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HARRIS:
Steve, we see clients going through settlement money quickly
and being left without funds, or sometimes we find out
later that they looted the set-aside account and misused
the money meant for medical treatment. How can we protect
our clients from themselves or greedy relatives?
CHAPMAN:
The structured settlement legislation that was signed
into law in 1982 (Periodic Payment Act of 1982) was primarily
designed to ensure that settlement funds would be available
for physically injured individuals for the rest of their
lives. The most common structured settlements provide
for tax-free lifetime monthly payments, regardless of
how long the individual lives; additionally, guarantee
periods can be put on the payments so that if the applicant
were to pass early, there is an opportunity for named
beneficiaries to receive money after the death of the
applicant.
The structured settlement is often thought of as a tool
to protect the applicant from themselves. The structure
provides a monthly or annual budget of tax-free dollars
that is guaranteed; the payments will not fluctuate from
the established contract, even during adverse economic
conditions. The applicant has a known and stable source
of income. The structured payments, once agreed upon,
cannot be altered; therefore the applicant needs to work
with a structured settlement expert to identify short-
and long-term goals and create a plan that allows for
the needs of that particular individual. The payments
made through a structured settlement are made periodically,
preventing outside individuals from absconding with all
of the funds. While some may feel that a set payment plan
is too restrictive, it allows the applicant to budget
for their future needs, and as we will discuss later,
a well designed structured settlement will allow for cash
up front to cover unexpected contingencies which may arise.
In the case of a large Medicare set-aside providing for
lifetime medical needs, a professional custodial company
can be utilized to ensure that the MSA funds are expended
correctly, thus preserving the Applicant’s future
Medicare benefits. I have found that in situations where
the injuries are serious and the MSA large, the comp carrier
is often willing to cover the cost of a professional custodial
company on top of the agreed-upon settlement figure.
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HARRIS:
How do we get paid when we settle future medical
treatment by way of a structure? It involves a good deal
of attorney time to complete the process, yet some practitioners
feel they cannot ask for a fee from the set-aside money.
How much should we receive, and who pays?
CHAPMAN: The phrasing of your question
raises some very important points. On a technical level,
the attorney fee cannot come from the Medicare set-aside;
an attorney fee needs to be paid in addition to the Medicare
set-aside amount. The fee should be 12-15% of the present
value cost of the set-aside. The funds from the set-aside
can only be used to pay for Medicare related medical expenses
related to the industrial injury.
As has often been discussed in presentations I have given
at various CAAA conventions and local chapter meetings,
the value of settling the future medical component is
greater than the value of the Medicare set-aside alone.
It is the responsibility of the applicant’s attorney
to analyze the various non-Medicare medical components
related to the future medical needs of the applicant.
The major components of non-Medicare medical begin with
the prescription co-pay and "donut hole” relating
to Part D of Medicare. This component can run as high
as $300 per month. Second, once the set-aside is exhausted,
Medicare only covers 80% of the Medicare related expenses.
In order to address this issue, the applicant can obtain
a Medigap supplemental insurance policy which will cover
the 20% that Medicare does not cover. In larger cases,
other non-Medicare expenses need to be analyzed: attendant
care/housekeeping, transportation/mileage, home modifications,
various therapies such as acupuncture, extended physical
therapy and psychological counseling sessions, etc. The
government publication Medicare
and You 2009 outlines in detail those medical components
not covered by Medicare.
The analysis and negotiation of the future medical aspect
of a case can become very technical and can often require
taking depositions, subpoenaing of medical records, or
requesting new medical reports to address, in detail,
all future medical needs over the remainder of the applicant’s
life. In these cases the applicant’s attorney is
entitled to 12-15% of the present value of the cost of
the structured settlement that covers both the MSA as
well as the value of the non-Medicare medical future needs.
The attorney fee can be built into the demand for this
future medical care. It is very rare to find a situation
where the MSA encompasses the full value of the future
medical.
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| For
more on how to figure out the value of future medical
treatment, click
here. |
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HARRIS: Are personal
injury settlements now affected by the Medicare set-aside
rules, and how does this affect our third-party Compromise
and Releases?
