Current settlement claim best practices trends suggest the usefulness of using structured settlements in workers’ compensation claim settlements. By incorporating the use of this tool, parties can accomplish their settlement objective and promote increased efficiency in the claim handling process.
Using a Structured Settlement To Win
The claims management team at ABC Insurance Company is faced with several challenging workers’ compensation claims that have significant future indemnity and/or medical exposure. Making matters worse, there is a directive by upper management to settle a number of the “old dog” claims.
At the same time, the law firm of X,Y, & Z is representing a number of these same claimants. The attorneys are concerned about addressing their clients’ future needs and protecting Medicare’s interests. They attorneys want to make sure they preserve their clients’ entitlements to qualify for government benefits – SSDI, Medicare and Medicaid.
Is there a way to settle these cases where everyone receives the “win” in their workers’ compensation case? If so, what can the parties do to be zealous advocates for their respective positions while at the same time reach a compromise?
Reaching a Common Ground
While working toward a settlement, the parties come to an early understanding that settling these troublesome claims is going to cost around $500,000. The claims manager at ABC Insurance Company understands this reality, but is looking for alternatives to meet their bottom line. The attorney from X,Y,& Z is happy their client will hit their pay day with this settlement, but has concerns that a lump sum settlement check will be spent quickly and leave their client in a dire financial position. The negotiations reach an impasse. The solutions: A structured settlement!
The parties agree to a settlement amount of $500,000, which will be settled via a structured settlement. By working with a broker, the insurance carrier was able to purchase an annuity through a life insurance company. The broker was also able to secure a rated age for the injured party due to co-morbid conditions and this further reduced the cost of the case. The final terms are as follows:
$500,000 – Agreed upon settlement amount
$45,000 – Potential Savings via rated age
$76,000 – Potential Savings via annuity payments versus the lump sum
$500,000 – Total payments to the Employee
$379,000 – Total cost of Structured Settlement
$121,000 – Total Potential Savings From Structured Settlement
Benefits to the Parties
Under this scenario, all parties win!
- Win for the Employee: Case settled and they will receive money from their claim. By receiving periodic payments, they will have better management of their settlement funds via guaranteed cash flow over their life expectancy, which is tax-free. They may also get more up-front money in the cash component of the settlement.
- Win for the Insurance Carrier: Settling this case frees up funds to meet their financial objectives and help settle other troublesome workers’ compensation cases. The claim management team is also recognized for bringing efficiency to the settlement process. Business objectives, achieved.
- Win for the Employee’s Attorney: They were able to protect their clients’ interests and be creative in protecting their future. Not only do they have a satisfied client, but they also helped their client have financial stability.
Conclusion: Mission Accomplished!
Structured settlements provide all stakeholders in workers’ compensation settlement to bring creativity and efficiency to the settlement process. They allow all parties to have a “win” in settling cases.
Author Michael B. Stack, CPA, Principal, Amaxx Risk Solutions, Inc. is an expert in workers compensation cost containment. He is based in Boston, MA and works with employers to reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher. http://reduceyourworkerscomp.com/about/. Contact: [email protected].
Editor: Duke T. Wolpert, Vice President of National 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: [email protected]
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