The Benefits Of A Structured Settlement

Injured employees who do not have a financial background often do not understand the reasons for a structure settlement. Frequently, if the employee is not properly advised by his/her attorney, the employee will say “give me the money, and I will manage it”. However, once an injured employee learns the benefits of a structured settlement, they almost always opt for the structured settlement of both their indemnity and their medical claims. Structured settlement benefits include:
Steady Income:
A structured settlement normally provides periodic payments over a specific period of time or for the life expectancy of the injured employees. Injured employees, who are expecting a future pension and/or social security benefits, may opt for higher monthly periodic payments to their retirement age than for lower periodic payments for life.
Tailored Payments:
A structured settlement can be tailored to the future financial needs of the employee, whether it is a down payment on a home, a child’s college education, or any other future major expense.

 

Financial Security:
The injured employee does not have to worry about where his/her future income will come from. A structured settlement provides financial security by guaranteeing the employee the periodic payments.
Spousal Income:
A structured settlement can be based on the combined life expectancy of the injured employee and spouse, instead of just the injured employee’s life time. This is often done when the injured employee is concerned not only about his/her present needs but also about the spouse’s financial well-being after the employee’s death.

 

Tax-Free Income:

Federal income-tax law considers the periodic payments of a structured settlement to be payments for the injury. The periodic payments are tax-free of both federal and state income taxes. If the employee received a lump-sum payment in settlement of the injury, the lump-sum would be tax free, but all interest or dividend income earned on the lump-sum amount would be subject to federal income tax.
Cash:
A structured settlement can be tailored to provide the employee a lump sum at the time of settlement to cover any immediate financial needs like paying off debts or replacing the family car (but that also lowers the amount of each periodic payment).
Money Management:
Various studies have shown that approximately 80% of injured employees who receive a lump sum settlement will have squandered the entire amount of the lump sum within 5 years. A structured settlement protects the injured employee from mismanaging the money they will need over their life time.

 

Medical Cost Management:
In addition to the structure settlement of the indemnity portion of the workers’ compensation claim, a second structure settlement of the cost of the future medical care can be provided for the injured employee. A medical cost projection can be completed to establish the estimated cost of future medical care. A structured settlement of the medical cost with an independent administrator of the payments for medical services can relieve the injured employee of trying to manage the medical care cost.

 

 

When a structured settlement is properly explained to an injured employee, the employee will almost always chose the financial security and peace of mind that a structured settlement provides. For more information on structured settlements, or to talk to a structured settlement specialists, please contact us.

 

 

 

Author Michael B. Stack, CPA, Principal, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher.  www.reduceyourworkerscomp.com.  Contact: mstack@reduceyourworkerscomp.com.

 

©2014 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.

 

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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

 

 

Decode Process For Resolving Medicare Conditional Payments

The consolidation of the Coordination of Benefits Contractor (COBC) and Medicare Secondary Payer Recovery Contractor (MSPRC) has caused confusion of attorneys and claims management teams when resolving conditional payments in workers’ compensation and personal injury cases. In order to avoid delay, it is important to take a refresher course in conditional payment matters.

 
The Benefits Coordination & Recovery Center (BCRC)

 

The BCRC is now serving as the consolidated contractor for all conditional payment matters. The stated purpose of this consolidation is to provide:

 

  1. Improved customer service for stakeholders
  2. Consolidated and streamlined data collection and recovery operations
  3. Value added efficiencies and enhanced resource utilization

 
New Processes for Resolving Conditional Payments

 

The expected timeline for resolving conditional payments is about eight weeks. As a result, it is important to plan ahead, cooperate with other attorneys and all parties involved in your case, and set realistic expectations. Timely response to all inquiries from the BCRC is essential.

 

1. Place Medicare on notice through the BCRC. At this time, you will be required to provide them with the following information:

 

• Beneficiary information (name, date of birth, gender, address, telephone number and Medicare number);

• Injury related information, including the date or injury or ingestion/exposure, description of injury and type of claim (liability, no-fault or workers’ compensation); and

• Representative/attorney information (name of representative/attorney, including law firm if applicable, address, telephone number and Proof of Representation).

 

2. Rights and Responsibility Letter. This letter outlines the rights and responsibility of the parties and will be issued by the BCRC when they create the case file.

 

3. Conditional Payment Letter (CPL). This letter will be issued once all claims information has been received and processed. A CPL is NOT a final request amount, but merely what CMS believes is related to the accident or injury. A CPL is issued within 65 days of the Rights and Responsibilities Letter. It is important to review this letter and verify all claims made by CMS are related to the accident or injury regardless of defenses, including reasonableness and necessity.

 

4. Final Demand Letter. This letter is issued once the case is settled and the representative or parties submit information regarding the settlement. CMS needs to obtain details regarding the information such as the gross settlement:

• Total Amount of Settlement

• Total Amount of Med-Pay or Personal Injury Protection (PIP)

• Attorney Fee Amount Paid by the Beneficiary

• Additional Procurement Expenses Paid by the Beneficiary

• Date the Case Was Settled

Once the Final Demand Letter is issued, parties have a 30-day period to satisfy the debt and avoid interest charging. Information regarding the right to appeal this determination is handled through the BCRC. Failure to perfect this appeal can result in a waiver of your rights.

