Beyond Structured Settlements

S2P2J Release 51

Publisher Law Journal Press anticipates an April 2012 distribution date for hardcopy supplements for Release 51 of "Structured Settlements and Periodic Payment Judgments" (S2P2J). Online S2P2J will also be updated April 2012 to include Release 51 materials. First published in 1986, S2P2J is co-authored and updated semi-annually by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert. Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) utilize S2P2J as an educational resource for their certification programs.

Release 51 Highlights

Release 51 for "Structured Settlements and Periodic Payment Judgments" features a comprehensive Executive Life update including expanded and updated coverage for the Executive Life of New York (ELNY) liquidation proceedings now in progress. In related reporting, Release 51 also:

• Expands and updates prior reporting for life insurance insolvency procedures and state guaranty association laws;
• Offers advice to plaintiff attorneys about how to address the risk of non-payment by annuity providers; and
• Summarizes recent case developments impacting Aurora, the successor company to Executive Life Insurance Company of California (ELIC),

Release 51 also updates Medicare Secondary Payer (MSP) developments and conditional Medicare payment requirements. Contributing author Peter H. Wayne IV provides current analysis and advice about Medicare Set-Aside (MSA) arrangements in liability cases discussing new and related case law, new CMS pronouncements and new CMS field office guidance with practice tips for structured settlement and settlement planning consultants, attorneys and claim supervisors.

Release 51 expands existing coverage of structured settlement business standards and practices including analysis of the following legislation impacting settlement planners:

• The NAIC Suitability in Annuity Transactions Model Regulation;
• The NAIC Annuity Disclosure Model Regulation;
• Dodd-Frank's impact on fiduciary and suitability standards; and
• The Uniform Prudent Investor Act.

Other topics addressed in Release 51:

• Structured settlement metrics for defendants and liability insurers.
• The Treasury's final regulations for IRC section 104(a)(2) incorporating amendments resulting from the Small Business Job Protection Act of 1996.
• The new IRS Lawsuits, Awards and Settlements Audit Techniques Guide.

"Structured Settlements and Periodic Payment Judgments" is now available in both hardcopy and online versions. For summaries of prior Release Highlights, see the structured settlement wiki.

New MSP Protocol in New York

Although no statutory or regulatory authority requires Medicare set-aside arrangements (MSAs) in third party liability settlements, confusion continues as to whether and when MSAs are necessary and/or appropriate for such cases.

CMS (the responsible Federal agency) has established certain basic requirements for workers compensation MSAs (WCMSA) in a series of memoranda beginning in 2001. CMS, however, has not offered any definitive statements about whether or when MSAs are needed to account for future medical expenses in liability settlements.

On May 6, 2011, the United States Attorney's Office for the Western District of New York (USAOWDNY) released a one page "Medicare Secondary Payor Protocol" (MSP Protocol) establishing a voluntary process by which that U.S. Attorney's Office will review MSA proposals for liability cases provided certain conditions are met.

The MSP Protocol issued by USAOWDNY specifically:

• Excludes liability cases involving mass torts;
• Confers no substantive rights;
• May be used or withdrawn at the unilateral discretion of the USAOWDNY;
• Provides a voluntary process; and
• Does not represent a CMS policy.

The MSP Protocol defines an MSA as: "An administrative mechanism used to allocate a portion of a settlement, judgment or award for future medical and/or future prescription drug expenses. A set-aside arrangement may be in the form of a Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA), No-Fault Liability Medicare Set-Aside Arrangement (NFSA) or Liability Medicare Set-Aside Arrangement (LMSA)."

The MSP Protocol requires applications for MSAs in liability cases to be made jointly by the Medicare beneficiary, or his representative, and "the primary plan", presumably meaning the liability insurer or self-insurer, and additionally requires:

• A copy of the MSPRC letter stating the matter concerning repayment for historical medical items and services related to the tort was reviewed and resolved or provide adequate assurance to that effect;
• The proposed LMSA related to the tort;
• An agreed copy of the settlement agreement subject to completion of the MSP obligations;
• A joint statement from the applicants that warrants:
  • The value of the agreed settlement equals or exceeds $350,000.00;
  • The plaintiff is a Medicare beneficiary as defined under 42 C.F.R. §400.202.
  • CMS was requested to approve the LMSA, but no substantive response has been received for at least 60 days from the date of the letter to CMS; and
  • An affidavit from the preparer of the LMSA that it is:
    • True and correct based on the Medicare beneficiary’s medical records and the injuries being released; and
    • In conformance with the WCMSA submission checklist as published by CMS

Subsequent to the application, the USAOWDNY may request additional information from the parties, including a request for an additional LMSA(s). Upon receipt of all required information, the USAOWDNY will issue a Release which will compromise the LMSA obligations related to the settlement, judgment, award or other payment.

