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.

Key Considerations When Selecting A Structured Settlement Company

 
Structured Settlement Company Offers In-Depth Knowledge of Process
Partnering with a structured settlement company that offers an in-depth knowledge of the structured settlement process, structured settlement market and claims business is invaluable. Companies with experience and expertise tend to offer various structured settlement alternatives and cost effective solutions. Proposals are designed to address the future financial needs of the injured party and present a win-win scenario for all of the parties involved.
 
Three Key Characteristics to Look For Selecting a Strategic Partner
When evaluating options for structured settlement providers, it is best to approach the process as if you are selecting a strategic business partner.  
Of the several areas of consideration, self-insured employers or insurers should look for structured settlement partners with –
 
1) Experience Structured Settlement Consultants in Jurisdictions
When choosing a structured settlement partner, the self-insured employer or insurer should look for a structured settlement company that has a local presence, jurisdictional knowledge and relationships. Therefore, working with    a structured settlement partner that is national in scope is ideal. 
 
2) Proven Track Record of Success
The structured settlement company selected for a partnership should have a proven track record of success. Experienced structured settlement companies will present viable alternatives, overcome objections, participate in settlement conferences/mediations and ultimately assist in achieving desired outcomes. With experience come relationships – also valuable and conducive to achieving results.
 
3) Respected Resources to Provide Options and Competitive Rates
The structured settlement company you partner with should have business relationships with various top rated life insurance companies capable of providing     an array of structured settlement products and competitive rates.
The structured settlement company you partner with should have the ability to customize structured settlement proposals to address the various needs of the respective parties by offering meaningful options and alternatives. 
 
By incorporating the use of these recommendations, self-insured employers and carriers will be better positioned to achieve success with the utilization of structured settlements. For assistance on identifying the best structured settlement companies to partner with, 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.
 
©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.

Key Steps Of The Structured Settlement Process

Content Sponsored by Ringler Associates

 

Large or catastrophic workers’ compensation claims are frequently settled with a structured settlement, as a structured settlement benefits both the insurer or self-insured employer and the injured employee. To assist our readers in better understanding the structured settlement process, we have put the process in a step by step format. The following is a generalized version of a standard structured settlement process. Please note that structured settlements do not always conform to the same process, and it is not unusual to alter or tailor the structured settlement to the needs of the injured employee.

 

 

The First Step of a Structured Settlement:

 

The injured employee or employee’s attorney and the claims professional or adjuster’s attorney must concur that it is in everyone’s best interest to settle the claim. In exchange for releasing the insurer or self-insured employer from further responsibility under the state’s workers’ compensation statute, the employee agrees to accept periodic payments over the course of a specific number of years or over the employee’s life time.

 

A structured settlement broker is contacted by the claims professional who requests a quote to determine the frequency and amount of periodic payments that can be purchased for a specific amount of money. The structured settlement broker will assist all of the parties involved in developing various structured settlement alternatives that meet the needs of the respective parties.

 

 

The Second Step of a Structured Settlement:

 

Generally, the insurer or the self-insured employer will want to remove the long-term financial obligation of a structured settlement from their accounting books. The primary way this is accomplished is to transfer the obligation from the insurer or self-insured employer to a third party, through a legal device known as a qualified assignment. The structured settlement broker will offer recommendations that best meet the needs of the parties as the broker develops the structured settlement quotes.

 

 

Third Step of a Structured Settlement:

 

The qualified assignment company purchases one or more annuities from a life insurance company. The qualified assignment company can be an affiliate or sister- company of the life insurance company from whom it is purchasing the annuity or annuities.