CHAPMAN:
At the present time CMS is not requiring a Medicare set-aside
on pure liability cases. In those liability cases where
there is a work comp component, and the parties desire
to close out the comp case via a third party Compromise
and Release, an MSA may be required if the applicant is
on Medicare or meets the other requirements set forth
in the CMS memos. The reason for this is that by closing
the work comp case, the parties need to demonstrate to
CMS that there is not a shifting of the burden of future
medical care to the federal government.
The new legislation that is currently being talked about
relates to property and casualty companies and new reporting
requirements of the status of injured individuals with
open claims. The main purpose for this is to facilitate
the recovery of “conditional payments” by
Medicare. In other words, the main focus of Medicare at
this time is to recover payments made by their agency
which may be the responsibility of another party.
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| For
an article by William L. Winslow, Esq. a leading authority
on Medicare set-asides, discussing MSA “requirements”
in workers’ compensation and personal injury cases,
click
here. |
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HARRIS:
We hear that interest rates are very low. Does it make
sense to enter into a structured settlement in this environment?
CHAPMAN : I am asked this very often these
days. On a daily basis I am able to put together settlements
that provide a 5.5-6.5% tax-free internal rates of return.
We are able to accomplish these excellent returns because
the special annuities that fund the structured settlement
are able to take into account any potential loss of life
expectancy that may have resulted from the industrial
injury and any other medical conditions that the applicant
may be suffering from. An example of this would be an
applicant that has suffered a back injury and also has
non-industrial hypertension and diabetes; the hypertension
and diabetes will contribute to a reduction in life expectancy
which will allow the annuity, which funds the structure,
to be purchased at a reduced cost, thus stretching the
settlement dollars and providing for a higher rate of
return on the funds invested into the structured settlement.
This process of determining the reduced life expectancy
is called medical underwriting, and the age given which
reflects the reduced life expectancy is called the “rated
age”. [For
more on “rated age” click here]
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HARRIS:
Are structured settlements safe?
CHAPMAN:
Structured settlements are funded with special settlement
annuities only offered by a handful of the largest and
strongest life insurance companies. The Insurance Industry
is more highly regulated than the banking industry; there
are reserve requirements which keep the insurance companies
highly capitalized. Since October 2008 the insurance industry
has taken the opportunity to clean up their balance sheets
by disposing of assets that threaten the long-term health
of these institutions. When deciding if a structured settlement
is a safe alternative to place settlement dollars, the
applicant and their counsel need to examine which life
insurance company will be utilized. The company’s
ratings, as measured by A.M. Best, Moodys, S & P and
Fitch, should be analyzed. In larger settlements, it is
not uncommon to utilize more than one life insurance company
to fund the structured settlement. This will help in diversifying
the risk.
Another way to determine if a structured settlement is
a safe alternative is to explore the alternatives. Banks
have a much higher failure rate than that experienced
by the life insurance industry. Additionally, banks cannot
offer the guaranteed returns that are offered by a structured
settlement. Insurance industry studies have consistently
shown that, even with the best of intentions, individuals
dissipate settlement dollars very quickly, with most (90%)
having nothing left after 5 years, regardless of the size
of the settlement.
It is important to remember that in a structured settlement,
not all of the money received needs to be placed into
periodic payments. There should always be cash available;
this cash can be utilized to invest in stocks or new businesses.
A balanced settlement plan can and should offer the best
of all worlds, guaranteed money at a high rate of return
through the structure and cash available for immediate
use.
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Steve Chapman
has been a structured
settlement specialist for the past 20 years.
For the past 12 years, he has specialized in workers’
compensation structured settlements.
He has appeared at every Appeals Board
throughout the state of California. During the
past 5 years, he has participated in settlements
totaling over $750 million.
Mr. Chapman strives to remain current on all
issues affecting the settlement of the case,
including Medicare set aside allocations, life
care plans, medical cost trends, Long Term
Disability, and Social Security issues.
To contact Steve Chapman:
Steven F. Chapman
Settlement Professionals, Inc.
12039 Jefferson Blvd.
Culver City, CA 90230
Phone: 800-845-2969
Fax: 310-450-3132
Cell: 310-480-5742
Email: SettleMan@aol.com
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