William Mathews III (wmathews@ringlerassociates.com – (813) 431-7533)

Scott Hoover (shoover@ringlerassociates.com – (407) 478-6622)

Jeffrey Klugerman (jklugerman@ringlerassociates.com – (954) 349-2033)

It is not often that you can utilize a valuable tool at no cost and reap the benefits of significant cost containment and improved outcomes. By structuring a Medicare Set-Aside (MSA), parties can reduce their overall costs by approximately 37% and comply with Medicare’s policy in this area of compliance.

Anticipated Lifetime Annual Payments
A structured settlement is a financial arrangement that involves parties to a personal injury or workers’ compensation claim where the claimant settles the case by receiving a lump sum payment plus additional future periodic payments for a pre-determined period of time. Under the terms of the annuity contract, the claimant receives a specified payment that is followed by other future payments. These future payments are defined by the terms of the annuity contract and generally fall into the following categories:

  • Temporary Life Annuity provides an annual MSA payment for the claimant’s life expectancy, only if the claimant is living. This is usually the least expensive annuity used in funding an MSA annual payment. The disadvantage of this type of annuity is that the payments stop at the death of the claimant and there is no residual value or payment that can pass to a claimant’s beneficiary or as a refund to the employer’s insurer. For example, if an insurer pays $75,000 to provide $3,000 per year for 25 years and the claimant dies after one year, the insurer has paid $75,000 for a $3,000 payment. This type of annuity is attractive for small MSA amounts.
  • Life Only Annuity provides an annual MSA payment for the claimant’s lifetime. All payments cease on the death of the claimant. This annuity is usually slightly more expensive than a Temporary Life Annuity. As with a Temporary Life Annuity, all payments cease on the death of the claimant. There is no opportunity for recovery of any funds by the defendant or the possibility of the claimant’s beneficiary receiving anything on the death of the claimant.
  • Life with Cash Refund Annuity provides an annual payment for the life of the claimant and a refund of the unused portion of the annuity premium in the event of the death of the claimant. For example, if the insurer spends $100,000 for the annuity and the claimant dies after $50,000 has been paid out, the claimant’s beneficiary may receive $50,000 upon the claimant’s death.
  • Period Certain Annuity provides an annual payment for the claimant’s life expectancy, whether or not the claimant is living. This payment is guaranteed to the claimant’s beneficiary or the employer’s insurer on the claimant’s death. On death, the payments will continue to be paid to the beneficiary (claimant’s heirs or the insurer). As an alternative, many life insurance companies that offer structured settlement annuities provide a commutation product that allows the beneficiary or the defendant to receive a lump sum of the commuted value of any remaining payments on the death of the claimant.

Discount for Present Value
Structured settlements reduce MSA costs in two ways. The first is through a discount for present value. Medicare Set Aside allocations assume funding on a dollar-for-dollar basis with no discount for present value. If the MSA allocation calculates a medical expense to be incurred in 10 years will cost $1,000, Medicare expects $1,000 to be set aside to fund it today. In contrast, a structured settlement involves the purchase of an annuity, guaranteed to pay on a specified date under the terms of the annuity. The annuity earns interest over its term. Within a comprehensive funding arrangement, the cost to fund that $1,000 expense 10 years from now might be around $750 today.

Rated Ages
The second way structured settlements save money is through the use of a rated age. Maybe you have seen Internet quizzes that ask you questions and calculate your “biological age” based on your answers. If you are in great physical condition, it will say your biological age is younger than your chronological age. If you smoke or your medical condition includes issues such as cancer, diabetes, asthma, opioid use, or cardiac disease, your life expectancy is calculated to be more like that of someone older than your chronological age.
Life insurance companies that issue structured settlement annuities employ underwriters who will review a claimant’s medical records, address co-morbidity factors, and issue rated ages. If the payments need to cover a shorter life expectancy, the cost for those benefits is less than for someone with a normal life expectancy.
A structured settlement consultant requests rated age determinations from the life insurance underwriters. Multiple rated ages are often requested from various companies.
When using a rated age in an MSA that will be submitted to CMS for approval, it is important to review the WCMSA Reference Guide regarding agency policy.

Work With a Settlement Planning Consultant
It is important to bring in a settlement consultant early to negotiate on your behalf. A settlement consultant provides many services such as: pulling rated ages to get the best pricing on the structured settlement annuity, making recommendations on MSA administration options, determining the appropriate allocation, and setting up funding. A settlement consultant can also walk the claimant through all of their other settlement options to ensure that the settlement proceeds will meet their financial and medical needs.

Investigating how a structured settlement can reduce the cost of an MSA is strongly encouraged and should be considered a claims best-practice. There is absolutely no cost to any party to use a structured settlement consultant to facilitate the effort and the savings can be tremendous.

Everybody Wins