 

Depending on the terms of the structured settlement, there can be one or more annuities purchased. Annuities often include:

 

  • The annuity to make the periodic payments to the injured employee,
  • An annuity to cover future medical cost may be purchased,
  • An annuity to cover the cost of a Medicare Set-Aside Agreement or Trust,
  • An annuity to pay the employee’s attorney or law firm
  • An annuity to pay the cost of a Special Needs Trust for the employee’s dependents who are mentally or physically disabled

 

 

The Fourth Step of a Structured Settlement:

 

Structured settlement brokers work with all of the parties and assist with orchestrating that all of the necessary legal paperwork is then completed as part of the structured settlement process. Once completed, the life insurance company begins the process of making the periodic annuity or annuities payments to the injured employee and/or other designees subject to the terms of the structured settlement agreement. Experienced structured settlement brokers can facilitate this process very easily given their life company relationships and years of expertise.

 

For assistance with your structured settlement needs, please contact us. We will be glad to assist you in contacting a structured settlement broker.

 

 

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.

 

©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 – Cost Savings and Future Protection

Content Sponsored by Ringler Associates

 

Catastrophic injuries make up less than 1% of all workers’ compensation claims, but various studies have shown that catastrophic injuries can consume 20% of all claim dollars. The dollars spent on a few catastrophic injury claims can be the difference in where the employer’s work comp insurance premiums increase or decrease. The best way to control, or at least have an impact on the cost of catastrophic injuries, is through the use of a structured settlement.

 

Catastrophic injuries that disable an employee to the point where they will always have a permanent partial or permanent total disability, are often difficult to evaluate for settlement purposes. To establish the settlement value and the amount of money that should be used to purchase a structured settlement, the future cost of indemnity, medical and claim related expenses has to be calculated and established.

 

 

Future Indemnity Calculations:

 

  • The injured employee’s average weekly wage and the amount of the weekly indemnity benefit
  • The amount of time the weekly indemnity benefit will be paid, including whether or not the number of weeks is limited by state statute, or will be paid for the remainder of the employee’s life
  • Any change in the amount of the employee’s indemnity payment when the nature of the indemnity payment is changed from temporary total disability to permanent partial disability or permanent total disability
  • Life expectancy of the employee base on the employee’s actual age or the rated age (how long the employee is project to live given the medical condition)
  • Any offset available due to the claimant receiving social security benefits or social security disability benefits

 

This example will show how the futurity indemnity cost has a major impact on the amount of money that can be spent on a structured settlement. Example: The permanent total disability prevents the employee from ever returning to work. The injured employee is man with a weekly indemnity benefit of $600 per week that drops to $500 per week when the medical provider determines he will be permanently totally disabled, at the age of 50. With a 25 year life expectancy, in a state that does not provide for an offset of indemnity benefits when the employee starts to draw social security, the future indemnity exposure is: $500 X 52 weeks = $26,000; $26,000 X 25 years = $650,000.

 

 

Future Medical Calculations:

 

While the future indemnity exposure is normally a straight forward calculation based on the laws of the state where the claim is pursued, the future cost of medical care and the calculations of the amount of money needed for future medical expenses is more complex. Often the adjuster will bring in a certified life care consultant to calculate the future medical cost based on:

 

  • The cost of routine on-going medical care
  • The cost of any planned or projected surgical interventions
  • The cost of modifications to the employee’s home or vehicle (and future vehicles)
  • The cost of home health-care services
  • The cost of institutional medical care
  • The cost of durable medical equipment (wheelchairs, hospital beds, oxygen supplies, artificial limbs, etc.)

 

Depending on the nature and extent of injury, the future cost of medical care could be anywhere from a few thousand dollars to a few million dollars, hence the need for an expert to project the future medical cost, including the amount needed for a Medicare Set-Aside Agreement. If significant, the future medical cost should be a separated structure settlement created to pay the future medical expenses.

