Beyond Structured Settlements

Health Care Reform

Health care reform consists of two laws enacted in March of 2010 (the Patient Protection and Affordable Care Act and the Health Care Education and Reconciliation Act of 2010) which will have a profound impact on people with disabilities.

While the Academy of Special Needs Planners (ASNP) and the National Academy of Elder Law Attorneys (NAELA) are providing their members with detailed analyses of health care reform, the structured settlement industry has not yet addressed this historic legislation in their educational programs.

Among the featured speakers at the ASNP 2011 Annual Meeting, Cynthia Barrett discussed how health care reform impacts people with disabilities. Barrett's presentation, accompanied by a detailed written analysis, summarized the new Federal health care legislation and advised ASNP attendees how to adjust their professional practice.

Of special interest to structured settlement and settlement planning professionals, Barrett highlighted and discussed the following questions plaintiff attorneys are most likely to ask about health care reform:

• Will my disabled client be able to get health insurance now?
• For settlement purposes, can future medicals be reduced to estimated lifetime insurance premiums until my client becomes eligible for Medicare or Medicaid?
• Do private health plans have “set-aside” or special needs trust requirements?
• If my client can get private health coverage, will he/she still need public benefits?
• If my client can obtain private health insurance, why do I need a special needs attorney or a special needs trust?
• As a plaintiff attorney, is there anything else I need to know about health care reform or related legislation?

In response to the last question, Barrett identified:

• The Medical Tort Claims Alternatives Demonstration Program which will send $50,000,000 in demonstration grant funds to states (up to $500,000 per state) over five years to develop and implement alternatives to the existing civil litigation system. According to Barrett, these demonstration grants:
  • Focus narrowly on disputes over injuries caused by health care providers or health care organizations;
  • Are intended to showcase medical malpractice alternatives;
  • Will be awarded by the Secretary of Health and Human Services; and
  • Plaintiffs may elect whether to participate, but cannot be required to participate.
• President Obama’s 2011 State of the Union address during which the President suggested he might cooperate with Republicans on medical malpractice tort reform.

Barrett also advised special needs attorneys to:

• Exclude from their services health coverage options advice;
• Screen claimants to determine whether needs-based Medicaid will be important.

NAELA will be devoting the entire Spring 2011 edition of the NAELA Journal to health care reform. Available to NAELA members only, this NAELA health care reform analysis will feature a detailed introduction by NAELA Journal Editor-in-Chief William J. Brisk plus eight articles and a supplement of online resources.

Brisk's introduction addresses why health care reform is "too significant to ignore" and highlights its most important features. His analysis identifies what tort reform actually does and does not accomplish. He emphasizes the important roles Medicare, Medicaid, private health insurance companies and health maintenance organizations will play in implementing health care reform.

Additional NAELA Journal topics and authors:

• Health Care Changes: Challenges to Medicare - Vicki Gottlich, Patricia Nemore, and Alfred J. Chiplin Jr.;
• The New CLASS Act - Morris Klein;
• Nursing Home Regulations - Charles Perez Golbert;
• Health Care Reform’s Impact on Small Businesses and Individuals - Ben A. Neiburger;
• Health Care Reform and End-of-Life Issues - Fay Blix;
• The Affordable Care Act’s Changes to Medicaid’s Coverage for Long-Term Services and Supports - Gene Coffey;
• Health Insurance Reforms: Once In a Lifetime Change or Same as It Ever Was? - Lucinda E. Jesson;
• Medicaid Expansion Under the 2010 Health Care Reform Legislation: The Continuing Evolution of Medicaid’s Central Role in American Health Care - Renée M. Landers and Patrick A. Leeman;
• Online Resources Available to Supplement Health Care Reform Discussion - prepared by Claire DeMarco.

If health care reform is "too significant to ignore" and if health care reform greatly impacts disabled people, why has the structured settlement industry ignored health care reform? Possible reasons:

• Product focus instead of customer focus;
• Circumscribed scope of knowledge;
• Limited strategic thinking or analysis;
• Retrospective and inside-the-box orientation;
• Protect and preserve mentality.

