Structured Settlements in the Field

In our last blog about structured settlements we reviewed the basics of what a structured settlement is and why you would want to structure a settlement. However, the benefits of structuring a settlement are best shown through real life examples. Below are three scenarios in which MEDVAL was able to provide creative settlement solutions utilizing a structured settlement.

Bridging the Gap to Settlement

A structured settlement is a tool that can help bridge a gap between a claimant’s demand and an insurer’s settlement authority; resulting in a smooth and efficient settlement process for all parties. One example of this is when settlement is stalled by unavoidable expenses.

Recently, MEDVAL assisted in settlement negotiations between a small self-insured employer and claimant demanding a large upfront cash settlement. The employer had a settlement budget of $100,000 including all future medical treatment. The MSA was projected to take up $78,000 of the settlement due to the claimant’s medication requirements. However, the claimant was not interested in any settlement that would tie up most of their award in an MSA. Settlement negotiations stalled, and the parties considered forgoing settlement altogether.  After working with our team, the parties were able to use a proposed structured settlement to come to an agreement. By implementing the use of an annuity to fund the MSA the parties were able to free up an additional $30,000 in funds that would have otherwise been tied up in the MSA. The savings united the parties and they were able to successfully continue settlement negotiations.

Improving Reserves Management

We all know that the best claim is a closed claim. For insurers and employers open claims negatively impact reserve liabilities and premium costs. Utilizing a structured settlement can help facilitate settlements in cases that might otherwise be left open, which helps improve reserves management and premium costs. This is especially important for self-insureds and other employers, like government agencies and municipalities, that have limited budgets.

Our structured settlement team has encountered this issue in many different forms. One interesting example is in the case of a national self-insured entity with several lost earning capacity cases that were impacting their reserves. MEDVAL was able to propose a solution utilizing annuities to transfer the obligation for monthly payments from the employer to the life company issuing the annuity, which effectively removed the obligation from the employer’s books, while providing the same level of benefits to the injured workers.

Managing Uncertainty with CMS

One of the major risk factors in any settlement is the claimant’s ability to properly manage their settlement funds to ensure the funds are available to be used as intended by the settlement. In cases involving Medicare beneficiaries, this risk is even more of a concern given the implications of the Medicare Secondary Payer statute and the temptation of claimants to utilize Medicare Set-Aside funds for non-medical related expenses. Fortunately, utilizing an annuity to fund an MSA can help alleviate some of the uncertainty that comes with settlements impacted by the MSP statute.

Structured settlements mitigate this uncertainty in two ways. First, by limiting the amount of MSA funds available to a claimant at any given time, thereby also limiting the temptation to misuse those funds.  It is much less tempting to spend an annual payment of $3,000 than it is to spend an upfront lump sum payment of $80,000.

Second, CMS has agreed to step in as the primary payer in cases where an MSA was funded using an annuity and the MSA funds are properly exhausted prior to the next annuity payment. This is an added level of protection for an injured worker, as they know that should they have an unexpected increase of medical expenses in any given year, CMS will be there to pick up the tab without penalty until the next annuity payment is made.

This process works the most efficiently when the annuitized MSA fund is being professionally administered by a third-party provider. For example, MEDVAL recently had a case where a claimant ran out of funds in their MSA account for a period of approximately six months. MEDVAL was able to proactively provide CMS with notice of the lack of funds, proof of proper account management, and a request for CMS to step in as the primary payer for treatment incurred until the next annuity payment was made. In response, CMS promptly picked up payments for the claimant’s treatment without interruption. Once the next annuity payment was received MEDVAL was able to seamlessly transition back to managing payments from the MSA.

How Can You Make Annuities Work for You?

In considering if a structured settlement is right for your claim, or on behalf of a claimant/injured worker, consider these three questions:

1. Are there concerns about the claimant’s/injured worker’s ability to manage a large settlement?
2. Are there additional tax obligations to consider?
3. Are there other monetary factors (i.e. financial challenges, creditors, or need based entitlement programs) that should be considered in the settlement?

If you can affirmatively answer “YES” to any of the questions above, a structured settlement may be of extreme benefit to your case, and all parties involved.

ABOUT THE AUTHOR

Katharine Rupp, JD, of Medval, posted this article. To read more of Medval's blog, click here.

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