 

In addition to the calculations of future indemnity cost and future medical cost in the determination of how much future money will be spent on the claim, consideration must be made for the expenses associated with an on-going workers’ compensation claim. This would include the cost of:

 

  • Defense attorney
  • Nurse case manager
  • Rehabilitation specialist
  • Vocational consultant
  • Actuarial expert

 

 

Structured Settlement Can Create Savings of 30% – 40%

 

Once the future cost of the claim has been established, the amount of money that can be spent on a structured settlement can be calculated. Using the above example where the future indemnity exposure was $650,000, let’s estimate a future medical exposure of $300,000 and a future claim expense of $50,000. On this hypothetical claim the total exposure is $1,000,000. The claim can be settled for a lump sum payment of $1 million dollars, but it makes a lot more sense to settle the claim with a structured settlement.

 

The cost of a structure settlement, where annuities are purchased now to cover future indemnity and medical cost, there is often a savings of 30% to 40% of the long term cost of the claim. This is because the life insurance company providing the annuity or annuities will invest the amount paid for the annuity or annuities to provide the future structured settlement payments as they become due. With this example the exposure to the insurer or self-insured employer created by the catastrophic workers’ compensation claim is $1 million. With the structure settlement, the insurer or self-insured employer could save $300,000 to $400,000.

 

Outside of the cost savings component, structured settlements provide future protection. The employee with the catastrophic injury is often worried about his/her future. Conscientious attorneys will explain to their employee clients how a structured settlement protects them by providing guaranteed future payments of both income and medical care, while also providing them with peace of mind. Hence, the structured settlement reduces claims cost, facilitates the settlement of the catastrophic injury claim and offers the benefits that come with future protection.

 

 

 

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.

 

©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.

5 Solutions to Lifetime Claims in Workers Compensation

 

Lifetime claims and their ongoing wage and medical coverage demands can often be the elephant in the room in a claims office. In a perfect world, claims would settle with ease with an easy agreed indemnity and medical expense. The paperwork would be signed and everyone would move on with their life.
 
Unfortunately, this is an almost impossible scenario. The truth is that lifetime claims are complicated and can be difficult to resolve for a variety of reasons.  A couple of the factors include Medicare Set-Asides (MSAs), failed vocational rehab, and the inability to find new employment.  It is very important to get a MSA approved in order to move forward with full/final redemptions if your claimant also receives Social Security Disability, which is most often the case with a lifetime claim. 
 
Carriers now see that settling one factor in a claim is better than settling none.  True, resolving future indemnity cost is slaying one of the evils of a work comp claim.  It can be done fairly easily through negotiation of the parties, with little costs involved other than legal expense for going to court and signing the paperwork.
 
Lifetime Claim Challenges
 
Medicare Set-Asides
 
This leaves a question begging to be answered: Why is it now common practice to give up on reviewing the future medical costs, especially since many studies show that the medical can cost up to as much as 60% of the expense over the lifetime of a claim? One answer could be getting the necessary information needed for a good MSA is labor intensive.  You need a great vendor that specializes in MSA work.  You need a lot of medical information to submit to get the MSA negotiations rolling.  You need to wait for months and months to hear back from CMS, and when they do answer they send you a billing statement with years and years of medical services they think they covered in error.  In addition, getting the medical reports that coincide with those dates of service can be nearly impossible. You will be lucky to get a procedure code and an amount billed.
 
So, in order to avoid spinning the wheels, these cases get ignored.  Bills will come in, and will get paid that probably have nothing to do with the actual injury or lingering side effects from countless years of surgical procedures.  Most often the biggest expense in this scenario is prescription cost.  Many carriers pay Rx bills with little more than the bat of an eye, and the click of a mouse. This is a significant error, but it happens every day.  This large medical leakage is the culprit of understaffing, and a lackluster attitude.
 
 
Failed Vocational Rehab & Lack of New Employment
 
A severe injury will lead to permanent restrictions, and if you attempt vocational rehab and job placement with no avail, you have the choice of paying a claim for life or attempting to settle his/her case in order to end your involvement.  Indemnity expense will lead the charge at the start of negotiations.  This is especially true if an injured worker is treating sparingly, meaning they are going to the actual doctor office once every 4-6 months.  There is a likelihood that the doctor is treating with prescription medication month after month after month. This is where carriers get in to trouble because the cost of certain medications can be jaw dropping. Take the monthly expense and make it a yearly cost, then multiply that by 20-30 years for life expectancy and you have a number that would catch the attention of every management personnel at even the biggest carrier out there.
 
