HARRIS: How do we figure out the real value of future medical care? The MSA and analyses we get from vendors hired by defendants do not provide the full picture.

CHAPMAN: In most cases, the value of the future medical care is the largest cost component of the work comp settlement. The first question that usually arises, once the parties decide to explore settlement, is whether a Medicare Set-Aside (MSA) is necessary. The MSA is the figure that will be offered to Medicare (CMS) as the dollar figure to be spent by the applicant before Medicare becomes responsible for industrially-related medical expenditures. The MSA is a double-edged sword. The larger the MSA, the more money the AA can demand in the settlement of the case; the problem is that most applicants do not view MSA money as that valuable since it is only spent on medical needs; applicants want discretionary dollars. The key to a successful settlement is to provide for the Medicare medical needs through the MSA and to provide for as much non-Medicare medical dollars as is possible, given the facts of the case.

It is important to remember that the MSA vendor’s primary responsibility is to provide for the Medicare medical needs of the case. The MSA report should be reviewed for accuracy as to body parts, necessary surgical procedures, and prescription medications. Some of the MSA vendors, as a marketing tool to the defendants, will try and articulate the non-Medicare medical needs; in most instances the information provided to the vendor relating to the non-Medicare medical needs is incomplete and relies solely on facts supplied by the defendants.

Once an accurate MSA has been completed, the main components of non-Medicare medical expenses need to be explored and quantified. The three main components on non-Medicare medical costs are home care/ housekeeping, transportation, and home modifications. There are several sources/resources that can assist in providing accurate figures to the non-Medicare medical figure. The easiest place to begin is with the medical reports. If the doctors have not specifically addressed these issues then send
joint letters or detailed inquiries or take depositions to elicit answers from the doctors. If the physicians do not feel comfortable in addressing these issues then an independent nurse case manager and/or occupational therapist can be hired to provide a report for the doctors to review and approve as to the recommended medical needs. In the most serious of injuries or where there are complex medical needs and the applicant is not Medicare eligible, a life care plan, created by an independent life care planner, can address the medical needs and their associated costs for the remainder of the applicant’s life.

HARRIS: In our previous interview you spoke about “rated age” and how it can increase the settlement value for our clients. I gather we should be on the lookout for factors that affect the rated age so that we can inform the structure broker. What are these factors and how do we find them?

CHAPMAN: Often in work comp cases, the applicant has suffered or developed a serious medical condition. The complications involved in a serious injury can substantially reduce the applicant’s life expectancy. Because of this reduced life expectancy, the cost of providing lifetime periodic payments to that individual is reduced. The rated age is the estimation of life expectancy, assigned to the applicant by a life insurance company after a review of the pertinent medical records. The easiest way to
understand the concept is through a simple example: assume the applicant is a 40-year-old male who has been rendered a paraplegic as a result of a fall from a rooftop. The condition of paraplegia causes a reduction in life expectancy, so the life insurance company assigns a rated age of 52. This means that the life insurance company believes that the applicant now has the life expectancy of a 52-year-old man as opposed to that of a man of 40. In essence the rated age allows for the money available in a settlement to be “stretched,” allowing for greater purchasing power.

An important and often overlooked advantage associated with medical underwriting and the rated age process is that the rated age can be influenced by medical conditions not related to the specific industrial injury associated with the comp claim. The best way to locate the medical factors that will affect the rated age is to thoroughly read the medical reports and have the doctors address co-morbid conditions associated with the applicant’s current health condition.

Most recently we have seen a new benefit associated with the use of the rated age: Medicare (CMS) understands that applicants may have suffered serious injuries that reduce life expectancy; therefore Medicare Set-Aside vendors are allowed to utilize rated ages provided by the life insurance companies in reducing the amount that must be set aside for Medicare because of the applicant’s reduced life expectancy.

HARRIS: What steps do you recommend in getting a structured settlement going, and when should we do this?