For additional S2KM reporting about MSAs and liability cases, see:

• MSAs and Liability Cases - summarizing recent recommendations for MSAs in liability cases issued by NAELA and the ABA.
• MSAs and Liability Cases - 2 - reviewing a new article by Peter Wayne which offers advice to plaintiff attorneys about Medicare compliance in liability cases.

For more detailed information about MSAs and structured settlements, see Section 15.03 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).

MSAs and Liability Cases - 2

A prior S2KM blog post ("MSAs and Liability Cases") highlighted a challenging settlement planning priority: although no statutory or regulatory authority requires Medicare set-aside arrangements (MSAs) in third party liability settlements, confusion continues as to whether and when MSAs are necessary and/or appropriate for such cases.

In that earlier post, S2KM summarized recent recommendations for MSAs in liability cases issued by the National Academy of Elder Law Attorneys (NAELA) and the American Bar Association (ABA) respectively for special need attorneys (case specific) and the United States Congress (legislative).

A new article written by Peter Wayne offers advice to plaintiff attorneys about Medicare compliance in liability cases in the context of this statutory and regulatory uncertainty. Titled "Medicare Update: Information to Help with the Darkness of Medicare Compliance", Wayne's article was recently published in both the 2011 Winter Edition of the Arkansas Trial Lawyers Association's Docket and the NAELA Special Needs Law Section's Spring Newsletter.

While advising plaintiff attorneys, Wayne is sympathetic for defendants and liability insurers whom he characterizes as "hyper sensitive" to Medicare issues for two primary reasons:

• Dissemination of bad Medicare advice by attorneys, consultants and product providers who are positioned to benefit financially from uncertainty; and
• Continued extension by CMS of its enforcement deadline for liability claim reporting under the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) now re-scheduled to begin the first quarter of 2012.

Wayne's article explains and differentiates current Medicare liability case compliance requirements for:

• "Conditional payments" (amounts paid by Medicare for injury related medical care between the time of injury and settlement) where several parties, including plaintiffs and defendants, run the risk of liability for failing to properly protect Medicare’s interest; and
• "Future interests" (using, for example, an MSA) where the plaintiff and plaintiff’s attorney are responsible, but not the defendant or its insurer.

Conditional Payments - Summary of Wayne's advice for plaintiff attorneys:

• Notify the Medicare Coordinator of Benefits Contractor (“COBC”) of the cause of action.
• Then COBC will assign the case to the Medicare Secondary Payer Recovery Contractor (“MSPRC”).
• Provide the required information along with a signed retainer agreement or proof of representation form.
• Then MSPRC will send the attorney a conditional payment summary within 60-90 days.
• Medicare will send a final demand once the MSPRC is notified of the final settlement and provided with the final settlement detail.
• Pay the final Medicare demand within 60 days of receipt in order to avoid incurring interest and penalties.

Wayne's article also highlights H.R. 4796, the Medicare Secondary Payer Enhancement Act, which proposes these improvements for conditional payments:

• Three year statute of limitations for Medicare to recover their conditional payments;
• Primary payer right of appeal;
• Eliminating the use of private information for MMSEA compliance;
• $5000 minimum threshold for all Medicare Secondary Payer (MSP) claims;
• Changing the MMSEA penalty provision from mandatory to discretionary;
• Simplifying the conditional payment process.

Future Interests - Summary of Wayne's advice for plaintiff attorneys:

• Unlike conditional payments, the obligation to satisfy Medicare’s future interests is solely the responsibility of the plaintiff and plaintiff’s attorney.
• CMS has not offered any definitive statements about whether MSAs are needed to account for future medical expenses in liability settlements.
• In workers compensation settlements, MSAs are simply CMS’ preferred methodology for protecting Medicare’s future interest and are not required by law.
• Section 111 of the MMSEA addresses reporting requirements and does not address or require MSAs.
• Circumstances where a plaintiff attorney should consider establishing an MSA or obtaining an objective third party opinion for a liability settlement:
  • If the liability settlement will create a permanent shift of the burden for paying for the Medicare beneficiary’s future injury‐related medical expenses from the liability insurance policy or plan to Medicare; and
  • The liability settlement provides a definitive allocation of settlement money to the plaintiff’s future injury‐related medical care.

For additional information about Medicare and structured settlements, see Section 15.03 of "Structured Settlements and Periodic Payment Judgments".