 
 
Lifetime Claim Solutions
 
A fantastic IME, or a few of them with physicians that specialize in medication and possibly addiction, can stop the medical leakage in no time.  Just because you have accepted a claim for “life” doesn’t mean that you have to give up on it.  Claims people have a lot of weapons in their arsenal of defense, including medication reviews, surveillance to confirm a person is not doing anything outside of their medical restrictions, employment searches to see if they are indeed working somewhere under the table despite receiving work comp benefits, and so on.
 
Additional Solution options:
 
1.    Use an MSA vendor to help you streamline the process.  Use their expertise to your advantage.  Pick groups of files, and bring them in and let them do the legwork.  This is why they are out there, so use them.  Their expense will be nothing when compared to the expense of a lifetime claim that is not being closely monitored.
 
2.     Utilize a Structured Settlement Organization to move claims toward settlement.Structured settlements can help bridge differences during a negotiation by moving the focus from a lump-sum dollar amount today to meeting the financial needs and aspirations of the injured person tomorrow.  Dedicate staff toward settlement, set a goal, and give a handsome reward for those that are successful.  If you have 40 adjusters on staff, and each took 10 claims that is 400 claims that could be moving forward, instead of sitting still.
 
3.    Utilize a Pharmacy Benefit Manager (PBM).  Not only will this reduce medical cost by getting into their medical networks that have reduced Rx costs, but they will have physicians or pharmacists on staff that can review medical dosage, type, and duration and compare it back to the injury to see if it really needs to be dispensed in the first place.
 
4.    Attack those claims that have sat on the shelf and have 10” of dust on them.  Chances are these are the claims that are killing your medical reserves.  These claimants have gotten comfortable, so it’s time to see what they are up to.  It’s time for some surveillance, background checks, pharmacy checks, and so on.  You never know what you are going to find.
 
5.    Get an updated IME.  This will go hand in hand with the adjusters working on their 10 claims.  IME vendors have a marketer or account rep that can come to your office, so let them dig through the file to find the medical and copy the file.  This frees up time for your adjuster to work on the actual file itself instead of standing at the copy machine for 4 hours copying medical records.
 
Lifetime claims are not going to be solved overnight.  It is going to take months, even years to get some of these claims settled correctly, and some may never settle.  But you have to be proactive. The definition of a lifetime claim is not just one that sits on a shelf, ignored for years because you have more important things to take care of.  If you have done all that you can, and the claim just cannot settle, then that truly is a lifetime claim.  . 
 
 
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, 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
 
©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 Resolve Legacy Claims Burden

Legacy Claims: 10% of Medical Costs For Services 20+ Years in Future

 

A January report from the National Council on Compensation Insurance, Inc. (NCCI) states that “it is likely that more than 10% of the cost of medical benefits for the workplace injuries that occur this year will be for services provided more than two decades into the future”.  The 10% number was based on the analysis of workers’ compensation claim payments covering the time period of January 1, 2009 to April 1, 2011 of claims with a minimum age of 20 years old, but not exceeding 30 years old. The data was derived from the 35 jurisdictions where NCCI provides ratemaking services and from 7 additional states where the NCCI provides statistical information to independent state rating organization.

 

While claims professionals refer to work comp claims that have been around for years as “old dogs”, the NCCI and the management level of the workers’ compensation insurers refer to these older files as legacy claims. The age a workers’ compensation claim reaches legacy status will vary by insurers with some insurers considering any work comp claim over three years old a legacy claim, while others refer to the claims as legacy claims when they reach five years old. Probably the best approach is to consider any claim where the claimant has reached maximum medical improvement, and the claimant continues to have indemnity payments or medical maintenance cost to be a legacy claim.

