WCMSA Market Metrics
The recent National Alliance of Medicare Set-Aside Professionals (NAMSAP) Regional Conference highlighted the strategic importance of workers' compensation Medicare set-aside arrangements (WCMSAs), and their growth potential for structured settlements - as well as the need for more comprehensive and public MSA market metrics.
One logical starting point for determining MSA market metrics [as well as Medicare and Medicare Secondary Payer (MSP) metrics] is the CMS Financial Report for Fiscal Year 2013 which covers the October 1, 2012 to September 30, 2013 time period. Selected highlights:
- "Medicare processes over one billion fee-for-service (FFS) claims a year, and accounts for approximately 15 percent of the Federal Budget."
- "Medicare enrollment has increased from 19 million beneficiaries in 1966 to over 52 million beneficiaries."
- "CMS and its contractors process over one billion Medicare claims annually."
- MSP and WCMSAs
- "CMS’ efforts in the MSP area saved the Medicare Trust Funds approximately $8.93 billion in FY 2013."
- "Under MMSEA section 111 requirements, group health plans began limited reporting of data in January 2009 and were fully phased in as of January 2011. Workers' compensation, liability insurance and no-fault insurance began limited reporting of data in June 2010, and reporting thresholds will gradually be implemented through January 1, 2015."
- "As of October 2013, there were over 1,400 insurers reporting data to CMS under section 111."
- "The implementation of section 111 is the single largest contributor to growth of Medicare savings of $6.5 billion in FY 2007, to approximately $7 billion per year in FY 2011 and FY 2012 and almost $9 billion in FY 2013."
- "CMS has calculated WCMSA amounts totaling approximately $1.8 billion in FY 2013." (emphasis added).
S2KM discussions with MSA industry experts following the NAMSAP Regional Conference provided these additional estimates:
- Annual number of WCMSAs - estimates vary between 30,000 and 40,000.
- Average size of WCMSAs (including professionally and self-administered WCMSAs) - estimates vary up to $100,000.
- Professional administration - less than 10 percent of WCMSAs are professionally administered.
- Structured settlements - less than 25 percent of WCMSAs are funded with structured settlements.
- Seed money - seed money for WCMSAs funded with structured settlements averages approximately 10 percent of the total per case cost.
- CMS turn around time - the average CMS turnaround time for WCMSAs is 35 days - and increasing.
Structured Settlements and WCMSAs - Estimates Based Upon Trend Projections
Although final 2013 structured settlement primary market annuity sale totals have not yet been reported, 2013 third quarter results are available for comparison. Note: earlier this week, Berkshire Hathaway reported selling $1.42 billion of structured settlement annuities in 2013 which appears to represent the largest single year company total in the history of the U.S. structured settlement industry.
Correction (1/24/14) - Amgen/AILife exceeded Berkshire Hathaway's 2013 structured settlement annuity sales total in 2006, 2007 and 2008.
Based upon a comparison with 2012 structured settlement primary market production results, projected total 2013 sales can be expected to approximate 26,310 annuities and $5.1 billion of premium (approximately $192,000 average premium). Note: S2KM will report actual 2013 structured settlement primary market sales once they have been compiled by Melissa Evola.
- 26,310 structured settlement annuities were sold during calendar year 2013 producing $5.1 billion of premium; and
- 25 percent of the CMS calculated $1.8 billion of WCMSAs for fiscal year 2013 were funded with structured settlements; and
- The seed money for WCMSAs funded with structured settlements averages 10 percent; and
- The average size of WCMSAs funded with structured settlements is $70,000 ($63,000 annuity and $7,000 seed money);
- Eight (8%) percent ($405 million) of projected 2013 structured settlement premium ($5.1 billion) was attributable to WCMSAs; and
- 6429 (24%) of projected 2013 structured settlement annuities (26,310) funded WCMSAs.
Growing the Structured Settlement Market
Based upon the CMS inflation/discount methodology for WCMSAs, as promulgated in the October 15, 2004 CMS WCMSA Policy Memorandum, structured settlements have had an inherent cost advantage over lump sum alternatives for funding WCMSAs.
As explained in this prior S2KM blog post, the CMS Workers' Compensation Reference Guide published in 2013 appears to have retained this structured settlement cost advantage.
Strategic Question: Why, therefore, has the structured settlement industry failed to further penetrate the WCMSA market?
The importance of this strategic question will be magnified if, as suggested in Part 1 of S2KM's NAMSAP Regional Conference Report, the CMS WCMSA primary payer model ultimately is applied to:
- Liability MSAs as a result of HHS/CMS RIN: 0938-AR43;
- Medicaid reimbursements as a result of the Bipartisan Budget Act of 2013; and
- Implementation of the Patients' Protection and Affordable Care Act.
Structured settlement professionals identify multiple reasons "why more WCMSAs are not funded with structured settlement annuities". The most significant reasons appear to be:
- The relatively smaller size of WCMSA structured settlements; and
- The administrative burden created by CMS rules for submitting annuity quotes with rated ages to establish reduced life expectancy.
One strategy for growing the primary structured settlement market: improve administrative rules for determining MSA life expectancies - which should represent a shared priority goal for both structured settlement and MSA stakeholders.
A second and related educational strategy: continue to develop more focused industry study about the respective roles of structured settlements and MSAs within the changing rules of personal injury settlement planning.
S2KM welcomes additional input about market metrics from structured settlement and MSA stakeholders.