 

Tips for Effectively Resolving Conditional Payments

 

  1. When putting the BCRC on notice, be sure to include the correct ICD-9/10 codes.
  2. Coordinate and communicate with your attorney and any service provider involved in the process
  3. Carefully review the CPL for incorrect/erroneous claims by Medicare

The BCRC can be contacted as follows:

 

Benefits Coordination & Recovery Center (BCRC) – NGHP
P.O. Box 138832
Oklahoma City, OK 73113

Phone: 1-855-798-2627 OR
1-855-797-2627 (TTY/TDD)

 

Additional information regarding the newly revised conditional payment resolution processes can be found at:

http://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Coordination-of-Benefits-and-Recovery-Overview/Non-Group-Health-Plan-Recovery/Downloads/RR_Brochure.pdf

 

 

 

Author Michael B. Stack, CPA, Principal, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher.  www.reduceyourworkerscomp.com.  Contact: mstack@reduceyourworkerscomp.com.

 

©2014 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.

 

WORK COMP CALCULATOR:   http://www.LowerWC.com/calculator.php

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SUBSCRIBE: Workers Comp Resource Center Newsletter

 

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

 

The Evolving Matter Of Liability Medicare Set-Asides

Pursuant to 42 U.S.C. §1395y (b) (2) (A) (ii), CMS/Medicare is the “secondary payer” in all workers’ compensation, no-fault and general liability claims. Under the Medicare Secondary Payer Act (MSP), CMS has taken the position that they are the secondary payer regardless of liability and they have a statutory right of recovery against all parties, including law firms involved in the claim, related to their past interests and/or future interests.

 

 

The Great Debate: “Reimbursement” or “Coordination of Benefits”

 

Like any law, the MSP and the use of Medicare Set-Asides (MSA) is subject to debate and interpretation. While the use of MSAs in workers’ compensation cases is for the most part well settled, there is little clarity of their use in cases outside workplace injuries.

 

Some people view the MSP in the context of non-workers’ compensation cases as being only a “reimbursement” statute, where consideration of Medicare’s interests is limited to conditional payments only. In support of this argument, people who subscribe to this line of thinking point out that the asserted powers of CMS amount to nothing more than an unconstitutional “taking” or “tax” on litigation, without statutory support. They also note that none of the regulations concerning the MSP and these types of claims found in 42 C.F.R. §§411.20-54, support the notion of “future medicals.”

 

On the other hand, the MSP can also be viewed as a “coordination of benefits” statute. In taking this viewpoint, it can be argued that regardless of regulation, the statute applies in all personal injury and workers’ compensation cases. Further, the definition of a “conditional payment” fits cases of both past and future payments made by Medicare related to a beneficiary.

 

 

Agency Support for LMSAs

 

Prior to 2011, CMS policy memoranda were directed at workers’ compensation plans. In May 2011, Sally Stalcup, CMS’s Region VI (Dallas) MSP Regional Coordinator issued a general memorandum regarding Liability Medicare Set-Asides (LMSAs). In this memorandum it was noted that, “Medicare’s interests must be protected; however, CMS does not mandate a specific mechanism to protect those interests. The law does not require a ‘set-aside’ in any situation. The law requires that the Medicare Trust Funds be protected from payment for future services whether it is a Workers’ Compensation or liability case. There is no distinction in the law.”

 

The memorandum was followed in September 30, 2011, by a statement regarding MSAs in non-workers’ compensation case by Charlotte Benson of CMS/Office of Financial Management.

 

 

Judicial Notice of MSAs in Liability Cases?

 

At this point, there is no controlling published legal decision regarding the use or recommendation of a MSA in non-workers’ compensation cases. Since 2009, there have been numerous cases that discuss the use of MSA in these cases. However, the cases have mainly been used for review and approval of a MSA amount through judicial means.

 

In Benoit v. Neustrom, acceptance for MSAs in non-workers’ compensation cases gained additional acceptance. In this case, an inmate within the Louisiana correctional system sustained permanent brain injuries resulting from the allegation of prisoner neglect. At the time of settlement, the parties were confronted with the issue of how to consider Medicare’s interests when a MSA allocation exceeded the liability policy limits.

 

In addressing this issue, the Court recognized equitable principles and the practical barriers to settlement these issues create. There was also an acknowledgement that the MSP compels consideration of Medicare’s interests and specifically cited the Stalcup Memorandum. In balancing these competing factors, the court determined an appropriate MSA based on a variety of case specific factors.