NAELA Special Needs Summit - 3

This S2KM blog post strategically analyzes the National Academy of Elder Law Attorneys (NAELA) 2010 Special Needs Summit from an Internet-based knowledge management (KM) perspective. The NAELA Special Needs Summit occurred February 25-27 in New Orleans. Prior S2KM blog posts summarized the NAELA Special Needs Summit and analyzed the NAELA Special Needs Summit from a structured settlement perspective.

This S2KM review also considers a March 9, 2010 Web 2.0 webinar for NAELA members by Mark Miller titled "Web 2.0: The Good, the Bad and the Ugly". Miller is Chief Operating Officer of ElderLawAnswers; General Manager of Lawyers Life Network; and Director of Operations and Business Development for the Academy of Special Needs Planners. Miller has more than 15 years experience in sales and business development for web-based service providers.

Positives

• Knowledge resources - Whether the subject is elder law, special needs law or personal injury settlement law, NAELA's membership possesses substantial knowledge resources. Specific to disabled persons, NAELA's knowledge encompasses technical legal knowledge as well as relationship knowledge with disability leaders and disability community stakeholders.
• Knowledge culture - NAELA promotes and prioritizes legal scholarship. Examples include: the NAELA Journal and NAELA's annual writing prize for law students. NAELA promotes and practices knowledge sharing. NAELA's unprograms offer a non-hierarchical and interactive learning alternative to traditional lectures. Compared with traditional lectures, NAELA's unprogram learning model is more comparable with how collaborative learning occurs on the Internet.
• Focus on web 2.0 - NAELA has identified and offered learning resources on web 2.0 and social network technologies. In addition to Mark Miller's March 9, 2010 web 2.0 presentation, NAELA also featured S2KM's web 2.0 for lawyers wiki at its 2008 National Symposium.
• Mark Miller's web 2.0 presentation - Miller's 90 minute web 2.0 presentation was comprehensive. It highlighted many web 2.0 features, tools, and developments and offered advice for NAELA members about blogging; podcasting; web-site design; search engine optimization; news feeds; key word searches; social media; and emerging tools.
• Web 2.0 examples - a growing number of NAELA members, and non-NAELA special needs attorneys, have experimented with web 2.0 tools - especially blogs and podcasts. Examples of special needs and elder law blogs:
  • Harry Margolis
  • David Lillesand
  • Frank Johns
  • Patricia Kefalas
  • John Campbell