Structured Settlements in 2010 - 2

Beginning in 2004, S2KM has utilized this blog ("Beyond Structured Settlements") and related web 2.0 publications to report and analyze strategic developments impacting the structured settlement and special needs settlement planning (aka settlement consulting) industries.

Featuring industry leaders, commentators and professional association conferences, S2KM has attempted to highlight how legal and technology changes are redefining the traditional (pre-2001) structured settlement market including structured settlement public policy as well as structured settlement business standards, business practices and business models.

From S2KM's perspective, the following categories, people and developments defined the structured settlement and special needs settlement planning industries in 2010:

Professional associations

• S2KM attended seven professional educational conferences during 2010 which addressed structured settlement and/or special needs settlement planning issues:
  • National Structured Settlement Trade Association (NSSTA) - 2
  • Society of Settlement Planners (SSP)
  • National Association of Settlement Purchasers (NASP)
  • National Alliance of Medicare Set-Aside Professionals (NAMSAP)
  • National Academy of Elder Law Attorneys (NAELA)
  • Academy of Special Needs Planners (ASNP)
• As a general observation, all of these conferences were valuable and complementary. For S2KM's 2010 (plus historical) conference reports, see S2KM's structured settlement wiki.
• SSP, NASP and NAMSAP deserve special recognition for their 2010 strategic educational discussions featuring industry leaders, commentators and critics who offered alternative perspectives for improving and growing the structured settlement and special needs settlement planning markets.
• By comparison, NSSTA remains reluctant to openly discuss strategic industry issues or to include alternative perspectives in their educational programs. More positively, NSSTA representatives and members increasingly attend and speak at non-NSSTA structured settlement and special needs settlement planning conferences.
• NAELA's educational conferences are noteworthy because they regularly feature sections or entire programs titled "unprograms". NAELA's unprograms are moderated group discussions about specific topics. NAELA's 2010 Special Needs Summit included six separate one hour unprograms with a concluding unprogram wrap-up session. One example of a 2010 NAELA unprogram was titled "Collaboration Opportunities for Special Needs Attorneys and Financial Planners".

Industry leaders

• NSSTA promoted Eric Vaughn, who previously served as NSSTA's lobbyist, to replace Joseph Ricci as NSSTA's new Executive Director effective July 1, 2010. Peter Arnold, previously NSSTA's Marketing Director, was similarly promoted to serve as NSSTA's Associate Executive Director. NSSTA's Board of Directors elected Michael Kelly as its 2010 President and Dan Finn as its President-elect. NSSTA honored Congressman Peter Stark during its Annual Meeting as its 2010 Legislator of the Year. NSSTA also gave special recognition to Karen Meyers and Joseph Bornstein for their contributions to NSSTA's CSSC and NSSTAPAC programs respectively..
• SSP elected Jason Lazarus as its President for 2010-11 and Charles Schell as Vice President. SSP honored Richard Risk with the designation of "life member" for his contributions to SSP and the settlement planning industry. Joseph Tombs continues as Director of SSP's RSP certification program.
• NASP named Matthew Bracy as its new President succeeding Robin Shapiro. Earl Nesbitt continues as NASP's Executive Director.
• NAMSAP elected Michael Westcott as its President.
• NAELA honored Dick Traum as the first recipient of NAELA's Special Needs Leadership Award. Traum is the founder and CEO of Achilles International, a non-profit organization providing community support for athletes with disabilities with members in more than 70 countries.
• Amy Palmiero-Winters, ultra-marathoner and lower-leg amputee, was named during 2010 as the winner of the 2009 James E. Sullivan Award given annually to the top amateur athlete in the United States.

Industry commentators

• For the past several years, Robert Wood has been the preeminent tax commentator and author for the structured settlement and settlement planning industries. Wood's publications appear on the Wood & Porter website.
• During 2010, Jeremy Babener emerged as an important new structured settlement tax commentator and author specializing in public policy and proposing an expanded structured settlement tax subsidy. In addition to authoring several structured settlement articles for tax and legal journals, Babener participated as a featured speaker at both the SSP and NASP 2010 Annual Meetings and authored two blog posts for S2KM during 2010. Babener discussed his structured settlement writing (accessible on S2KM's structured settlement public policy wiki and Babener's Tax Structuring website) in this 2010 S2KM interview.
• Additional authors who wrote and published 2010 legal articles about structured settlement and special needs settlement planning issues included: Daniel Hindert, Matt Garretson, Sylvius von Saucken, Peter Wayne, Mark Popolizio, Gregg Polsky and Brant Hellwig.
• Both the Legal Broadcast Network and Ringler Radio continued to produce and distribute podcasts featuring structured settlement commentators during 2010.
• An increasing number of structured settlement and special needs settlement planning professionals published blogs during 2010 joining industry blogging pioneers such as John Darer, Mark Wahlstrom, Matthew Bracy and Jack Meligan.
• Incisive Media published two new updates (Release 47 and Release 48) for "Structured Settlements and Periodic Payment Judgments" during 2010.

