The Value of Using Structured Settlements When Addressing Medicare Set Asides
The Medicare Secondary Payer statute (MSP), 42 CFR 411, requires that primary payers (carriers, self-insured entities) protect Medicare’s future interest when settling the medical component of workers’ compensation claims. Medicare’s preferred method to protect their interests is to include a Medicare Set-Aside Allocation (MSA) as part of the settlement. The MSA serves as the mechanism to fund future Medicare allowable expenses for work related injuries that were included as part of the settlement.
The MSP statute clearly delineates that Medicare is a “secondary payer” in situations where primary payers exist. If the primary payer (carrier, self-insured entity) settles future medicals and fails to protect Medicare’s interest, Medicare may deny coverage.
Medicare Set Aside Ensures Compliance
To comply with the MSP requirements, insurers create a Medicare Set Aside (MSA) agreement (also referred to as a MSA) which estimates the future Medicare allowable expenses relative to the work-related injuries. In certain circumstances, the MSA is submitted to Medicare for their review and approval. If Medicare concludes the MSA amount to be adequate, the insurer proceeds with the settlement which includes the MSA amount. The MSA funds are paid as part of the settlement to the injured employee.
Regardless of the age of the injured party, future medical costs are often times very significant. It is not uncommon that MSA costs adversely inhibit the primary payers ability to move forward with settlement. While many insurers and self-insured entities pay MSA funds by way of a lump sum, it is often much more advantageous for all parties involved to address the MSA with the use of a structured settlement.
Structured Settlement Offers Many Advantages
A structured settlement is an annuity purchased from a life insurer and established to make annual payments of the MSA amount over the life-time of the employee.
The structured settlement of the MSA provides several benefits including:
· Establishes the distribution of periodic payments for the MSA funds and assists in avoiding both a premature exhaustion of funds and/or the inappropriate use of the funds
· Offers cost-containment benefits as the cost of the annuity is less than paying funds out as a lump sum
· Assists in facilitating settlement in situations where money is freed up by purchasing an annuity for the MSA and can be utilized for the indemnity component of the settlement if required
A Medicare Set Aside Structured Settlement Example:
To see how a structured settlement saves money, consider the following hypothetical example. The injured employee is a former motel maid Jane Doe, age 45, who injured her back lifting a heavy bag of trash. She is morbidly obese, has diabetes, hypertension and gout. She has had 3 unsuccessful back surgeries and is expected to be permanently and totally disabled. Due to her on-going pain management treatment, medical appointments and narcotics, it is estimated that her medical care over her 30 year rated life expectancy will be $10,000 per year or $300,000 in total. There are two ways to pay for the future medical care. The first way is to write Ms. Doe a check for $300,000.
The second way to pay for the MSA is through a structured settlement. We first obtain a rated age (based on comorbidity factors) and evaluate the structured settlement quotes. After parties agree to terms on the settlement (including the structured MSA) and CMS review is completed (if applicable), settlement funds are disbursed.
By structuring the MSA in this scenario, the total cost of the annuity was $225,000 to the carrier or self-insured entity and the injured party reaped the benefits of the annuity payout of $300,000 (includes the CMS required two-years of seed money and periodic payments that will be paid over the life of the annuity).
The potential hard-dollar savings in the above hypothetical example is $75,000. As this is an example, the savings could be actually greater/less all depending on a number of factors – size of MSA, comorbidity factors for rated age purpose and rates of return on the annuity (tax free interest earnings on the annuity).
To learn more about utilizing structured settlements when addressing MSAs, 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.