CHAPMAN: As I mentioned earlier, it is almost never too early to identify a case that you want to settle using a structured settlement. The first step to take in getting a structured settlement going is to retain a structured settlement consultant. There is no charge for retaining a structured settlement specialist; they are compensated through the sharing of commissions with the structure broker for the defense.

Once you have retained a specialist of your own, you can begin to work together in preparing a demand. The applicant’s structured settlement consultant can take the demand and present it to the structured settlement consultant for the defense. The structured settlement consultant for the defendants usually has a direct line of communication with the claims examiner and is able to get the demand directly to the individual who has the money to settle the case. Additionally, through this “backdoor communication”, the AA can learn what the claims examiner is thinking without the filter of the defense attorney.

The process of settling with a structured settlement can begin as soon as you feel the Applicant will be declared P&S. The structure tool can be used to get a case moving that has been sitting stagnant for several years. Claims professionals are usually extremely busy and by focusing on settling a case with the presentation of a demand and with structured settlement professionals focusing on a settlement greatly increases the likelihood that settlement discussions will lead to a successful resolution.

HARRIS: What is the best way to explain the benefits of the structure settlement to a client?

CHAPMAN: The best way to present a structured settlement to the applicant is to have your structured settlement specialist prepare various options for presentation and review by the AA and their client. It is almost impossible to have a theoretical discussion about structured settlements; most individuals need to see the payments outlined in black and white. The structured settlement specialist should have had conversations with the applicant’s attorney to be able to address specific needs of the applicant and his family. As you know, through the structured settlement, one has the ability to provide for guaranteed payments in the event of the early passing of the applicant. Additionally, payments can be orchestrated to ensure the preservation and maximization of other benefits the applicant may be receiving. The structured settlement specialist is the best individual to explain the taxation of the payments, how the payments can be revised to better meet the needs of the applicant, how the naming of beneficiaries works, etc. The structured settlement consultant is able to explain the ratings of the life insurance companies and what companies are the strongest financially.

Over the years I have found it imperative that AA has his/her own broker discuss structured settlements with the applicant. Invariably the applicant or members of the immediate family divulge information that the AA wishes not to be shared with the defense. The structured settlement specialist for the applicant is duty bound not to share any information with the defendants not authorized by the AA.

HARRIS: In my experience, the devil is in the details with structured settlements, and there is a need to keep on top of the deal so it does not fall through. Do you have any advice for the practitioner?

CHAPMAN: Once settlement discussions begin with the defendants, there are numerous little details that arise which require fairly quick answers. It is important that the applicant’s attorney remain in direct contact with their broker and be able to obtain quick answers to keep the negotiations moving forward. A few examples include questions about Medicare eligibility, PDA’s, current medical conditions, EDD payments, liens, etc. A skilled structured settlement consultant should be able to work quickly to resolve whatever issues that arise and threaten the case from moving forward.

HARRIS: It seems that many applicants’ attorneys do not encourage structured settlements. Why do you think this is?

CHAPMAN: I think there may be a few reasons that applicants’ attorneys do not encourage structured settlements: I believe that some attorneys may be hesitant because they feel they may not be able to answer all of the questions that their clients may have. The AA’s structured settlement expert can assist in this regard. Additionally, I think some attorneys do not think that their clients may be interested. I have often found that when the structure expert is able to explain all of the various benefits that can be obtained through receiving periodic payments (for example, structuring the payments so
that LTD or SSDI payments can be preserved), the applicants become very interested in structuring some of their settlement. It is often forgotten and overlooked that structured settlements are some of the last tax-free income remaining in the tax code and should never be dismissed without at least providing the applicant the opportunity to review  various proposals created by the structured settlement expert.

There is an often-cited insurance industry study that revealed that within 5 years of receiving a lump sum settlement arising from an injury, 90% of those individuals had no money left. I think that those of us who work daily in this industry know that in most cases, the money from a settlement is dissipated in a much shorter period of time.