 

 

Medicare’s Interests in Non-WC Cases

 

Successfully navigating the Medicare maze starts with understanding the MSP. It is important to evaluate your personal injury case from the time the initial claim is made, and continuing that process throughout. In addition to evaluating each case on its merits and facts, it is important to evaluate the following:

 

• Cases where future medical expenses are being considered in the settlement;

• Cases involving a Medicare beneficiary or someone who will be entitled to Medicare in the foreseeable future;

• Catastrophic injury cases such as traumatic brain or spinal cord injuries, multiple amputations or cases involving severe psychological components. Long-term medical care and treatment will be presumed by CMS as necessary in these cases;

• Structured settlements: Medicare generally takes notice of these settlements given that long-term care may be part of the settlement agreement; and

• Any case in which the injured person will certainly require future medical care and treatment for the injury, exposure or ingestion.

 

Finally, remember to always consider Medicare’s interests, and protect the interests of your client(s).

 

 

Conclusions

 

The issue of Medicare’s future interests in liability cases is a hot button topic that puzzles many attorneys and claims handlers. At this point, there is no general consensus among the federal courts or attorneys as to the need for LMSAs as a requirement or recommendation.

 

To complicate matters further, the failure of the CMS to promulgate rules or procedures for LMSAs has further muddied the waters. While arguments can be made on both sides of this issue, it is clear that the CMS, and to some extent the courts, are interested in protecting the solvency of Medicare. Although each case needs to be analyzed on its own merits, the consideration of Medicare’s future interests through the use of LMSAs is clearly one tool that you can use to protect your clients from the iron fist of Medicare.

 

[1] Conditional payments are denied by 42 USC 1395y (b) (2) (B) (ii). Repayment required.  A primary plan, and an entity that receives payment from a primary plan, shall reimburse the appropriate Trust Fund for any payment made by the Secretary under this subchapter with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service. A primary plan’s responsibility for such payment may be demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means. (Emphasis added)

 

[1] 2013 U.S. Dist. LEXIS 55971 (E. Dist. La. April 17, 2013)

 

 

Author Rebecca Shafer, JD, President of Amaxx Risk Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. She is the author of the #1 selling book on cost containment, Workers Compensation Management Program: Reduce Costs 20% to 50%. Contact:RShafer@ReduceYourWorkersComp.com.

 
Editor Michael B. Stack, CPA, Principal, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher. www.reduceyourworkerscomp.com. Contact: mstack@reduceyourworkerscomp.com.

©2014 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.

 

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SUBSCRIBE: Workers Comp Resource Center Newsletter

 

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

 

 

 

Understand The Concept of A Medicare Set-Aside

The concept of a Medicare Set-Aside (MSA) continues to complicate and frustrate defense attorneys and claim professionals. Since 2001, the Centers for Medicare and Medicaid Services (CMS) have been issuing “policy memoranda,” which has created only more confusion.

 

 

The term “Medicare Set-Aside” is a Legal Fiction

 

Search all you want through the United States Code or the Code of Federal Regulations (C.F.R.) and you will not find the term “Medicare Set-Aside.” It is actually a term first coined in the late 1990s to describe the process or mechanism one can use to consider Medicare’s future interests in a workers’ compensation or personal injury claim.

 

At this point, some argue that MSAs should only be used in workers’ compensation cases. A point of reference for this assertion is found in federal regulation that concern workers’ compensation settlements. One such regulation is located at 42 C.F.R. §411.46 (b) (2), which states, “If a settlement appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for the treatment of a work-related condition, the settlement will not be recognized.”

 

 

MSAs Are Never Required

 

An MSA is never required by statute or regulation in any workers’ compensation or liability (personal injury) case. CMS has asserted in policy memoranda and other agency interpretations that parties should consider and protect Medicare’s future interests in all such personal injury claims involving a Medicare beneficiary or someone with a “reasonable expectation” of Medicare entitlement in the foreseeable future.

 

In workers’ compensation matters, CMS has an established review and approval process otherwise known as a Workers’ Compensation Medicare Set-Aside (WCMSA). This process is voluntary and subject to review thresholds where the agency will provide an opinion as to whether a proposed medical allocation is sufficient. Parties choosing to enter this voluntary process should do so with caution as CMS has strict criteria on how a case is evaluated and what medical records are pertinent to the review process. In almost all instances, complete deference is given to the treating doctor’s diagnosis, prognosis and need for future medical care and treatment, including prescription drug use and surgery.

 

 

When Is a MSA Recommended?

 

Successfully navigating the MSA maze starts with understanding the Medicare Secondary Payer Act and the facts of your workers’ compensation or personal injury case. It is important to evaluate your case from the time the initial claim is made, and continuing that process throughout. In addition to evaluating each case on its merits and facts, it is important to evaluate the following:

 

• Cases where future medical expenses are being considered in the settlement;

 

• Cases involving a Medicare beneficiary or someone who will be entitled to Medicare in the foreseeable future;

 

• Catastrophic injury cases such as traumatic brain or spinal cord injuries, multiple amputations or cases involving severe psychological components. Long-term medical care and treatment will be presumed by CMS as necessary in these cases;

 

• Structured settlements: Medicare generally takes notice of these settlements given that long-term care may be part of the settlement agreement; and

 

• Any case in which the injured person will certainly require future medical care and treatment for the injury, exposure or ingestion.

