Beyond Structured Settlements

NAELA 2013 Annual Meeting

The National Academy of Elder Law Attorneys (NAELA) celebrated its 25th anniversary last week in Atlanta - commemorating its past achievements, analyzing current legal and demographic issues and preparing for future growth and development.

Among many former NAELA Presidents in attendance, Vincent Russo was given the honor and challenge of reviewing NAELA's "25 years in 25 minutes". Russo's historic overview highlighted NAELA's early decision to open its legal membership on a "non-exclusive" basis to create a new breed of attorneys dedicated to community service. NAELA's membership has expanded its focus in recent years to embrace special needs as well as elder law issues.

With more than 4300 members and a strong financial balance sheet, NAELA's resources now include: the NAELA Foundation, multiple publications including the NAELA Journal, Aspirational Professional Standards, a vibrant website featuring a comprehensive library and hosting NAELA's active online community, specific practice sections, state chapters, robust educational conferences and certification programs, multiple annual awards, plus a highly competent staff.

Elder Abuse

NAELA's 2013 Annual Conference agenda offered a diverse educational experience plus 26 exhibitors for more than 250 attendees. One of the featured topics was financial "elder abuse", a serious and under-reported problem with an estimated annual cost exceeding $3 billion in the United States.

Guest speakers addressing financial elder abuse included Mickey Rooney and Tony West. Rooney, the 92 year old actor, testified about elder abuse before a U.S. Senate committee in 2011. Appearing at NAELA's conference via live video, Rooney described how he was victimized and rendered penniless by two of his stepchildren. West, Acting Associate U.S. Attorney General, oversees the U.S. government's efforts to prevent elder abuse.

Additional topics that received multiple presentations at the NAELA conference:

• Skill development - advice for running a successful elder law and/or special needs legal practice.
• How changing demographics are impacting special needs and elder law practice.
• Social media and related Internet technologies.
• Fiduciary responsibilities for attorneys representing special needs individuals.
• Legal updates - for estate planning, special needs and elder law.
• Drawing a line on what constitutes the practice of law.
• The future of long term care.

Structured Settlements and Special Needs Planning 

Patrick Hindert, author of the "Beyond Structured Settlements" blog, spoke at the NAELA conference about the challenges of integrating structured settlements and special needs planning into a collaborative settlement planning profession. Hindert's presentation addressed:

• What is known (and not known) about settlement planning.
• Why structured settlements and settlement planning are strategically important for special needs attorneys.
• New standards and practices that are reshaping settlement planning.
• Public policy issues which will determine the future of settlement planning.
• How special needs attorneys can expand their settlement planning practice.

The Future of Elder and Special Needs Law

To help celebrate NAELA's 25th anniversary, the NAELA Journal is dedicating its 2013 Spring and Fall editions to a two-part symposium on the future of Elder and Special Needs Law. The editors have asked leading U.S. legal authorities "to predict what the law and our practices might look like 25 years from now and the challenges that clients, our society, and we, as Elder and Special Needs Law attorneys, will face."

Congratulations to all NAELA conference participants, especially NAELA President Gregory French and conference Co-Chairpersons Rebecca Morgan and Edwin Boyer, for an outstanding 25th anniversary meeting. Continued success for NAELA and its members in representing and advocating for the rights of elderly and special needs individuals.

For S2KM's reporting about:

• Prior NAELA conferences - see the structured settlement wiki.
• How the Affordable Care Act impacts personal injury settlement planning - see the "Affordable Care Act" - Part 1 and Part 2.

Affordable Care Act - 1

The Affordable Care Act (ACA) refers to two controversial laws enacted in March 2010, the Patient Protection and Affordable Care Act and the Health Care Education and Reconciliation Act, which restructure the fundamental relationship among government, health care providers and health care recipients and profoundly impact persons with disabilities.

Although some Republicans in Congress still threaten to repeal the ACA, the Supreme Court upheld almost all of the ACA's provisions in 2012, including the individual mandate and elimination of pre-existing condition restrictions, which will become effective nationally on January 1, 2014.

How will the ACA impact personal injury damage awards, settlement planning and structured settlements?

