have a little bit of a backlog,” said Kuss. “As of July 2012, they’ve actually incorporated a new vendor to help clear up some of this backlog. But on average, it’s taken about 210 days to get an approval through.”
There are 10 regional offices and five or six years ago approval took about 60 or 90 days, according to these experts.
“Now it’s three, four times that a lot of the time, because there’s a backlog and it takes a lot of time from the time of submission to the time you get that approval letter. You get a letter of acknowledgement, saying, ‘OK, we’ve received your file. Here’s a number to call us to check up on us every few weeks.’ But as far as approval, it takes a while,” Polinsky said.
The actual review time of a case also depends on Medicare’s response to a proposal and whether changes need to be made.
Buechner said it can take a fair amount of time to research and submit a Medicare set aside to CMS for approval. Then there is a wait and there may be more work.
“Sometimes you need to change it because CMS may be considering something we are not. That part of it can really cause the settlement process to slow way down, but it’s something that everyone encounters in dealing with Medicare beneficiaries, so it’s one those things where, over time, we’ve learned to live with that problem,” said Buechner.
The added vendor should help improve CMS response times.
“The anticipation, from an industry perspective, is that they’ll clear through the backlog relatively quickly and it’ll get back to the normal five to 10 days to get the structure approved and everybody sign off. I think it’ll work relatively quickly going forward,” Kuss said.
Kuss said that Chartis’ use of structured settlements has been consistent through the years.
“We’ve done a decent amount of them over the years. I’m relatively new to Chartis, but from my prior background in the industry, being in the industry for a number of years, structures have always been utilized in workers’ compensation as a tool to help resolve the claim. Over the years, it has definitely become the preferred method of resolution on a workers’ compensation claim right now. Especially, again, because the majority of a settlement, there’s the indemnity dollars but the majority of a lifetime claim, especially on a workers’ compensation claim, given the long tails of exposures, are the medical aspects,” Kuss said.
Thus far, Polinsky hasn’t seen CMS come back at a carrier on a completed structured settlement agreement.
“There are instances where there is documentation of CMS going after a certain carrier. But they are so few and far between. It’s like a hammer that can be held up there, but never used,” Polinsky said.