 

 

 

Author Rebecca Shafer, JD, President of Amaxx Risk Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. She is the author of the #1 selling book on cost containment, Workers Compensation Management Program: Reduce Costs 20% to 50%. Contact:RShafer@ReduceYourWorkersComp.com.

 
Editor Michael B. Stack, CPA, Principal, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher. www.reduceyourworkerscomp.com. Contact: mstack@reduceyourworkerscomp.com.

©2014 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.

 

WORK COMP CALCULATOR:   http://www.LowerWC.com/calculator.php

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SUBSCRIBE: Workers Comp Resource Center Newsletter

 

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

How Mediation Saves Workers Compensation Dollars

 

Mediation of Workers Compensation claims is commonplace in some states and mandatory in a couple (e.g., South Carolina as of 5/15/2013).   Elsewhere, such as in California, claims professionals and attorneys are just starting to catch on to the benefits of mediation.

 

 

Multiple Appearances With Judge Can Accomplish Little

 

Budget cutbacks and increasing caseloads mean less time for cases to be heard by a workers compensation judge.  The result is multiple appearances which accomplish little.  This costs the employer money for the defense attorney’s fees and consequential costs from the inability to get a ruling.  For the injured worker’s attorney who typically will receive a fixed percentage contingent fee, each appearance without resolution decreases the attorney’s hourly rate of compensation.  The injured worker shares the employer’s frustration with the inability to get a ruling, with consequent stress and depression.  Sometimes this frustration causes the injured worker to seek new counsel with instructions to “be more aggressive.”

 

In contrast, mediation is as fast and efficient as the parties want it to be.  Mediations can be scheduled for a time and place of the parties’ convenience.   As much time as is necessary can be allocated for the mediation.  The issues to be resolved can be as narrow as definition of the industrial injury or as broad as conclusion of all indemnity, medical and penalty claims.

 

  

Mediation Facilitates Communication and Settlement

 

Mediation focuses the parties’ attention.  This contrasts with a court appearance where an attorney may be juggling appearances in multiple courtrooms.

 

Mediation can result in settlement when the parties are unable to negotiate a settlement on their own.  The presence of the neutral can facilitate communication.  Typically, parties will be together for some of the mediation and sometimes in separate sessions.  Separate sessions, known as caucuses, allow the mediator to exercise shuttle diplomacy.  Settlement can result even when the parties or attorneys are hostile.

 

The mediation may be the only opportunity the injured worker gets to tell the story of the injury and treatment.  For many injured workers, relating the narrative allows them to put it in the past and move on, a good result for all concerned.

 

 

 

Author:  Teddy Snyder is a mediator of workers compensation claims throughout California. An attorney of 36 years experience, Ms. Snyder has concentrated her practice on settlements.  She is a frequent speaker and author for bar and claims groups on the topics of settlement and Medicare Secondary Payer Act compliance.  LEXIS-NEXIS has designated her a Notable Person in Workers Compensation. Ms. Snyder can be reached at TSnyder@WCMediator.com or through www.WCMediator.com.


Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional about workers comp issues.

How To Properly Evaluate Claims for Settlement

Employers will often look at their loss runs on recently closed claims and mutter to themselves “I have no idea of how the claims professional could justify paying that much money for that claim”. How the settlement amount of a particular workers’ compensation claim is determined is often a mystery, but it does not have to be.

 

 

Everything That Occurs Throughout Claim Impacts Settlement

 

The settlement value of a work comp claim is not determined the day the final medical report is received in the claims office.  Everything that has occurred on the claim from the moment the injury happen has an impact on the claim settlement value.  While it is not possible to place a dollar value on every action taken by the claims professional in handling the claim, quality claim handling following the industry ‘best practices’ results in claims being settled for a lower overall cost.

 

The evaluation of the claim for settlement is greatly influenced by the investigation completed by the claims professional into how the injury occurred, the nature of the injury, the extent of medical treatment for the injury, and the duration of the medical treatment. If the investigation of the claim results in a determination that the claim is not compensable, the settlement value is reduced to near zero.  On the other hand, if the investigation verifies the compensability of the injury, the claim will have the full settlement value.

 

Once the work comp claim has been determined to be compensable, the proper integration of medical management and vocational rehabilitation, if needed, will have an impact on the settlement evaluation. Proper medical management throughout the course of the employee’s recovery will prevent the claim from being larger than necessary, and will also facilitate a better settlement.

 

 

Employers Can Have Major Impact on Settlement Value

 

Employers can have a major impact on the settlement value of a workers’ compensation claim.  A primary component of the settlement value of the work comp claim is whether or not the injured employee was able to return to his former employment at the same rate of compensation the employee enjoyed prior to the injury. 

 

Modified duty/transitional duty reduce the cost of the indemnity paid while the claimant is medically treating.  Modified duty also impacts the extent of the disability rating the medical provider will assign. Through a gradual increase in the employee’s working level while complying with the doctor’s work restrictions for the employee, the employer can have the employee back to working full duty by the time the employee is released from further medical care.  When the medical provider knows the injured employee has returned to his prior employment, the permanent partial disability rating the medical provider can justify assigning is reduced.