Legislation

• Both the Patient Protection and Affordable Care Act (Health Care Reform) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) redesign the legal environment in which the structured settlement and personal injury settlement planning markets operate.
• Among the anticipated strategic consequences of health care reform:
  • An estimated 16 million more Medicaid participants - and therefore:
  • More special needs trusts;
  • More special needs attorneys;
  • More structured settlement annuities payable to trustees.
• Dodd-Frank re-writes federal banking law and creates a new Bureau of Consumer Financial Protection. A key question, as yet unanswered, is whether the sale and/or purchase of structured settlement annuities constitutes a "financial product or service" under Dodd-Frank requiring regulatory supervision by the Bureau.

Regulations

• The United States Department of Treasury held a public hearing on February 23, 2010 focused on proposed new regulations for Internal Revenue Code section 104(a)(2). The proposed regulations, if enacted, would:
  • Eliminate the requirement that damages be based on “tort or tort type rights” in order to qualify for the section 104(a)(2) tax exclusion, and
  • Incorporate 1996 legislation requiring that personal injuries and sickness damages be “physical” in order to qualify for the section 104(a)(2) tax exclusion.
  • A subsequent S2KM interview featured John McCullough and Richard Risk, two of the structured settlement industry members who spoke at the hearing.
• The Centers for Medicare and Medicaid Services (CMS) continued to issue administrative guidance during 2010 for enforcement of the Medicare Secondary Payer (MSP) Act of 1980 and the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) reporting requirements for insurers. Featured discussions during the NAMSAP 2010 Annual meeting highlighted:
  • The increasing importance and complexity of the MSP statute for all personal injury stakeholders;
  • The need for these personal injury stakeholders (and their professional associations) to cooperate politically and educationally;
  • The challenges of integrating structured settlements, including rated ages, with Medicare set-aside arrangements (MSAs) in the context of health care reform, CMS MSA regulations and related judicial rulings;
  • The evolving business models, claim management strategies and professional skill sets which are now emerging to address these challenges.

Case law

• The Spencer v. Hartford class action lawsuit which settled in 2010 represents one of the most important legal developments in the history of the structured settlement industry.
• Hartford's gross settlement payment of $72.5 million represents 4.5% of total premium dollars Hartford used to purchase structured settlement annuities for class members from January 1, 1997 to June 7, 2010.
• Among the plaintiffs allegations:
  • Hartford and its attorneys, brokers and agents violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and committed common law fraud in structuring its settlements.
  • Hartford's structured settlements were priced so Hartford retained 15% of the value of the structured settlements.
  • Hartford and its attorneys, brokers and agents misrepresented structured settlements including explicit or implicit reference to:
    • The "cost" of the annuity or structured settlement or portion of the settlement being structured; and/or
    • The "value" of the annuity or structured settlement or portion of the settlement being structured.
• Hartford, which stopped writing new structured settlement business in 2009, denied the allegations.

Technology

• Despite the accelerating technology advances revolutionizing society generally, the structured settlement and special needs settlement planning industries have been slow to study and incorporate these advances into their educational programs and business models.
• The best industry-sponsored technology education programs during 2010 were offered by Mark Miller during a NAELA webinar and Harry Margolis at the ASNP 2010 Annual Meeting. Both presentations provided introductory overviews of web 2.0 and including recommendations for integrating specific social networking tools into special needs legal practices.
• NSSTA initiated a NSSTA blog during 2010 and offered an educational program about Internet marketing during its 2010 Fall Education program.

Public policy

• Both SSP and NASP featured specific discussions and presentations about structured settlement public policy during their 2010 Annual Meetings. The discussions included industry commentators representing diverse viewpoints and priorities.
• Jeremy Babener followed his 2009 paper debunking industry myths concerning "structured settlement dissipation studies" with several 2010 articles and papers addressing structured settlement public policy issues. Babener's public policy writing is featured on S2KM's structured settlement public policy wiki.
• Release 47 of "Structured Settlements and Periodic Payment Judgments" re-examined several structured settlement public policy issues related to single claimant 468B funds, structured settlement factoring transactions, dissipation by personal injury victims, the Deficit Reduction Act of 2005, special needs trusts and Medicare set-aside arrangements.
• In a 2010 Boston College Law Review article, professors Gregg Polsky and Brant Hellwig challenged the application of any structured settlement tax benefit for deferring attorney fees or payments to non-physically injured tort plaintiffs under general common law tax principles.