Negatives

• Web 2.0 learning disconnect
  • Neither the NAELA Special Needs Summit nor Miller's web 2.0 webinar made any attempt to integrate the web 2.0 medium itself into their learning programs.
  • If "the medium is the message" (to quote Marshall McLuhan), NAELA has not yet processed or responded to that message from a web 2.0 learning perspective.
  • NAELA's conference was typical of almost all professional association education conferences. Learning takes place in multi-purpose hotel meeting rooms with no Internet resources or integration. Laptops are discouraged by the general failure to provide power outlets. With the notable exception of NAELA's unprograms, the speakers lecture with limited audience interaction. Supplemental learning resources include power points, hardcopy handouts or web 1.0 flash disks.
  • Miller's web 2.0 webinar utilized a traditional web 1.0 powerpoint. His extensive presentation was lecture format with limited interactivity and no asynchronous features.
  • Typical of most introductions to the Internet, Miller's web 2.0 webinar focused primarily on identity and marketing - with no discussion about whether and how web 2.0 can enhance and accelerate learning or what learning issues and strategies occur with web 2.0.
  • As one example of a web 2.0 learning issue, many college professors (the paragons of old school learning) are banning laptops from their classroom and view in-class Internet surfing as a distraction. These paragons, however, typically lack any ability to integrate discussions (example: Socratic teaching) or Internet resources into their classroom experience. Their teaching model is a hierarchical lecture which is contrary to how the web 2.0 Internet functions.
  • Teaching web 2.0 using web 1.0 (or predecessor technologies) is akin to trying to teach people to swim or play basketball in a traditional classroom - using hardcopy text with no diagrams - instead of utilizing a swimming pool or a basketball court. After an hour or a semester in the classroom, the students still won't be able to swim or play basketball.
• Role of knowledge management
  • NAELA's members all qualify as knowledge workers. Without specifically studying knowledge management, NAELA has spent 25 years helping its members identify, expand and manage knowledge.
  • The changing Internet medium (currently web 2.0 featuring social network technologies) prioritizes knowledge and how you manage knowledge:
    • Knowledge generally becomes more transferrable and complex.
    • New knowledge tools, systems, networks, teams and leaders emerge.
    • New business models evolve requiring online skill sets and related knowledge services.
  • Unless NAELA and its members study and understand Internet-based knowledge management, how will they successfully transfer their professional knowledge (including relationship knowledge) to web 2.0?
  • And what happens to those professionals and professional associations who are slow (or unable) to successfully transfer their knowledge to the Internet? How will they compete? Who will want (or allow) them to participate on Internet-based knowledge teams and networks?
  • Neither Miller's web 2.0 webinar nor NAELA's first-ever Special Needs Summit discussed knowledge management.
  • How could knowledge management have improved the NAELA Special Needs Summit? As one example, the NAELA Summit made no attempt to define special needs law or to differentiate special needs law from elder law or personal injury settlement law. NAELA could have used (and still could use) various types of knowledge maps to:
    • Define these strategically important knowledge domains and related knowledge boundaries;
    • Identify stakeholders and online learning resources within each community of practice;
    • Highlight transactional events and transferable knowledge opportunities for NAELA members within each knowledge domain.

Unsolicited Recommendations for NAELA

• Continue to study Internet-based knowledge management - focusing on web 2.0 and social network technologies.
• Develop a web 2.0 learning strategy:
  • Utilizing appropriate learning environments, teachers and tools.
  • Introducing participants to online culture, organizational theory and functional skill sets through actual experience.
  • Integrating web 2.0 learning into NAELA's other educational programs.

For Additional Information see:

• Denham Grey's KM wiki
• S2KM prior blog posts
  • Web 2.0 for Lawyers Concept Map - featuring Barbara Bowen
  • Knowledge Management and Structured Settlements

IRC 468B Funds Revisited - 2

S2KM's earlier blog post (IRC 468B Funds Revisited) refocuses S2KM and S2KM's readership on 468B Funds as the single most important strategic issue for the settlement planning and structured settlement industries. S2KM's earlier blog post also recommends educational resources and provides online learning resource links for 468B Funds.

This S2KM blog post summarizes a new article by John J. Campbell titled "The Use of Qualified Settlement Funds, Qualified Assignments and Special Needs Trusts in Physical Injury Settlements" which appears in the most recent issue of the NAELA Journal . A subsequent S2KM blog post (IRC 468B Funds Revisited-3) will provide S2KM's analysis of Campbell's article.

Campbell's article is especially valuable for these reasons:

• Campbell supports Richard B. Risk Jr.'s 2004 468B analysis which
  • Appears in Risk's article titled "A Case for the Urgent Need to Clarify Tax Treatment for a Qualified Settlement Fund Created for a Single Claimant"; and
  • Is accessable on Risk's website. 
• Risk's thesis: Congress does not intend for the traditional judicial doctrine of economic benefit to apply to a Designated Settlement Fund (DSF) or a Qualified Settlement Fund (QSF) created for the benefit of a single claimant.
• Campbell's article will help educate elder law and special needs attorneys about the:
  • Strategic importance of IRC Section 468B Funds;
  • Legal controversy and business significance of single claimant 468B Funds;
  • Settlement planning business opportunities for elder law and special needs attorneys;
  • Need for Treasury and/or the IRS to issue positive legal confirmation and clarification for single claimant 468B Funds.
• Campbell's article expands traditional 468B fund analysis beyond structured settlements to include government benefits - specifically SSI, Medicaid, special needs trusts and the Deficit Reduction Act of 2005.