Professional associations whose members engage in settlement planning have already begun to address these issues:

• Speakers at recent Academy of Special Needs Planners (ASNP) annual educational conferences (Cynthia Barrett in 2011, David Lillesand in 2012 and Scott Solkoff in 2013) explored these issues in the context of special needs planning.
• The National Academy of Elder Law Attorneys (NAELA) devoted the Spring 2011 issue of its NAELA Journal to the impact of the ACA on Elder and Special Needs Law attorneys and their clients.
• The Society of Settlement Planners (SSP) will feature a presentation by Thomas Begley titled "The Impact of the ACA on Personal Injury Settlements, Structured Settlements and Special Needs Trusts", plus a related panel discussion, during its 2013 Annual Meeting.

Recent research papers and law review articles have further expanded analysis of these strategic ACA issues. One such research paper, titled "Potential Effects of the Affordable Care Act on the Award of Life Care Expenses" and written by Joshua Congdon-Hohman and Victor A. Matheson, was published September 2012 as part of the College of the Holy Cross, Department of Economics, Faculty Research Series (Paper No. 12-01).

Their paper argues: "the ACA may well have indirectly resulted in a great deal of tort reform" and, as a result, "awards in personal injury cases could be dramatically impacted" because:

• Future medical expenses represent a significant element of damages in many personal injury cases.
• When the ACA is fully implemented in 2014, all individuals will be required to purchase health insurance or pay a penalty.
• The ACA provides insurance premium subsidies for low income individuals who do not receive health insurance through the government or from a family member’s employer.
• The ACA prevents price discrimination based on health status and bans annual and lifetime expenditure limits.
• Most individuals will pay the same cost for health insurance before and after an accident.
• The legal maximum out-of-pocket expenses allowable under the ACA is $5,950 per year.
• The goal of tort law is to make the plaintiff "whole".
• Funding of health care through private insurance is a valid methodology for accomplishing this goal now that the ACA makes those markets available to injury victims.
• Therefore, the ACA:
  • Should simplify and reduce calculations of future medical damages;
  • By limiting those costs to "[health insurance] premiums and out-of-pocket limits less any pre-injury expected medical costs and penalties if uninsured."

What about the "collateral source rule"?

Congdon-Hohman and Matheson, who are economics professors, acknowledge a collateral source issue is "at play" and "remains of significant importance". They argue, however, "there is reason to believe the ACA changes the underlying reason of excluding collateral source compensation from inclusion in tort cases."

More specifically, the authors maintain: "removing existing health insurance coverage from exclusion under the collateral source rule would not significantly affect health insurance coverage rates reducing the economic rationale for having a collateral source rule in place for health insurance."

In their paper, Congdon-Hohman and Matheson highlight additional provisions of the ACA which they believe will impact many life care plans:

• ACA provisions limiting growth of premiums and medical costs:
  
  • Limits on insurers' non-care based expenses.
  • Formal requirements to justify rate increases.
  • New standards to lower administrative costs.
  • Funding for new wellness and prevention strategies.
• ACA provisions reducing the tax deductibility of medical costs:
  • Reductions in eligible expenditures and nominal limits for flexible spending accounts.
  • An increase in the deductible medical expense threshold from 7.5 percent of adjusted gross income to ten percent.
  • An an excise tax on “taxable medical devices.”

As a related result of the ACA, Congdon-Hohman and Matheson believe life care planners will play an increasingly important role in personal injury damage analysis. Prior to the ACA, life care planners were tasked with identifying medical and living expenses not otherwise required "but for" the accident.

Under the ACA, the authors maintain life care planners must also identify which health care and living expenses will, and will not, be covered by the ACA's minimum insurance requirements. And, despite certain minimum federal standards, these requirements may differ by state.

Cogdon-Hohman and Matheson's research paper provides a valuable educational resource for all personal injury stakeholders. For settlement planning professionals who are attempting to understand how the ACA impacts personal injury damage analysis, negotiation strategy, work product, and funding options, this paper should encourage expanded industry discussion and analysis.

For S2KM's complete reporting and continuing commentary about the ACA, see the structured settlement wiki. For a comprehensive analysis about structured settlements and government benefits, see Chapter 15 of "Structured Settlements and Periodic Payment Judgments"(S2P2J).