 

 

Legacy Claims Major Financial Burden

 

The most common type of legacy claim over 20 years old are those involving

 

  • injury / disease of the musculoskeletal system (43% of the female employee legacy claims, 32% of the male employee legacy claims);
  • traumatic complications (18% of the female employee legacy claims, 15% of the male employee legacy claims);
  • diseases not musculoskeletal or nervous system (7% of the female employee legacy claims, 11% of the male employee legacy claims);
  • disease of the nervous system (6% of the female employee legacy claims, 11% of the male employee legacy claims).

 

In certain cases, the decision to “opt” to keep the medical component of the workers compensation claim open as opposed to resolve it as part of the settlement can be very costly.

 

Duke T. Wolpert, Director of Marketing at Ringler Associates, offered some insights.

 

“At times, the risks associated with increased claim severity are unknown when a decision is made to settle the indemnity side of the workers compensation claim and leave the medical component of the file open. Other times, optimism plays a role when making this decision. Therefore, it is very important to proactively manage this claims population and re-evaluate settlement options (in jurisdictions that allow for the closing of medicals) as a mechanism to address claims that are driving the loss dollars.”

 

“Historical data suggests that the Pareto Principle (80-20 rule) applies to workers compensation claims. Thus, one’s ability to identify, manage and consider structured settlement alternatives is critical.”

 

Conclusion

 

By preventing claims from ever reaching the legacy stage, the claims professional will not be issuing checks on claims 20 years later. Ultimately, the 10% of workers’ compensation cost spent on claims 20 years old or older is eliminated.

 

 

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.

 

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.

 

©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 Provide Significant Tax Benefits And Financial Security

Financial Security Served Through Structured Settlement

 

The resolution of large or catastrophic workers’ compensation claims through a structured settlement is financially beneficial to the injured employee. However, most severely injured employees develop thoughts of what they can do with a large lump sum of money without realistically analyzing what their future or their families’ life-time financial situation will be. With proper guidance from either their attorney or from the work comp adjuster, the injured employee will stop to consider the long-term ramifications of their injury. Their financial security is normally best served through a structured settlement.

 

Internal Revenue Code defines structured settlements as periodic payments to settle an injury claim or a work related illness claim. Periodic payments are normally monthly but can be quarterly, annually or other specific points in time. To fund the periodic payments, the self-insured employer or the workers’ compensation insurer purchases an annuity from a life insurance company. (The life insurance company should be financially strong, with an A or higher rating from AM Best or similar service). The periodic payments can be for a set period of time (for example 20 years), for a life time, or for both the injured employee’s life time and the spouse’s life time.

 

 

Structured Settlements Are Not Taxed

 

The Internal Revenue Service (IRS) tax codes create a significant financial benefit to the injured employee through how structured settlements are not taxed. Congress passed the Periodic Payment Settlement Tax Act of 1982 (also known as Public Law 97-473) to provide severely injured liability claimants with tax relief. In 1986 codified the structured settlement rules in sections 104(a)(2) and 130 of the Internal Revenue Code of 1986. Congress would later expand the law to cover workers’ compensation injuries as a part of the Taxpayer Relief Act of 1997.

 

With a structured settlement the injured employee agrees with the self-insured employer (or work comp insurer) to release the employer of any further responsibility for the medical cost or indemnification obligation in exchange for the stream of periodic payments. The self-insured employer or insurer normally transfers the obligation to pay the employee to a life insurance company through the purchase of an annuity that meets the agreed to periodic payment schedule.

 

Once the injured employee and the self-insured employer (or the workers’ compensation insurer) have agreed to settle the work comp claim in exchange for periodic payments, the full amount of the periodic payments are tax-free income to the employee. If the injured employee opts for a lump-sum settlement, the lump-sum is not taxed; but all future earnings (both interest and dividends) on the lump-sum are taxable to the employee. Hence, even if the employee is a skilled money manager (most injured employees are not), there is a large future income tax savings benefit to the periodic payments of a structured settlement.

