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Structured Settlements: The Whole Truth about the “Doughnut Hole”

Interview with Steve Chapman

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Steve Chapman specializes in structured settlements of workers’ compensation cases. In this interview with Marjory Harris, he talks about the “doughnut hole” and how to deal with it in a structured settlement.

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

Understanding the Basics so you can deal with the Unique Or How to Effectuate Structured Settlements
Presented by Steven F. Chapman at CAAA Winter Convention 2007

Getting Your Cases Settled and Your Cash Flowing
Presented by Steven F. Chapman at CAAA Winter Convention 2007

Structured Settlements: Tips from a Structure Specialist

Structured Settlements: More Tips from a Structure Specialist

Structured Settlements: Why a Structure Specialist Reviews
Subpoenaed Record

 
 
HARRIS: Steve, there is a lot of confusion among adjusters and attorneys about the “doughnut hole” and whether we need to include money in a structured settlement for this “coverage gap,” as Medicare calls it, for prescription drugs under Medicare Part D. Can you explain this “hole” or “gap” and why attorneys should or should not be concerned with it when settling a case.

CHAPMAN: The Medicare Part D “doughnut hole” is a gap in the prescription drug coverage where the Medicare beneficiary (Applicant) is responsible for paying for their medications. Since January 1, 2006 when Medicare Part D went into effect, the cost of Medicare covered prescription drugs had to be factored into Medicare Set-Asides (MSA). There has been an ongoing debate among the MSA vendors on whether to include or exclude the doughnut hole amount in the MSA calculation. However, regardless of whether the MSA factored in the doughnut hole or not, it is important for the applicant’s attorney to make provisions in the settlement that will cover this amount after settlement. Once the case has settled and the Applicant goes to purchase their prescription drugs, when they reach the coverage gap threshold, they will have to pay for the drugs out of their own pocket. They will not be able to use the funds in the MSA since those funds can only be used to pay for expenses that are Medicare’s responsibility. Since the coverage gap is not Medicare’s responsibility, the Applicant will have to pay for this. Thus the settlement should include the doughnut hole amount separately and in addition to monies allocated in the MSA.
 
CMS/Medicare explains the gap and offers some solutions.

See, too, AARP’s discussion, “In and Out of the Doughnut Hole."
 
HARRIS: Who needs to provide these calculations – the MSA vendor company, almost always hired by the defendant, or the applicant’s attorney? Or do you figure this out for your clients?

CHAPMAN: I am able to provide an estimate of the doughnut hole calculations. Each case will have different amounts since the figures are dependant on the Applicant’s current and future prescription drug usage. The doughnut hole is a set amount established each year by CMS and thus easily verifiable. The MSA vendor can provide these calculations; however, it is important for the applicant’s attorney to review these calculations since the MSA vendor is not always aware of all the medications the Applicant is taking.
 
Each case will have different amounts since the figures are dependant on the Applicant’s current and future prescription drug usage.
 
HARRIS: President Obama unveiled a plan to cut the doughnut hole in half. How will this affect injured workers?

CHAPMAN: If the doughnut hole is cut in half it will mean less out of pocket expenses for the injured worker.
 
The President’s June 22, 2009 Remarks

AARP’s Analysis: “Obama Unveils 'Doughnut Hole' Solution”
 
HARRIS: Many applicants’ attorneys fear MSAs and liability that may attach to them if something goes wrong. They are also scared by the doughnut hole issue and how to calculate it for settlement purposes. How realistic are these fears? Do they warrant leaving medical open?

CHAPMAN: There is no reason to fear settlements that involve MSAs. Once the MSA has been approved, CMS provides instructions to the injured worker on how to administer the MSA account. If the applicant’s attorney is concerned about the injured worker’s ability to manage the MSA account, then other options include professional administration of the MSA funds or a self administration assistance program for the injured worker. While the doughnut hole issue has created a bit of a controversy, there is no reason to avoid a Compromise and Release because of it. To fully protect the injured worker in cases involving a MSA with significant prescription drug expenses, the settlement as previously indicated should include the doughnut hole amount outside the MSA total. The structured settlement specialist is able to assist applicants’ attorneys in developing doughnut hole figures and explaining to their clients how the system works.
 
The settlement should include the doughnut hole amount separately and in addition to monies allocated in the MSA.
 
Steve Chapman has been a structured settlement specialist for more than 24 years. For the past 15 years, he has specialized in workers’ compensation structured settlements. He has appeared at every Appeals Board throughout 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
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