 

The claims professional will review the medical documentation, both that of the primary medical provider along with any independent medical verification from an independent medical examination obtained by either the claimant or the claims professional.  A detailed analysis of the medical documentation serves as the starting point for the claims professional’s settlement evaluation.

 

 

The analysis of the settlement value will include a review of:

 

  • Medical reports
  • Value of future medical treatment
  • Employee’s compensation rate prior to injury
  • Indemnity rate for permanent partial disability or permanent total disability
  • Impairment rating
  • Future indemnity cost
  • Vocational rehabilitation cost
  • Jurisdiction
  • Any issues in dispute
  • Offsets for social security disability, Medicare and compensation from third parties responsible for the injury

 

A proper settlement evaluation by claims professionals is a settlement range, not a precise number.  For example: A settlement value range of $100,000 to $115,000, not exactly $112,345.67. 

 

 

Most Claims Are Settled Based on Give & Take Negotiations

 

The settlement range reflects the minimum the claims professional calculates to be fair, and the maximum the claims professional is willing to pay voluntarily.  Most claims are settled based on give and take negotiations.  The claims professional should prepare for the settlement negotiation by evaluating and applying both the legal requirements of the jurisdiction and the talking points on what is not mandated by the statutes of the jurisdiction.

 

The settlement value placed on the workers’ compensation claim by the claims professional often differs from the value placed on the claim by the employee’s attorney.  This is often referred to as the settlement gap and is the primary reason claims are adjudicated.  The settlement gap can frequently be bridged by the use of a structured settlement.

 

With a structured settlement the insurer purchases an annuity(s) providing periodic payments over an extended period of time.  The claimant receives a higher total dollar amount while the insurer limits the cost of the claim to the settlement value range determined prior to the start of the settlement negotiations.

 

If the claims professional and the employee/employee’s attorney cannot agree on the settlement value of the claim, every jurisdiction has a state department that oversees workers’ compensation and can provide a judge/commissioner/etc. to assist in resolving the settlement value of the claim.

 

 

 

Author Michael B. Stack, CPA, Director of Operations, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher.  www.reduceyourworkerscomp.com.  Contact: mstack@reduceyourworkerscomp.com.

 

 

Editor: Duke T. Wolpert, Director of Marketing, Ringler Associates is responsible for new business development across the carrier, TPA, and self-insured marketplace in the U.S. and Canada. Prior to joining Ringler Associates, Duke held leadership positions in the insurance, compliance and managed care industries.  www.ringlerassociates.com.  Contact: dtwolpert@ringlerassociates.com

 

©2013 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.  


Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional about workers comp issues.

Simple Concept Offers Win-Win Solution

Most employers have a general idea of how a structured settlement is used to settle workers’ compensation claims. At times, however, employers do not have a complete understanding of how a structured settlement actually works.   While often cloaked in legalese, structured settlements are more straight forward than meets the eye and a valuable tool to incorporate into a claims management program.   

 

 

Structured Settlement Is Periodic Payments Over Time

 

Simply put, a structured settlement is a series of periodic payments over an extended period of time to settle a workers’ compensation claim as opposed to a single lump sum to settle the claim. 

 

The self-insured employer or the insurer can work closely with an experienced structured settlement broker to purchase an annuity from a life insurance company who assumes responsibility for making the future periodic payments.  In the case of a qualified assignment, the employer or insurer is also able to remove the long-term financial liability from their books.

 

 

Benefits of Structured Settlement vs. Lump Sum

 

Structured settlements also offer several benefits that lump sum settlements of claims do not provide.  This includes:

 

  • Cost Effective & Win-Win Settlements:  A structured settlement allows the self-insured employer or the insurer to settle the claim for a lower amount that what would be paid in a lump sum settlement.  This is because the present value of a future stream of payments is lower than the total amount that will eventually be paid.

 

  • Tax Sheltered Benefits:  A properly crafted structured settlement [known as a qualified assignment] provides tax free income to the injured employee, as the payments, per Internal Revenue Service regulations, is considered compensation for the injury, not as earned income.

 

  • Long-term Financial Security: The employee is guaranteed future periodic payments, usually monthly, providing a measure of financial security.

 

  • Future Benefits:  The structured settlement can be crafted in such a way as to plan for, and take care of, future financial needs of the claimant, such as college tuition, vehicle replacement, etc.

 

  • Medical Payments: Frequently, the biggest barrier to the settlement of workers’ compensation claims is the unknown of future medical cost.  A second structured settlement can be purchased to providing funding for all future medical care.  This is frequently done in conjunction with a Medicare Set-aside Arrangement where the life insurance company pays future medical expenses as they are incurred.

 

  • Prevention of Financial Mismanagement:  It is estimated that 90% of the people who receive an injury settlement will have dissipated the entire amount within 5 years.  A structured settlement eliminates the need for the employee to manage a large sum of money over an extended period of time.

 

  • Lower Litigation Costs :  Employers or their insurers do not have to go through the entire legal process to resolve the claim, as often occurs when injured employees have out-sized expectations of what they should be paid.

