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Are Structured Settlements Still
Relevant in Settling Workers’
Compensation Cases?

By Steve Chapman and Gregg Chapman, Esq.

> History of WC, Part 1
> Getting Back to Work
> Art of Reserving
> Structures Still Relevant
> War Story: Favorite Case
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Steve Chapman and Gregg Chapman, Esq. specialize in structured settlements of workers’ compensation cases. In this article they answer some FAQs.

For more information on structured settlements and the structure broker’s role, see:

In this era of economic instability and increased governmental regulation, when the settlement of a workers’ compensation case is becoming more and more time consuming and complex, many ask if the utilization of a structured settlement is still necessary and relevant. In this question and answer session we will explore various topics including interest rates, government benefits and high MSA amounts. As it turns out, structured settlements are more relevant than ever in resolving certain issues of concern to both sides, and in getting the case settled.
Structured settlements are more relevant than ever in getting the case settled.
Question: I see that interest rates are low. Is that a good environment for my client to get involved in a structured settlement that will go on for life? What will happen if and when interest rates go higher?

Answer: Structured Settlement annuities are a unique and very special type of annuity. They do not have to abide by the normal rules of the standard annuity products in the market place. As we know, virtually any type of payout schedule can be designed by the Applicant and their family. This special settlement annuity can also take advantage of any comorbid medical conditions and illnesses that the Applicant may have; this is known as medical underwriting and the process of underwriting results in a “rated age”. The rated age allows for the annuity to be purchased at a “discount” which results in a greater rate of return for the Applicant. We are regularly able to provide an Applicant with a 5-6.5% rate of return and tax free on top of that. Once again it is important to point out that the lifetime monthly payments are guaranteed not to change over the life of the Applicant. In the event that the Applicant may feel that interest rates may be higher in a few years, the Applicant can create a structured settlement designed to have lump sum payments made at different points in the future. These sums can then be diversified into other investments hopefully at a higher interest rate. This strategy works very well because the money can grow tax free until it is paid out, and when it is paid out it is tax free as well.

Annuity payments are tax free
Question: I have a client who considers himself a savvy investor. Why should I recommend a structured settlement as opposed to an all cash settlement that he can then invest as he chooses?

Answer: There are many reasons, one of which, the rate of return, has already been addressed. However, one of the most important reasons for a structured settlement is security. I’m sure many of us like to consider ourselves above average investors. It was just 3 short years ago when the “smart” investor had a diversified portfolio which included stocks, bonds and real estate. Within 18 months, that “smart” investor had seen the value of his holdings drop by 60% in many cases. This might not be the end of the world to a young or middle aged individual who had a good job and many years ahead of him to recoup from these losses. However, consider the elderly Applicant who settled her case in 2007, was no longer able to work, didn’t structure her settlement and invested the entire cash value of the settlement in real estate and stocks. That workers’ compensation settlement that was supposed to provide income for the rest of her life is now more than half gone and there isn’t sufficient time to make it back. The security provided by a structured settlement makes sense when the risk from an economic downturn is unacceptable.
Structured settlements offer security from economic downturns
Question: I have heard other attorneys talk about using structured settlements to assist in the preservation of other benefits that the Applicant may be receiving. Is this truth or fiction?

Answer: As alluded to in a previous answer, the structured settlement annuity carries with it the ability to customize the payment schedule to meet the specific needs of the Applicant. As some of you may be aware, certain governmental agencies and individual insurance plans may be entitled to take offsets of payments made to Applicants, depending on the funds they receive from their workers’ compensation settlement. In any potential settlement, it would be worthwhile to explore deferring the beginning of the periodic payments until a point in the future where the offsets will be at a lower rate or non-existent. Please consult with a structured settlement expert as to the opportunities available in utilizing and customizing the structure to take advantage of lower offsets.
Structured settlements may provide some protection against offsets
Question: Sometimes I am approached by a workers’ compensation carrier and am told that I must use a structured settlement and I must use a certain life insurance company to fund the settlement. Do I have to go along with this?

The situation referenced in this question involves the use of in-house structure programs. The largest of these programs are Liberty Mutual & Liberty Life, Chartis and American General. Some of the examiners working for these carriers have the ability to insist on utilizing a structured settlement if the case is to settle by C & R. If you find yourself in one of these situations and believe that settlement with a structured settlement will make sense for your client, it is essential that you retain a structured settlement expert of your own (at no cost to you or the Applicant) regardless of what you are being told by the other side. While Chartis wants you to use American General Life and Liberty wants to utilize Liberty Life, each of these programs allow other life insurance companies to be used. Your own broker can shop the marketplace to make sure you are receiving the maximum benefits for your client. You cannot rely upon the structure broker for the defendant to inform you of this or shop the market for you since they are often bound to quote just one company. Your own broker has a fiduciary responsibility to you and the Applicant and can perform this due diligence for you, once again at no cost.
If defendant insists on using their own structure program, contact your own broker, who can shop the marketplace to make sure you are receiving the maximum benefits for your client.
Question: I’ve seen Medicare Set-Aside (MSA) amounts increase substantially over the last 2 years. Can structured settlements still provide a solution that will make a C & R viable when there is a large MSA?

Answer: The short answer is yes. The truth of the matter is that a structured settlement may be the only way to achieve a C & R when there is a disproportionately large MSA. One of the reasons for this increase is related to The Centers for Medicare & Medicaid Services (CMS) implementing new prescription drug pricing guidelines for MSAs on July 1, 2009. These new rules included the requirement that all drugs be priced according to the Average Wholesale Price. Additionally, CMS began indiscriminately requiring that every drug mentioned in a medical report be included in the MSA and priced out over the individual’s entire life expectancy based on the

This is not only unrealistic, but leads to extremely high MSA amounts. A structured settlement can substantially reduce the cost of the MSA. In many cases, the structure cost of the MSA is 40-50% lower than the lump sum value. With such a substantial savings, a C & R can be a viable settlement option. For example, consider the case where the agreed upon settlement amount is $750,000 but CMS rejects the submitted $300,000 MSA and instead requires a new MSA amount of $650,000. This settlement would be all but dead if the MSA was funded with a lump sum payment. However, by using a structure, the cost of the MSA annual payments is $325,550 and even with the seed amount of $50,000, this case is able to settle by way of C & R.
A structured settlement may be the only way to achieve a C & R when there is a disproportionately large MSA
Steve 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
National Settlement Consultants
12039 Jefferson Blvd.
Culver City, CA 90230
Phone: 800-845-2969
Fax: 310-450-3132
Cell: 310-480-5742
Email: SettleMan@aol.com
Gregg Chapman has been a member of the State Bar of California for twenty years. Over the last eight years, he has worked for two of the largest national MSA vendors in various positions including General Counsel, National Sales Manager and Director of MSA Education. He has provided hundreds of presentations on all topics regarding Medicare Set-Asides to the insurance industry and attorney associations across the country.

To contact Gregg Chapman:
Gregg Chapman
National Settlement Consultants
12039 Jefferson Blvd.
Culver City, CA 90230
Phone: 800-845-2969
Fax: 310-450-3132
Email: greggchap@aol.com