Continuing a series of workers compensation (WC) Medicare set-aside (MSA) regulatory compliance initiatives, the Centers for Medicare and Medicaid Services (CMS) has published a WCMSA Self-Administration (SA) Toolkit.
CMS' stated purposes for this Toolkit are to help WCMSA self-administrators:
- Manage their WCMSA accounts appropriately.
- Satisfy Medicare’s interests related to future medical care.
- Ensure Medicare will pay future Medicare-covered costs related to their WC injuries when the WCMSA is depleted.
MSAs are administrative and funding mechanisms utilized in certain categories of settlements to protect Medicare's interests as "secondary payer" under the Medicare Secondary Payer (MSP) statute. Enacted in 1980, the MSP Act requires certain insurers, including liability, automobile, no-fault and workers compensation insurers, to make payment first for services to Medicare beneficiaries regarding claimed injuries, with Medicare responsible only as a “secondary payer.”
CMS, the agency responsible for administering Medicare policies, failed to take practical steps to enforce the MSP rules until 2001 when it issued the first of several policy memoranda addressing WCMSAs. These policy memoranda created a format, checklists and procedures for seeking approval for WCMSAs to "protect Medicare's interests" when workers compensation cases are settled.
Several of these WCMSA policy memoranda address, directly or indirectly, structured settlement issues. One of these policy memoranda (dated October 15, 2004) addresses WCMSA present value calculations and provides an important pricing advantage for annuity funding compared with lump sum funding.
During 2013, CMS published both an 88 page WCMSA Reference Guide (WCRG) and a 13 page supplement (WCRG Version 2.0). The WCRG's intended purpose is to help WCMSA professionals, beneficiaries and other stakeholders "understand CMS' [WCMSA] amount approval process and to serve as a reference for those electing to submit such proposals to CMS for approval."
S2KM has written two blog posts summarizing the initial WCRG:
- Part 1 - Non-structured settlement issues.
- Part 2 - Structured settlement issues.
- For highlights of the WCRG Version 2.0, see this blog post written by Douglas Shaw.
Significantly for structured settlements, WCRG Appendix 4 defines "present-day value" as "the cost to fund a WCMSA annuity" and further states: "[t]he WCRG follows all CMS policy memorandums currently in effect."
Neither WCRG Version 2.0 or the WCMSA SA Toolkit address "present value". Therefore, it appears the October 15, 2004 CMS WCMSA policy memorandum remains in effect and annuities continue to offer lower-cost funding alternatives compared with lump sums for many, if not most, WCMSAs.
Although CMS and its field offices have also issued informal guidance about the use of MSAs in liability cases, nothing comparable exists to the CMS WCMSA memoranda, WCRG or WCMSA SA Toolkit. As a result, there currently is no consensus among tort practitioners as to whether and when MSAs are required in liability cases. Anticipating publication of MSA rules for liability cases, however, CMS has published HHS/CMS RIN: 0938-AR43.
Structured Settlements - Comparing the WCMSA SA Toolkit and the WCRG
Although both the MSAWC SA Toolkit (Toolkit) and the WCRG both address structured settlements in multiple sections, the administration (post-settlement) focus (including structured settlements) of the Toolkit is narrower than the WCRG and its treatment of structured settlement issues is generally less comprehensive.
The following Toolkit sections address structured settlement issues. S2KM has added references to related WCRG sections where applicable.
- Section 3: How Your WCMSA is Funded - compare WCRG Section 5.0.
- Section 8: Annual Attestation
- Section 11: Topics Unique to Structured Accounts - compare WCRG Section 19.3.
- Section 13: Letters and Examples - which includes three sample structured account attestation and expenditure letters which do not appear in the WCRG:
- Annual attestation.
- Temporary exhaustion.
- Permanent exhaustion.
- Section 14: Glossary - The Glossaries of the both Toolkit and the WCRG include definitions for "structured settlement". Although consistent, the two definitions are worded slightly differently. Neither definition mentions annuities or references the tax definition for "structured settlement" in IRC 5891(c)(1).
The Toolkit does not address structured settlement issues which appear in the following WCRG sections:
- Section 10.1.1
- WCMSA cover letter
- Settlement amount
- Section 10.1.3 - Rated Age Information or Life Expectancy
- Appendix 5:15 - Rated Age Information or Life Expectancy
- Rated Age Statement
- Annuity Provider Underwriting Assessment
- Annuity Broker Statement
- Appendix 5:25 - Settlement Agreement or Proposed or Court Order
Related S2KM reporting