 

  • Removal of Adversarial Relationship:  Frequently, in long-term and large injury claims, the employee sometimes becomes distrustful of the insurance company. The injured employee no longer has to deal with the employer or claims professional  when a structured settlement is completed.

 

Certainty of Settlement Amount:  A structured settlement allows the injured employee to know what the total settlement amount will be.  If the employee litigates the value of the claim,  there exists uncertainly.  For more information on structured settlements and how they can be used to lower your overall cost on your large claims, please contact us.

 

 

Author Michael B. Stack, CPA, Director of Operations, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher.  www.reduceyourworkerscomp.com.  Contact: mstack@reduceyourworkerscomp.com.

 

 

Editor: Duke T. Wolpert, Director of Marketing, Ringler Associates is responsible for new business development across the carrier, TPA, and self-insured marketplace in the U.S. and Canada. Prior to joining Ringler Associates, Duke held leadership positions in the insurance, compliance and managed care industries.  www.ringlerassociates.com.  Contact: dtwolpert@ringlerassociates.com

 

©2013 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.  


Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional about workers comp issues.

Structured Settlements Frequently Asked Questions

Claims professionals, workers’ compensation managers and risk managers all know that structured settlements can save a lot of money when it comes time to settle a work comp claim.  However, often employers do not fully comprehend or understand how structured settlements work.  The following are some of the most frequently asked questions employers have about structured settlements.

 

Q.   What is a structured settlement?

 

A.   A structured settlement is an annuity purchased from a life insurance company that is tailored to meet the financial needs of the injured employee.  The structured settlement makes periodic payments to the employee providing either a life-time income stream or income guaranteed for a set period of time.

 

 

Q.   When should a structured settlement be used?

 

A.   Any time the employee is going to be permanently and totally disabled, any time the employee is going to be partially disabled resulting in future lost income, any time there is going to be long term medical needs, or any time the total expected claim settlement value is $50,000 or higher.

 

 

Q.   Can a structured settlement include future medical cost?

 

A.   Yes.  When there is an expectation of significant future medical cost, it is often preferable to have two annuities, an annuity for the injured employee’s future indemnity and a separate annuity for the future medical cost.  Plus, if the employee’s is represented by an attorney, the attorney’s fee can be handled by an annuity as well.

 

 

Q.   Does a structured settlement make the difficult to resolve claims any easier?

 

A.   Difficult to resolve claims often center on a difference in opinion held by the employee/employee’s attorney and the claims professional of the value of the injury.  A structured settlement will often bridge the financial gap between the employee’s attorney and the claims professional by allowing the claims professional to spend the amount of money the claim is worth and by allowing the employee to collect the amount of money the employee’s attorney evaluates the claim, but over a period of time.

 

 

Q.  Can a structured settlement be tailored to provide money for known future expenses like a child’s college education, replacement of medical equipment like a handicap accessible van, or special needs of a dependent?

 

A.   Yes.  A structured settlement can be tailored to address the financial concerns the injured employee has about the future.

 

 

Q.   Why not just pay the injured employee the amount that would be spent on the annuity?

 

A.   Few people actually have the money management skills needed to manage a large sum of money and make it last a life time, especially when future medical care is needed.  Studies have shown that the majority of people will have nothing left from a lump sum settlement five years after receiving it.  A structured settlement protects the injured employee’s long-term financial viability.

 

 

Q.   Are there any other benefits to the injured employee from accepting a structured settlement?

 

A.   When an injured employee receives a lump sum settlement, the amount is federal income tax free, but any income from investing the money is taxable.  The periodic payments of a structured settlement are tax free, providing the injured employee with a life-time income stream that is not subject to federal income tax.

 

 

Q.   Once the employee has settled the claim through a structured settlement, can the employee change his mind or change the conditions of the settlement?

 

A.    No, the employee cannot claim a change in medical condition, and seek to accelerate the periodic payments, or to defer the periodic payments or increase the periodic payments.  The employer is no longer liable for any part of the claim resolved through a structured settlement.

 

 

Q.  How does an employer, especially an employer who is not self-insured, benefit from a structured settlement?

 

A.   A structured settlement lowers the overall cost of the claim, resulting in a lower experience modification factor and a lower insurance premium when the underwriter calculates future premium cost.

 

 

Q.   Are there any other benefits to the employer other than lowering the cost of the claim?

 

A.   Yes, a structured settlement removes the risk of litigating a serious injury claim through the state’s work comp system.  Plus, the structured settlement relieves the employer of all future responsibility for the claim.

 

 

Q.   What criteria should be considered in the selection of a structured settlement company?

 

A.   The structured settlement company should use only highly rate life insurance companies for the annuities.  The structured settlement company should have a full national scope to cover your locations wherever they are.  The structured settlement company should have an established record of successfully completing structure settlements of workers’ compensation claims.

 

 

Q.   Are structured settlements used to settle insurance claims other than workers’ compensation claims?

 

A.   Yes.  Structured settlements are frequently used in automobile injury claims, general liability injury claims, construction defect claims, employment law claims, pollution liability claims, etc.  Just about any large legal settlement can be handled through a structured settlement.