SSP 2013 Annual Meeting

Since it was founded in 2001, the Society of Settlement Planners (SSP) has defined itself as an alternative to the National Structured Settlement Trade Association (NSSTA); and defined its membership as more than plaintiff structured settlement brokers. The resulting settlement planning business model features:

• Structured settlement annuities as a core funding product, but not as a singular funding vehicle or product, for personal injury settlement plans; and
• Settlement planners, as "claimant centric", multi-professional, advisers who collaborate as a team and offer injury victims and plaintiff attorneys complementary knowledge, skill sets and work product.

To support and expand this settlement planning business model, SSP has developed and promoted:

• Standards of Professional Conduct for Settlement Planners;
• The Registry of Settlement Planners certification program; and
• Annual educational conferences.

To improve and grow both the structured settlement and settlement planning markets, SSP President Charles Schell has proposed the following strategy:

• "Study and improve our business standards and practices.
• "Develop "customer centric" solutions that help injury victims.
• "Build collaborative business models by focusing on shared interests."

SSP recently announced the agenda for its 2013 Educational Conference which will take place May 5-7 in Las Vegas. Featured topics and speakers, organized by S2KM-suggested categories:

Motivation, Marketing and Perspective

• The Art of Significance - Dan Clark
• Overcoming Objections and Managing Opportunities - Frank Maguire
• Life Lessons from the Lottery - Don McNay

Affordable Care Act (ACA)

• Impact on Personal Injury Settlements, Structured Settlements and Special Needs Trusts - Thomas Begley
• ACA Panel - Thomas Begley; Pi-Yi Mayo; Karen Meyers

 Qualified Settlement Funds

• Update - Pi-Yi Mayo
• Panel - Pi-Yi Mayo; Don McNay; Andy Cook; Mark Wahlstrom.

 Settlement Planning Team

• Partnering with Ancillary Service Providers - Anthony Prieto; Dave Place
• Professional MSA Administration - Don Batchelor
• Tax issues - Jeremy Babener
• Partnering with Investment Professionals - Victor Wilkerson
• Working with Benefit Expert Attorneys - Peter Wayne

 Government Benefit Issues

• MSA Allocation Process - Michael Greco
• Social Security Disability Benefits - Omar Ortega and Kip Daniels
• Spend Downs - Kristen Behrens; Thomas Begley
• How to Fix the MSA Program - Doug Shaw

 Settlement Trusts

• Settlement Trusts - Karen Meyers
• Funeral Trusts - Scott Leonardi
• Pooled Trusts - Jason Lazarus

Settlement Planning Products

• Long-term Care Insurance - John Darer
• Guaranteed Index Annuities - David Salko and John O'Connell
• Defined Benefit Plans for Plaintiff Attorneys - Rosendo Zepeda, Jr.

 Related S2KM Resources:

• Spring 2013 Educational Conferences
• SSP 2012 Annual Meeting
• Settlement Planning in 2012
• Alternative Business Models
• ASNP 2013 Annual Meeting

ASNP 2013 Annual Meeting

Although special needs (SN) planning encompasses non-personal injury clients, settlement planning, with and/or without structured settlements, represents an increasingly important component of both the SN market and the educational focus of its practitioners.

The Academy of Special Needs Planners (ASNP) hosted its seventh annual meeting in Austin, Texas March 21-23 which featured the following topics and speakers:

• Impact of the Affordable Care Act on SN Planning - Scott Solkoff
• Modifying Problem Trusts into Effective Special Needs Trusts (SNTs) - Renee Lovelace
• SNT Issues at the Social Security Administration - Eric Skidmore, Sean Balser, Kevin Urbatsch
• The Jimmo v. Sibelius Medicare Settlement - Margaret Murphy
• SSI Update and New Social Security Strategies - David Lillesand
• Medicaid Third-Party Liability Liens Post-Ahlborn - Floyd Faigle
• Settlement Planning Under Changing Conditions - Donna Meyer, Sharon Pope, Patrick Hindert, Jason Lazarus
• Drafting Special Needs Trusts - Nancy Chudacoff, Sheri Sudweeks, Vincent Russo
• Establishing the Financial Needs of the Special Needs Beneficiary - Jerry Hulick
• Administration of SNTs - Travis Finchum, Kathy Christofell, Jerry Hulick, Renee Lovelace
• Determining a Reasonable Attorney Fee - Mary Alice Jackson