Campbell's Conclusions:

• Richard B. Risk, Jr. is correct. Congress, the United States Department of Treasury and the IRS have already endorsed single claimant 468B funds.
• Defendant structured settlement participants have argued for years that Qualified Settlement Funds (QSF) cannot be used in single claimant cases because of the economic benefit doctrine.
• Defendant arguments are:
  • Based upon self-interest - as opposed to the claimant's and society's best interest.; as well as
  • Technically incorrect based upon existing law.
• According to Campbell and Risk, legal analysis of IRC section 130, IRC section 468B and Revenue Procedure 93-34 supports the opposite conclusion: the traditional economic benefit doctrine is not applicable to qualified assignments in personal injury settlements.
• Also agreeing with Risk: Campbell asserts no legal basis exists to support any distinction by Treasury or the IRS between single claimant and multi-claimant 468B Funds.
• According to Campbell, 468B QSFs and 130 Qualified Assignments represent strategic and potentially cost-efficient settlement planning tools for all parties and stakeholders - including the U.S. government, state governments and taxpayers.
• With 468B, personal injury victims can and should be able to:
  • Achieve advantageous tax treatment;
  • Preserve SSI and Medicaid; and
  • Organize a special needs trust; without
  • Needlessly delaying the settlement.
• The rules defining the interplay of various 468B-related statutes and regulations (tax and government benefits), however, remain complex and require special legal knowledge.