 

 

Q.   Where can I find more information about structured settlements?

 

A.   Please visit our website for various articles about structured settlement. You are always welcome to contact us for additional information about structured settlements.

 

 

Author Michael B. Stack, CPA, Director of Operations, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher. www.reduceyourworkerscomp.com. Contact: mstack@reduceyourworkerscomp.com.

 

Editor Rebecca Shafer, JD, President of Amaxx Risk Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. She is the author of the #1 selling book on cost containment, Workers Compensation Management Program: Reduce Costs 20% to 50%. Contact:RShafer@ReduceYourWorkersComp.com.

 

Editor: Duke T. Wolpert, Director of Marketing, Ringler Associates is responsible for new business development across the carrier, TPA, and self-insured marketplace in the U.S. and Canada. Prior to joining Ringler Associates, Duke held leadership positions in the insurance, compliance and managed care industries.  www.ringlerassociates.com.  Contact: dtwolpert@ringlerassociates.com

 

©2013 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.


Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional about workers comp issues.

Structured Settlements Can Bridge The Gap In Stalled Negotiations

The biggest stumbling block in settling the high dollar value workers’ compensation claims is normally the difference between what the claims professional believes the claim is worth and what the employee’s attorney wants. The claims professional will evaluate the claim on it merits including the nature and extent of the injury, the employee’s permanent impairment rating and any loss of earning capacity in the future.  The employee’s attorney is looking to maximize the settlement amount for his/her client and attorney fee considerations often apply.   

 

 

 

Settlement Negotiations Can Stall Over Total Value of Claim

 

Claim settlement discussions will also stall over disagreements between the employee’s attorney and the claims professional over the future amount of loss wages, degree of disability, the cost of future medicals or a life care plan and/or other areas of contention.  The employee’s attorney may argue the employee will never be able to return to work, while the claims professional may maintain the employee can do sedentary work, even if the employee is unable to do heavy manual labor.  The future cost of medical care may vary dramatically depending on the various “expert” opinions. .

 

Regardless of the reason for the difference between the settlement demand and the settlement offer, the “gap” can normally be closed and the claim settled through a properly constructed structured settlement. 

 

 

 

 

 

Structured Settlement Can Bridge Gap, Create Win-Win Solution

 

Consider the example where the claims professional evaluates the settlement value of the workers’ compensation claim to be $300,000.  The employee’s attorney, who is working on a 25% retainer agreement, demands $400,000 to settle the claim (the employee nets $300,000 if the claim is settled for $400,000).  The claims professional and the employee’s attorney may be able to bridge the settlement gap with a structured settlement.

 

A structured settlement bridges the gap with the injured employee receiving $400,000 while the insurer pays $300,000 (slightly more or slightly less).  This is possible with a structured settlement as the amount of the settlement is paid out over time with periodic payments. The injured employee and the employee’s attorney will receive the $400,000 over the time span set in the structured settlement (either the employee’s life time or a specific number of years).

 

The larger, future periodic payments the injured employee receives are paid from an annuity bought by the workers’ compensation insurer for $300,000.  A lump sum now, in the above example, $300,000, would be invested by the life insurance company who provides the annuity.  The growth of their investments over time often allows the life insurance company to pay out more than cost of the  the annuity. 

 

 

 

Structured Settlement Can Be Tailored To Fit Employee’s Needs

 

The structured settlement can be tailored to fit the employee’s immediate needs and future needs, which provides incentive for the employee to settle the claim.  Depending on the needs of the injured employee and the needs of the employee’s family, the payments can be set up to cover any group of contingencies including lifetime income, guaranteed period income, current lump sum, future lump sum, cost of living allowance, future medical, etc.  By allowing the injured employee to tailor the settlement while keeping the total cost under or at the amount the claims professional has evaluated the claim, a win-win situation is created for the insurer/self-insurer,  injured employee and attorney.  

 

For assistance on bridging the gap between what a claim is worth and what the employee’s attorney wants, contact us for more information on structured settlements. 

 

Author Michael B. Stack, CPA, Director of Operations, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher. www.reduceyourworkerscomp.com. Contact: mstack@reduceyourworkerscomp.com.

 

Editor: Duke T. Wolpert, Director of Marketing, Ringler Associates is responsible for new business development across the carrier, TPA, and self-insured marketplace in the U.S. and Canada. Prior to joining Ringler Associates, Duke held leadership positions in the insurance, compliance and managed care industries.  www.ringlerassociates.com.  Contact: dtwolpert@ringlerassociates.com

 

©2013 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.

 


Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional about workers comp issues.

Structured Settlement Glossary of Common Terms and Phrases

Content Sponsored By Ringler Associates

 

Employers and workers’ compensation claim adjusters sometimes shy away from structured settlements because they don’t understand the vocabulary of the structured settlement brokers. The terms and phrases related to structured settlements are often cloaked in legalese which intimidates both the employer’s work comp manager and the adjuster. As structured settlements will save your company money on the larger workers’ compensation claim settlements, we have put together a glossary of some of the more common terms you will hear and what they mean.