Settlement Planning and Structured Settlement Highlights

Affordable Care Act

• ACA and Settlement Planning - The Affordable Care Act (ACA) changes settlement planning in fundamental ways which speaker Scott Solkoff highlighted in his comprehensive review:
  • Reduced personal injury verdicts and settlements.
  • A different calculus for determining future medical damages based upon health insurance costs.
  • Fewer first party special needs trusts (SNTs).
  • Reduced demand for Medicare and Medicaid for persons with disabilities under age 65.
  • New opportunities for special needs attorneys because of the complexity of the ACA.
• ACA, Verdicts and Settlements - S2KM will address the impact of the ACA on personal injury verdicts and settlements in future blog posts.
• ACA, SSA and SNTs - During an ASNP question and answer session moderated by Kevin Urbatsch and featuring representatives of the Social Security Administration (SSA Question and Answer session), the following exchange occurred:
  • Question: will the SSA allow early termination of SNTs to comply with ACA?
  • SSA Answer: right now, any early termination of a SNT will require payment of reversionary interest.

Settlement Planning and SN Attorneys

The ASNP settlement planning panel was one of several presentations which identified expanding opportunities for SN attorneys. Patrick Hindert, author of S2KM's blog, provided an analysis of the settlement planning market which emphasized changing structured settlement business and transactional models. Hindert highlighted the need for better standards and metrics as well as the importance of qualified settlement funds (QSFs) and the secondary structured settlement market. Sharon Pope discussed settlement planning practice issues and provided sample documents to help special needs attorneys expand their settlement planning practice. Jason Lazurus summarized new developments and cases impacting the use of Medicare set-aside arrangements in liability cases.

For SN attorneys to expand their settlement planning practice, ASNP's panel recommended more in-depth study of non-SNT settlement planning issues including the settlement planning market, the settlement planning team and the settlement plan itself. The panel's handout materials also identified a list of settlement planning documents organized among the following stages of the settlement planning process:

• Engagement
• Assessment
• Design
• Negotiation
• Implementation
• Monitoring

In addition to the settlement planning panel, multiple ASNP presenters discussed specific settlement planning issues. In addition to settlement topics and presenters mentioned elsewhere:

• Jimmo v. Sibelius - Margaret Murphy summarized this recent settlement which has important implications for anyone who needs skilled care as well as for skilled nursing facilities, home health and outpatient facilities. As a result of this settlement, Medicare claims should no longer be denied on a rule-of-thumb determination that a beneficiary's condition is not improving.
• WOS v. E.M.A. - Floyd Faiglie made a last minute addition to his Medicaid lien presentation to address this March 20, 2013 U.S. Supreme Court decision. The decision expanded the Supreme Court's previous Alhborn decision; rejected arguments by North Carolina defending its third party recovery statute; and further limits when a state may demand recovery from a portion of a settlement allocated to non-medical damages.
• Modifying Problem Trusts into Effective SNTs - Renee Lovelace recommended a cost benefit analysis formula for analyzing whether and when to modify a problem trust. Her analysis was process-driven and included: identifying problems, possible benefits, options, and cost of changes; quantifying costs and benefits; and determining the extent of any modification.
• Determining a Reasonable Attorney Fee - Mary Alice Jackson reviewed the eight factors listed in ABA Model Rule 1.5 for determining the reasonableness of a fee and discussed those factors in the context of SNTs. Note (added 3/31/2013): In his SSI update (see below), David Lillesand addressed the issue of whether and when SN attorneys need SSA approval of their attorney fees to avoid penalties resulting from poor quality draftsmanship in the Social Security Act attorney fee regulations.
• Establishing Financial Needs of the Special Needs Beneficiary - Jerry Hulick's presentation addressed special care, the special care team, special care information needs, and special care documents outside of the settlement planning context.
• Drafting Special Needs Trusts - Nancy Chudacoff, Sheri Sudweeks, and Vincent Russo presented ASNP's new Model Third Party SNT. Third party SNTs typically are used outside of the settlement planning context.