Summary of Campbell's Analysis

• Periodic Payment Act of 1982
  • Campbell begins his analysis by summarizing the Periodic Payment Act of 1982 which created IRC section 130 and added "periodic payments" to IRC section 104(a)(2).
  • IRC section 130 allows a qualified assignment to be made by a "party to the suit or agreement" having liability to the plaintiff;
  • According to Campbell, plaintiffs and their advisors are increasingly upset with traditional defense-controlled structured settlements;
• Campbell confirms SSI and Medicaid as injury victim settlement planning priorities (as earlier espoused and explained by David Lillesand), the need to link structured settlements to SSI and Medicaid and the importance of special needs trusts for accomplishing that link.
• Campbell's article analyzes the role of 468B QSFs as an alternative to traditional defense-controlled structured settlements.
  • Qualified Settlement Funds under IRC 468B
    • Campbell summarizes the requirements for:
      • A "designated settlement fund" (DSF) as defined in IRC 468B which was enacted in 1986;
      • A "qualified settlement fund" (QSF) as defined in regulations issued by the Treasury in 1992;
      • Federal income taxation of 468B Funds.
    • Campbell notes:
      • IRC section 468B "contains no language that restricts the use of DSFs to the settlement of suits or claims involving multiple plaintiffs"; and
      • "The [468B] regulations state specifically that a QSF can be used to settle 'one or more' claims".
    • Qualified Assignments and Qualified Funding Assets under IRC 130
      • Campbell lists the requirements for a "qualified assignment" in IRC 130(a);
      • Summarizes the requirements for annuities as "qualified funding assets" in IRC 130(d);
      • Introduces and summarizes the concept of constructive receipt.
    • QSFs and Qualified Assignments in Single-Plaintiff PI Settlements
      • Campbell restates his primary issue: "whether a QSF holding funds from a PI settlement involving a single plaintiff can accomplish a qualified assignment under IRC 130"?
      • Introduces the concept of "economic benefit" citing and summarizing Sproull v. Commissioner.
      • Summarizes the economic benefit argument against allowing single claimant 468B funds
      • Argues that by amending IRC (c)(2)(C) in 1988 and dropping the "greater than a general creditor" language, Congress made the economic benefit doctrine inapplicable to qualified assignments in PI settlements.
      • Further argues that, so long as a plaintiff is not in constructive receipt of settlement proceeds, any party to a suit or agreement with liability to the plaintiff can accomplish a valid qualified assignment regardless of whether:
        • The settlement proceeds are placed irrevocably with a third party; or
        • The plaintiff has an unconditional vested right in the fund.
      • Lists the requirements under Revenue Procedure 93-34, issued by the IRS in 1993, for a qualified settlement fund to be treated as "a party to the suit or agreement" within the meaning of IRC 130(c)(1);
      • Concludes that IRC 130 and 468B and related regulations, as interpreted by the IRS, permit QSFs in single-plaintiff PI settlements to make qualified assignments under IRC 130 so long as the QSF is made a "party to the suit or agreement" in compliance with Revenue Procedure 93-34.
  • Strategies for Using Qualified Settlement Funds
    • How does a QSF make a valid Qualified Assignment?
      • Campbell recommends a "novation" in which the plaintiff, defendant, insurance carriers and the QSF trustee agree to assign defendant's liabilities to the plaintiff to the QSF.
      • As consideration, the defendant or its insurance carrier would pay the QSF an agreed upon lump sum to be used only to fund a qualified assignment.
      • Prior to the novation, the parties could petition the court to create the QSF, appoint an independent trustee and maintain jurisdiction until the QSF terminates.
      • The plaintiff would not have any rights to revoke, modify or compel distributions except to fund the qualified assignment.
      • The QSF could be substituted for the original defendant as a party to the case and ultimately enter into a final, court approved settlement with the plaintiff
      • The settlement would extinguish all liabilities assumed from the original defendant and require payment of all QSF proceeds into the QSF.
    • QFSs and Special Needs Trusts
      • Campbell recommends QSFs as "particularly useful" to allow planning for plaintiff's SSI or Medicaid eligibility.
      • Campbell reviews the requirements for self-settled special needs trusts provided in OBRA 93, FCIA, and the SSA POMS.
      • Campbell cites Ramey v. Rizzuto, a 1999 US District Court case in Colorado, as holding that, in SSI states, Medicaid agencies cannot employ methodologies or criteria more restrictive than SSI when evaluating trusts because an SSI recipient automatically qualifies for Medicaid.
  • Special Funding Issues
    • Medicaid Annuities under the Deficit Reduction Act of 2005
      • Campbell summarizes the DRA transfer requirements for annuities as an "either/or" proposition. According to Campbell, the annuity must be either:
        • "Irrevocable, non-assignable, actuarially sound and provides for substantially equal payments over the life of the annuity with no deferral or balloon payments; or
        • Name the state as death beneficiary up to the amount of Medicaid payments paid on behalf of the annuitant;
      • Campbell argues that the DRA should not apply for an IRC section 130 annuity funding a special needs trust because a PI settlement is purchased with assets of the party with liability to the plaintiff and not with assets that could be considered "available" to the plaintiff/Medicaid recipient.
    • Use of Annuities to Fund SSI and Medicaid Special Needs Trusts
      • Campbell states that "SSI and Medicaid do not prohibit the use of either deferred or balloon payments to fund exempt Special Needs Trusts if the annuities comply with IRC 130".
      • He further states "the Special Needs Trust should also be funded initially with a lump sum sufficient to provide immediate liquid funds for unexpected costs".
    • Naming the Trust as the Annuitant
      • Campbell recommends, for purposes of special needs trusts, that the annuity payee should be the trust and not the plaintiff/beneficiary.
      • According to Campbell, if the annuity is funded using a qualified assignment, the annuitant will not be able to amend the annuity at a later time to redirect payments into a Medicaid or SSI exempt trust.