Business standards and practices

• The Spencer v. Hartford case raises many issues about structured settlement business standards and practices which require greater education and analysis if the primary market expects to improve and grow. For example;
  • Is the primary structured settlement market capable of self-regulation?
  • Why shouldn't key elements of the state structured settlement protection statutes (judicial approval; best interest test; compensation disclosure) be applied to primary market transactions?
  • As an additional requirement, or as an alternative, why haven't plaintiff attorneys and plaintiff consultants insisted upon a claimant's written informed consent before entering into a structured settlement?
  • Why haven't the SSP's Standards of Professional Conduct received more public discussion and analysis within the structured settlement industry?
• "Cash now" advertising represents one of the most highly criticized secondary market business practices. Although this practice continues to exist, NASP took an important educational step during its 2010 Annual Meeting by highlighting this issue and inviting secondary market critics to participate in the discussion.

Business models

• While other segments of, and products within, the special needs settlement planning market have expanded and improved in recent years, the structured settlement primary market in general has stagnated and retrenched.
• During 2010, however, representatives of the primary structured settlement market increasingly recognized their interdependency, and interacted, with other settlement planning professionals and professional associations such as special needs attorneys, life care planners, Medicare set-aside professionals and secondary structured settlement market participants.
• Future industry improvement and growth will require even greater appreciation and identification of shared interests as well as expanded implementation of shared political strategies, educational programs and business models.

Prior S2KM annual reports about the structured settlement industry and reports about industry association conferences are available on S2KM's structured settlement wiki.

Forge Purchases The Settlement Services Group

Attorney Matthew Garretson has announced the sale of his structured settlement agency, The Settlement Services Group, (“TSSG”) to Forge Consulting (“Forge”) a leading plaintiff-exclusive, national settlement consulting company. Garretson said the timing was right for him to focus exclusively on the core lien/claims administrative services of the Garretson Firm Resolution Group Inc. (“GFRG”). Several former TSSG employees will join Forge including former Director of TSSG, Steve Komrska, and attorney Peter Wayne, as legal counsel.

In a related announcement, Forge named Patrick Hindert (Managing Director) and Timothy Morbach (Director of Sales) as TSSG's new executive directors. Hindert will continue to serve as Managing Director of S2KM Limited. Morbach previously worked as Vice President-Investments at UBS Financial Services Inc.

In exclusive interviews with S2KM, Garretson, Forge Principal Charles Schell and Morbach summarized the TSSG sale and re-organization:

Garretson: "TSSG and Forge now have one of the most innovative and comprehensive lineups of financial services available in the personal injury field for both single event and mass tort settlements. The sale of TSSG to Forge, however, will have no impact on the Garretson Firm and its services. The Garretson Firm will continue to serve its clients with superior lien resolution, claims administration, bankruptcy and probate coordination, settlement allocations, Medicare Set-Aside analysis, and Qualified Settlement Fund services".

Schell: “TSSG and Forge have a longstanding cooperative relationship on numerous single event and mass tort cases. Both companies share a common goal of serving the settlement community as well as mutual respect as two of the country's leading settlement planning firms.

"With leadership from Pat Hindert and Tim Morbach, TSSG will operate autonomously as an independent firm with a claimant/plaintiff centric message. TSSG will provide all stakeholders access to “the power of structure” unencumbered by historic structured settlement business practices.

"TSSG will facilitate comprehensive solutions featuring structured settlements and incorporating other government benefits. TSSG will improve structured settlement performance and enhance the role of structured settlements within the larger settlement services industry Matt Garretson and Forge have helped to define. TSSG will improve and grow the structured settlement market with this broader independent message."

Morbach: “Pat Hindert and I are excited for the opportunity to work together at TSSG. Our Mission is to develop the leading structured settlement business model based upon Matt Garretson's structured settlement legacy and complementary with Forge's plaintiff-centric commitment. TSSG's business model will meet standards in the wider financial services industry where product providers and their agents must 'know their customer' and meet "best interest" tests.

"Pat and I view structured settlements as a core settlement service product. From an investment and financial planning perspective, structured settlement annuities represent a strategic asset class within the settlement services and special needs markets. We see many opportunities to improve and grow structured settlements."

TSSG will be based in Cincinnati, Ohio with initial offices in Cincinnati and Northville, MI. For further inquiries, please contact TSSG Managing Director, Patrick Hindert, at (513) 899-2100 or pjhindert@tssg.net.