 

The IRS is not totally benevolent with structured settlements. The IRS codes state that in exchange for tax free periodic payments, the injured employee agrees that he/she does not have the authority to alter the periodic payments. The injured employee cannot increase or decrease the periodic payments, the employee cannot change the agreed to time frame of the periodic payments, and the injured employee cannot delay or defer the periodic payments to a later date.

 

 

Structured Settlement Options Should Be Explored

 

The amount of income tax savings depends on several factors including the amount of the periodic payments versus the amount of a lump-sum settlement, the employee’s other sources of income, the income tax rate, and future changes in the income tax rates. For an estimate of the income tax savings of the structured settlement, the injured employee should consult with their income tax professional.

 

 

Overall, a structured settlement is hard to beat for a tax-free source of income.  Any employee contemplating a workers’ compensation settlement should consider the use of a structured settlement. Most structured settlement firms provide structured settlement services to their clients at absolutely no cost to their clients.  For more information on structured settlements, please contact us.

 

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, 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.

 

©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.

What to Look For in a Structured Settlement Company

 

The use of structured settlements in large and catastrophic workers’ compensation claims is well recognized as a way to reduce the overall settlement cost while at the same time providing the injured employee with a fair claim settlement.  However, a factor often overlooked in structured settlements is the identification and selection of the best structured settlement company.

 

There are several characteristics and qualities that should be considered in the selection of the structured settlement company.  They are:

 

  1. Experience.

You want a structured settlement company that has a track record.  A structured settlement company that has been around for decades has more resources to draw from then a structured settlement company that has been in business for a few months.  The more structured settlements the company has completed in the past, the greater likelihood that they know how to deal with every possible scenario that could interrupt or prevent a structured settlement from occurring.

 

 

  1. Ability to Design Settlements.

The structured settlement company must have the ability to taken into consideration the needs of everyone including the injured employee and employee’s family, the attorney for the employee, the employer and the employer’s workers’ compensation insurer.  The structured settlement has to be designed to be flexible to address the needs of the employee while maintaining control of the settlement cost for the insurer.

 

The structured settlement company consultant must have an in-depth knowledge of sophisticated damage analysis and life care plans, along with the different types of trusts that can be included in a structured settlement.  By understanding the injured employee’s future financial needs and future medical care, the structured settlement consultant can design a creative solution that benefits all parties involved in the workers’ compensation claim.

 

 

  1. Resources.

A structured settlement is basically an annuity (or annuities) purchased from a life insurance company.  It is therefore essential for the structured settlement company to have several top rated life insurance companies available to provide the annuity/annuities.  By having several highly rated insurance companies available, the consultant can shop the settlement package with the different insurers to obtain the lowest overall cost for the structured settlement.

 

 

  1. Reputation.

There are structured settlement companies that work only with the plaintiff attorneys and there are structured settlement companies that specialize in working only with the defense attorneys.  These companies are well known to both the sides of the legal aisle, and are often mistrusted by the other side.  A structured settlement company that works with both plaintiff attorneys and defense attorneys must maintain a reputation of being unbiased and fair in all their dealings.  By selecting a structured settlement company that has the trust and extensive experience working with both sides of the legal aisle, the mistrust that hampers and prevents some structured settlements from occurring is removed.

 

 

  1. Geographical spread.

The structured settlement company should be somewhat local.  If the structured settlement company has only one office or even several offices in another part of the country, it is difficult for the structured settlement consultant to meet with the various parties involved in the injury claim. An example – if the structured settlement company is located in Florida and the injured party is in California, the structured settlement company will be less effective.  The structured settlement company that has a complete geographical spread and can provide a local consultant whether the injured employee is in Maine, Hawaii or somewhere in between will be able to provide the best service.

 

The proper selection of the structured settlement company can have a significant impact on the cost of the structured settlement.  For assistance in identifying and locating the best possible structured settlement company, please contact us.

 

 

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.

 

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.

 

©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.

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