Structured Settlements

• ACA - Scott Solkoff noted in his ACA presentation that, after the ACA takes full effect January 1, 2014, structured settlements will more likely fund future health insurance costs, which should be lower and more predictable, than future medical expenses.
• "Over-structuring" - The ASNP panel discussing SNT administration (Travis Finchum, Kathy Christofell, Jerry Hulick, Renee Lovelace) emphasized a common complaint among SN attorneys: plaintiff attorneys frequently contact SN attorneys to draft a SNT on short notice after an "over-structured" settlement has already been reached. This panel discussion followed Lovelace's earlier presentation ("Modifying Problem Trusts") during which she highlighted expanding litigation against fiduciaries. S2KM's suggested solutions for fiduciaries to address the problem of "over-structuring": promote QSFs; enforce product suitability standards; or, as a last resort, utilize the secondary market to obtain increased liquidity for the trust.
• Deficit Reduction Act - The ASNP's SNT administration panel did not discuss whether the annuity rules in the Deficit Reduction Act of 2005 (DRA) are applicable to structured settlements. S2KM is not aware of any definitive authority addressing this issue. For S2KM's previous analysis of the DRA and structured settlements, summarizing a presentation by Sylvius von Saucken, see "Inconvenient Questions".
• Secondary Market - The SSA Question and Answer session did not address structured settlements. During a similar session at the ASNP 2012 Annual Meeting, Eric Skidmore, an SSA representative, confirmed an unpublished (and controversial) SSA position: the SSA believes the existence of the secondary market renders structured settlement annuities "available resources" that potentially disqualify special needs trusts beneficiaries from receiving Medicaid.

Congratulations to ASNP and conference Chairman David Lillesand for an outstanding 2013 educational program which also featured two special needs presentations by Lillesand: a supplemental "Back to Basics" program and a Supplemental Security Income (SSI) update.

For S2KM summaries of prior educational conferences of the ASNP, and other professional associations addressing settlement planning issues, see the structured settlement wiki.  For S2KM's listing of Spring 2013 educational conferences featuring settlement planning and structured settlement presentations, see this prior S2KM blog post.

Spring 2013 Educational Conferences

The following national associations have announced 2013 Spring educational conferences featuring settlement planning issues:

• Academy of Special Needs Planners (ASNP)
  • March 21-23 in Austin, Texas.
• National Structured Settlement Trade Association (NSSTA)
  • April 17-19 in Palm Springs, California (members only).
• National Alliance of Medicare Set-Aside Professional (NAMSAP)
  • April 25-26 in Baltimore, Maryland.
• National Academy of Elder Law Attorneys (NAELA)
  • May 1-4 in Atlanta, Georgia (members only).
• Society of Settlement Planners (SSP)
  • May 5-7 in Las Vegas.

S2KM has attempted to organize Spring conference settlement planning topics by category below without listing speakers. For additional information, check the links above. Note: SSP has not yet published a complete conference program description on its website.

Settlement Planning - General Issues

• ASNP: Settlement Planning Panel Discussion
• NAELA: Structured Settlements and Settlement Planning

Settlement Planning Participants

• NSSTA
  • Mediator Panel
  • P&C Company Panel
• NAELA: Representing Fiduciaries
• SSP
  • Marketing to Plaintiff Attorneys
  • Ancillary Service Providers
  • Benefit Analysis Experts
  • Retirement Solutions for Plaintiff Attorneys
  • Partnering with Trust Counsel

Legislative Updates

• ASNP: Affordable Care Act
• NSSTA
  • Structured Settlement Legislative Update
  • Tax Reform Update
• NAMSAP - MSA Legislative Update
• NAELA: Special Needs Law Update
• SSP: Affordable Care Act

Regulatory Updates

• ASNP
  • Special Needs Trust (SNT) issues at the Social Security Administration
  • Social Security SSI Update
• NAMSAP
  • Advanced Notice of Public Rule Making for Liability MSAs
  • CMS Update
• SSP
  • Investment Securities Compliance, Regulatory and Licensing Issues
  • Reforming the MSA Program

Case Law Updates

• ASNP: The Jimmo vs. Sebelius Medicare Settlement
• NSSTA: Legal Committee Case Law Update
• NAMSAP: Case Law Update
• NAELA: Case Law Update