IRC Section 468B Funds Revisited

S2KM previously has published online commentary about Internal Revenue Code Section 468B Funds:

• S2KM Blog Posts
  • Definitions of Designated Settlement Funds (DSF) and Qualified Settlement Funds (QSF);
  • Single Claimant 468B Funds
  • Robert Wood Podcast
  • SSP Annual Meetings featuring 468B discussions:
    • 2008 SSP Annual Meeting
    • 2006 SSP Annual Meeting
• S2KM Wikis
  • Structured Settlement Wiki
  • Structured Settlement Public Policy Wiki

In addition, hardcopy legal textbook "Structured Settlements and Periodic Payment Judgments" (Table of Contents), co-authored by Daniel Hindert, Joseph Dehner and Patrick Hindert, S2KM's blog author, features Section 3.08B titled "Section 468B Settlement Funds".

Because of the strategic importance of IRC 468B for the structured settlement and settlement planning industries, S2KM will revisit 468B Funds during 2008. As a preliminary focus, John J. Campbell, a leading elder law and special needs attorney, has published a new article titled "The Use of Qualified Settlement Funds, Qualified Assignments and Special Needs Trusts in Physical Injury Settlements" in the most recent issue of the NAELA Journal .

The NAELA Journal is one of many valuable educational resources offered by the National Academy of Elder Law Attorneys (NAELA). Published twice a year, the NAELA Journal features scholarly legal articles many of which address topics of interest for settlement planners and structured settlement professionals. As an association policy, however, NAELA currently limits distribution of the NAELA Journal to NAELA members and law schools.  For additional S2KM blog posts about NAELA, see 2008 NAELA Symposium.

In addition to Campbell's 468B article, the current NAELA Journal (Volume 4; 2008; Number 1) includes articles addressing:

• Monitoring guardianships
• Long-term care admissions contracts
• Transfer-on-death deeds
• Medicaid fair hearing decisions
• Psychology of mediation

Campbell is a frequent contributor to the NAELA Journal including earlier articles titled "Basic Strategies for SSI Planning" and "Preserving Public Benefits in Physical Injury Settlements: Special-Needs Trusts and Beyond". In 2007, Campbell was a featured presenter at the First Annual ASNP Conference. He spoke about the growing interaction between Medicaid and Medicare in personal injury settlements - creating the potential for what Campbell termed "Medicare Set-aside Special Needs Trusts".

Campbell's most recent NAELA Journal article highlights the complex interaction of IRC section 468B, IRC section 130 and 42 U.S.C.A section 1396p(d)(4)(A).

To better understand IRC 468B and evaluate Campbell article, S2KM recommends that settlement planners and structured settlement professionals also review online 468B legal analysis and commentary by Richard B. Risk, Jr and Robert W. Wood.

Risk's Most Recent 468B article:

• Is titled "A Case for the Urgent Need to Clarify Tax Treatment for a Qualified Settlement Fund Created for a Single Claimant";
• Was first published in the Virginia Tax Review and now appears on Risk's website;
• Asserts Congress did not intend for the judicial doctrine of economic benefit to apply to a DSF (Designated Settlement Fund) or a QSF (Qualified Settlement Fund) created for the benefit of a single claimant;
• Supports a June 19, 2003 letter written by partners at Skadden, Arps, Slate, Meagher & Flom to the Department of Treasury and Internal Revenue Service on behalf of the Society of Settlement Planners (SSP);
• Urges the Department of Treasury to issue favorable 468B guidance.
• Note:  Risk also moderates the tax panels at SSP's Annual Meetings (see links above) which feature and address 468B Funds.

Wood is the pre-eminent structured settlement and settlement planning tax attorney in the United States - as well as a prolific tax writer and commentator. Wood's most recent 468B article titled "Electing Code Section 468B Trust Treatment for Lawyers Trust Accounts After Receiving Settlement Proceeds" appeared in the February-March 2008 issue of the Journal of Tax Practice and Procedure. Wood's online commentary about 468B Funds is accessible at:

• Wood and Porter website
• This S2KM blog post
• S2KM's structured settlement public policy wiki
• The Settlement Channel

Future S2KM blog posts will summarize and analyze John Campbell's NAELA article about the interaction of 468B funds, qualified assignments and special needs trusts.