Setting up support with professional administration of medical funds after settlement is a clear choice. It helps the injured person save money on their healthcare expenses and provides support in navigating ongoing care. The service is especially helpful for Medicare Set Asides because the administrator helps ensure the injured person’s Medicare benefits remain intact while protecting the injured worker, their attorney, as well as the payor from any potential mishaps. In fact, Medicare “highly recommends” that injured individuals use a professional administrator after settlement. (What is professional administration? Learn more)
When it comes to administration, all involved should have a thorough understanding of the administrator’s role and how it benefits the injured person. What can sometimes be less obvious is how to set up the administered account with an agreement that adequately governs it and how administration fits into and facilitates settlements. The following concepts are essential to understand these agreements.
1. Who is involved? Parties to the Agreement
Ideally, the agreement is between the injured person (also known as the “member”) and the administrator. It’s useful to get to know the administrator involved and to see if it is independent and truly has the best interests of the injured individual at heart. Conducting some background research, contacting the administrator directly, and asking for references are good starting points.
Tip: Be aware of administrators that operate other lines of related business. This could create a conflict; for instance, if they work for the carrier/employer to provide low estimates of future medical allocation amounts, it does not make sense that they are also offering to work for the injured person to help them maximize their medical settlement funds.
The cleanest arrangement is a bilateral agreement between the administrator and the injured person where the administrator is focused on its duty to protect the injured person.
2. The Purpose of the Agreement / Responsibilities of the Administrator
The administration agreement should outline the benefits and services the administrator will provide. These often include:
- Placing the settlement funds in a separate, interest-bearing bank account under the member’s name
- Securing discounts on medical bills where possible and paying medical bills on the member’s behalf
- Tracking and providing complete reporting on all expenses
- Filing any required government reports, such as Medicare Set Aside reporting
The responsibilities of the administrator should be clearly outlined. If it is determined that the administrator is going to do something extra or different for the member, this should be included in the agreement.
3. The Bank Account
The administration agreement should provide detail on how the member account will be established. For utmost security, it should be a separate, individual bank account established in the name of the member. In unique situations where the settlement is funded into a special needs trust, then the account may be required to be setup in the name and Tax ID number of the trust to ensure government benefits are protected.
Often times, included in the administration agreement is the standard information the bank requires. With complete security, the administrator is the custodian of the account and must authorize any disbursement.
Tip: The safest account is a separate checking or savings account. Be careful of any pooling of the injured person’s funds with money from other clients. This can have significant consequences because it:
- may result in their funds being invested in less liquid assets or that are at risk of losing value. (Investment losses are not an appropriate use of MSA funds)
- may result in the loss of FDIC insurance of $250,000
- means their money and will likely be tracked manually by the administrator instead of the bank which could potentially lead to mistakes
It’s important to know the member’s money is deposited at a reputable bank in a separate and secure account managed by a top-notch administrator. It is also important to choose an administrator that has multiple banking partners to ensure that large accounts that may be in excess of FDIC limits can be set up in the most protective way.
4. Beneficiary Designation
An important provision of the administration agreement is the beneficiary designation language. Similar to the setting up of a trust or estate plan, it’s important for the member and all parties involved to know where the administrator should send the remaining funds in the account when the member passes away.
Typically, the administration agreement follows the guidance provided in the master settlement documents. If there is no designation of a beneficiary in the settlement documents or if the account is established after settlement, the administrator will defer to the member for whom they wish to designate.
Tip: this provision, like many others, can be negotiated as part of the overall settlement discussion, separate from the administration service. The beneficiary of the administered account can be the member or their estate; it can also be a corporate entity like the carrier/employer/payor involved in the claim (frequently referred to as a “reversionary” party), or a non-profit or charity, etc. During settlement negotiations, the defense and plaintiff parties can negotiate the terms of this part of the agreement to determine who or what entities benefit from the remaining funds; sometimes the designation of the funds or a portion of them can be subject to certain terms and conditions, just as they can apply to other aspects of the settlement.
Upon death, the administrator will typically require a grace period to make sure all outstanding bills are gathered and payments are made; then, the administrator will close the account and cut the check to the designated party or parties.
5. Rights of the Injured Person
Finally, it’s important the member fully understands their rights when their account is being established. They should have a number of common rights and protections and should also be aware of any restrictions. Here are a few common items to consider:
- Review of performance: the member should be able to review the work of the administrator and report any inaccuracy to have it addressed
- Protection: The member should be held harmless for any mistakes made by the administrator due to negligence
- Savings: the member should receive the benefit of discounts secured on their behalf by the administrator. If the administrator benefits in any way from discounts negotiated, they should be transparent to the member.
- Open Network: the member should be able to seek treatment with any provider or pharmacy. While a network may be in place to help the member save money, administrators should not restrict the member’s access to care with any provider, pharmacy or facility.
- Termination: it should be clearly stated whether termination of the agreement or a withdrawal of the funds is allowed. This can be negotiated as part of the overall settlement. Typically, if the member is the sole beneficiary, they can choose to terminate the administration agreement and receive all their reporting and a check for their funds. However, if there are other designated beneficiaries, language in the settlement agreement may restrict their ability in order to protect all beneficiaries’ interests.
Fitting It All Together
Along the way, if you or the injured person have any questions, the administrator will be a valued resource to clarify the terms of the agreement or explain how the service works. Not all settlements are alike, so sometimes it’s beneficial to request edits and tweak terms of the agreement to your liking.
Once all parties are confident in the terms of the administration agreement, most often, the administration agreement will be added as an addendum to the settlement documents. This way, it is part of the overall settlement package and can be approved at settlement; in workers compensation cases, the judge often wishes to sign off on all aspects of the settlement, including administration.
Author Porter Leslie, President Ametros. Porter directs the growth of Ametros and works with its many partners and clients. He built his career leading customer-focused businesses in the healthcare and financial services industries. Prior to Ametros, Porter worked in investment banking, private equity and corporate development.
Porter earned a B.A. in Economics from Columbia University, as well as an MBA from the Wharton School and an M.A. from the Lauder Institute at the University of Pennsylvania. Porter is fluent in Spanish and Portuguese and resides in Boston with his wife, Ruth, and son, Camilo.
Developing a Medicare Set-Aside is not only a time-consuming and arduous process, but can also be unnecessarily expensive. There are many instances where tremendous sums of money are included in an MSA just because stakeholders were not diligent in analyzing what was included.
Author Michael Stack, CEO Amaxx LLC. He is an expert in workers’ compensation cost containment systems and helps employers reduce their workers’ comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is a co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is founder & lead trainer of Amaxx Workers’ Comp Training Center.