 

Annuitant: A person who receives the benefits of an annuity.

 

Annuity: A specified income payable at stated intervals for a fixed or a contingent period, often for the injured employee’s life.

 

Beneficiary: The injured employee who receives the payments from the structured settlement.

 

Benefits Stream: The amount of income and when the claimant will receive the income from the structured settlement. Same as Payment Stream.

 

Deferred Lump-sum Payments: These are payments to the injured employee, which are larger than the regular periodic payments, and are given at pre-determined dates in the future to cover the cost of a college education, car replacement, home remodeling, etc.

 

Flexible Settlement Plan: A structured settlement that takes into consideration the needs of the injured employee, both financially and medically, while also addressing the cost of the structured settlement.   A flexible settlement plan includes the planning necessary to achieve the goals of the injured employee while maintaining control of the cost of the structured settlement for the employer/insurer.

 

Impaired Risk Ratings: Prior to selling an injured employee an annuity that the life insurance company will have to make payments on for the rest of the employee’s life, the life insurance company needs to establish how long the injured employee will live. In addition to the medical information on the injury, the life insurance underwriter wants to know all the other medical issues of the injury employee including diabetes, hypertension, obesity, etc., so they can properly estimate how long the injured employee will live.

 

Joint and Survivor Annuity: When an injured employee is concerned about a spouse or other dependent outliving the employee, the annuity can be structured based on the life expectancy of both people to guarantee payments for as long as either the employee or the second person lives.

 

Life Annuity: A guaranteed of periodic payments that lasts for the lifetime of the injured employee.

 

Life Care Plan:  An analysis of the future medical needs of the claimant to provide the claimant with adequate compensation to cover future medical costs related to the work injury.

 

Medicare Set-aside Agreement: The estimated amount of money that will be needed to cover future medical cost. This is often a second annuity that is purchased for the seriously injured employee as a part of the structured settlement.

 

Non-qualified Assignment: A non-qualified assignment is the transfer from the party at fault to the life insurance company, the obligation to pay the future periodic payments of a structured settlement. The obligation to pay does not qualify for favorable income tax treatment as no physical injury is involved.

 

Payment Stream:  The amount of income and when the claimant will receive the income from the structured settlement. Same as Benefits Stream.

 

Period Certain Annuity: When the injured employee knows that in the future there will be additional income from Social Security, a pension, IRAs, 401Ks, etc., the injured employee may elect to get larger payments from the structured settlement annuity by shortening the time period the annuity will be paid to age 65 or some other cut-off point.

 

Periodic Payments:  Settlement payments that the injured employee receives based on an agreed payment schedule, whether it bi-weekly payments, or monthly payments, or quarterly payments or annual payments.

 

Qualified Assignment: A qualified assignment is the transfer from the workers’ compensation insurer to the life insurance company, the obligation to pay the future periodic payments of a structured settlement. The obligation to pay qualifies for favorable income tax treatment as the obligation arises out of an injury.

 

Rated Age: Everyone has a normal life expectancy. When an employee’s injury are such that the life insurance company’s underwriter does not expect the employee to live to the normal life expectancy age, a ‘rated age’ is the underwriter’s adjustment of the estimated life expectancy based on the medical information available about the injured employee.

 

Settlement Planning: The structured settlement broker meets with the injured employee and the employee’s attorney if there is one, and reviews what the injured employee needs to accomplish with the structured settlement. The settlement planning establishes what the structured settlement intends to accomplish, including some money up front, the length of time periodic payments will be needed, how future medical bills will be paid, future lump-sum needs for transportation, college education for child(ren) etc.

 

Step Annuity:   A structured settlement that has built-in increases in the amount of the periodic payments the injured employee will receive.

 

Structured Settlement: A payment plan where the injured employees receives periodic payment from a life insurance annuity over an agreed upon period of time in exchange for releasing the workers’ compensation insurer from further responsibility for the workers’ compensation claim.

 

Tax Deferred: The delay of income to a later date delaying when the income tax will be owed. The attorneys for injured employees often arrange for their legal fees to be paid through a structured settlement to delay payment of their income tax until the money is actually received.

 

Tax Free: The injured employee does not pay federal income taxes on the periodic payments received from a properly designed structured settlement agreement.

 

Time Value of Money:   The life insurer is able to invest the amount of money it receives for the annuity and over time the investment grows in value, allowing the injured person to receive a much greater amount of money over time than the injured person would receive if a lump sum of money is paid to settle the workers’ compensation claim.

 

Trust: A legal arrangement in which an injured employee (the trustor) gives fiduciary control of his claim settlement to the life insurance company (the trustee) for the benefit of beneficiary (the injured employee).

 

Variable Income Payment Annuity: Instead of having fixed payments of income, the injured employee elects to participate in the equity markets by tying the amount of the periodic payments to the success, or lack thereof, the life insurer’s participation in the equity markets. If the life insurer portfolio rises, the employee’s periodic payments rise. If the insurer’s portfolio drops, the employee’s periodic payments drop.

 


Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional about workers comp issues.

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