Business Practices

• ASNP
  • Determining a Reasonable Fee
  • Establishing the Financial Needs of the Special Needs Beneficiary
  • Modifying Problem Trusts into Effective SNTs
  • Drafting SNTs
  • Administration of SNTs
  • Medicaid Third Party Liens
• NAMSAP: Lien Resolution
• NAELA
  • SNT Reviews
  • Competitive Compensation Packages
  • Positioning Practice for Changing Demographics
  • What Constitutes the Practice of Law?
  • Cultural Competency After the Repeal of the Defense Of Marriage Act
  • Impact of Medicaid Managed Care
• SSP
  • Professional MSA Administration
  • Settlement Planning Tax Issues
  • MSA Submissions
  • QSF Administration and Panel

Financial Needs, Products and Issues

• NSSTA
  • Structuring MSAs
  • Financial Security and Annuities
  • Special Needs Trusts
• NAMSAP - Medicare Advantage Plans
• NAELA
  • Long-Term Care Insurance
  • Future of Long-Term Care
• SSP
  • Funeral Trusts
  • Social Security Disability Benefits
  • Long Term Care Insurance
  • Trusts in Settlement Planning
  • Guaranteed Indexed Annuities

Technology Developments

• NSSTA
  • Virtual Structured Settlements and The E-Worker
  • Structured Settlement Podcasts
• NAELA
  • Protecting Digital Assets
  • Technology and Social Media Ethical Issues
  • Social Media Marketing
  • Technology Roundtable

Standards and Metrics

• NSSTA
  • Structured Settlement Facts and Figures
  • Structured Settlement Service Metric Survey
• NAMSAP: MSA Data and Development Update
• NAELA: Guardian Standards and Role of the Fiduciary

Medical Conditions and Issues

• NAMSAP: CMS Pharmacy Trends
• NAELA: Rehabilitation of Brain and Spinal Cord Injuries

For S2KM's past reporting of settlement planning conferences, see the structured settlement wiki.

Structured Settlements in 2012 - 2

Settlement Planning

Compared with the structured settlement primary market, which was characterized by continuing sales declines in 2012, the related settlement planning market appears to have experienced growth and vitality in 2012.

The primary evidence of this growth and vitality consisted of the increasing number of educational conferences addressing settlement planning topics during 2012. These included:

• Society of Settlement Planners (SSP) Annual Meeting
• Risk Settlement Planning Practicum
• Academy of Special Needs Planners (ASNP) Annual Meeting
• Qualified Settlement Fund Symposium
• Various National Academy of Elder Law Attorney (NAELA) Conferences - of which S2KM attended the 2012 Ohio NAELA Unprogram.

One of the challenges for measuring the growth of the settlement planning market is the lack of market metrics. For example, despite continuing market inquiries, S2KM has been unable to identify reliable national market metrics for qualified settlement funds, special needs trusts, settlement trusts, or Medicare set-aside arrangements.

Towers Watson Studies

The most valuable market research for settlement planning S2KM has identified has been the Annual Studies of United States Tort Costs published by Towers Watson (formerly Towers Perrin) since 1985. These studies:

• Calculate tort costs resulting from five insured plus uninsured business lines: 1) commercial multi-peril; 2) medical malpractice; 3) product liability; 4) other liability; and 5) commercial auto.
• Exclude: 1) no-fault auto insurance; 2) property coverages; 3) workers compensation; 4) certain extraordinary (one time) costs.
• In 2002, Towers Watson also translated overall tort costs for 2001 into the following categories and percentages: 1) administrative costs (21%); 2) defense costs (14%); plaintiff attorneys (19%); economic loss (22%) and non-economic loss (24%). Towers Perrin discontinued this portion of its analysis in 2002. It was "devilishly difficult" according to Russ Sutter, a Towers Watson principal and actuary who directs their annual tort cost studies, "primarily because we lack reliable information from plaintiff attorneys". These percentages therefore represented Tower Watson's "best estimate" in 2002.

Based upon Towers Watson's most recent 2011 Annual Study and utilizing Tower Watson's 2002 "best estimate" of payout percentages, S2KM estimates, that at least since 2006, more than $160 billion of United States tort costs annually have represented payments to injury victims and their attorneys.

Settlement Planning Issues

Among many settlement planning issues, S2KM viewed the following as the most strategically important during 2012:

• The evolutionary relationship between structured settlements and settlement planning;
• Comparing these two business models;
• Improving settlement planning by expanding structured settlements;
• What we have learned about the settlement planning market;
• Settlement planning tax challenges - including stress-induced physical ailments;
• How the Affordable Care Act (ACA) impacts settlement planning;
• How states are reforming Medicaid programs to address budgetary shortfalls and the ACA;
• Whether a standard of practice exists for using Medicare set-aside arrangements in liability cases;
• The application of product suitability standards to settlement plans funded with structured settlements;
• The impact of Dodd-Frank's uniform fiduciary standard on settlement planning.

Additional post in S2KM's blog series: "Structured Settlements in 2012":

• Part 1 - Primary market

• Part 2 - Settlement planning

• Part 3 - Secondary market

• Part 4 - Executive Life of New York

Structured Settlements in 2012 - 1

The U.S. structured settlement industry in 2012 increasingly defined itself into three related markets (the primary, secondary and settlement planning markets) with the liquidation of Executive Life Insurance Company of New York (ELNY) representing the dominant industry storyline.

This blog post highlights 2012 non-ELNY structured settlement developments for the primary market. Subsequent S2KM blog posts will highlight structured settlement developments for the 2) settlement planning and 3) structured settlement secondary markets and summarize 4) ELNY-related events.

Primary Market

The primary structured settlement market in 2012 was characterized by continuing sales declines including the departure of two annuity providers (Hartford and Symetra). As reported by Melissa Evola and "Structured Settlements and Periodic Payment Judgments" (S2P2J), annual structured settlement annuity premium reached an historic high in 2008 ($6,226,578,725) after consistently averaging close to $6 billion annually from 2001-2007.

The 2011 structured settlement annuity premium total of $4,974,710,838 represented an approximate 10 percent decline from 2010 and an approximate 20 percent decline from 2008. And based upon reported third quarter 2012 numbers, this year's structured settlement annuity numbers could be even lower.

Through the end of September 2012, reported nine month structured settlement annuity premium totaled $3,570,584,333 compared with 2011 ($3,638,466,321) and 2008 ($4,429,915,586) figures for similar nine month results. The comparable nine month case totals for these years: 2012 (18,701 cases); 2011 (21,846 cases); and 2008 (25,545 cases).

Many structured settlement industry participants attribute declining sales to low interest rates including future forecasts by the Federal Reserve. Market yields on U.S. Treasury securities at 30 year constant maturity peaked at 13.45 percent in 1981. Here are several historic average annual rates for 30 year Treasury securities (source: U.S. Department of the Treasury):

• 2012 (as of December 21) - 2.93%
• 2011 - 3.91%
• 2010 - 4.25%
• 2009 - 4.08%
• 2008 - 4.28%
• 2007 - 4.84%
• 2000 - 5.94%
• 1990 - 8.61%
• 1980 - 11.27%

Critics of the primary structured settlement market attribute the continuing sales decline to a broader set of factors. For example, speaking at the 2012 National Association of Settlement Purchasers (NASP) conference, Mark Wahlstrom described 2012 as "another bad year for the primary market". He characterized declines in primary market annuity premium as a "negative trend that will eventually impact the secondary market" and identified the following causes:

• The structured settlement is an insular, closed community with aging leadership and a shrinking sales force.
• Structured settlement annuity providers, and most brokers, lack marketing and innovation skills.
• Primary market participants are intimidated by the Internet.
• Instead of offering customer solutions, the primary market continues to sell a single product.
• With historically low interest rates, that product produces a zero return when you consider inflation.
• The primary market has not responded strategically to tort reform and increasing competition from other professionals.
• By continuing their "factoring wars", the primary market has missed opportunities to cooperate with the secondary market.
• The ELNY liquidation means the primary market can no longer claim all structured settlement recipients have received 100% of their payments.

Perhaps the most positive 2012 development for the primary structured settlement industry was the remarkable business turnaround of American International Group, Inc. (AIG). Four years following its $182 billion financial bailout of AIG, the United States Department of Treasury and the Federal Reserve sold almost all of their remaining AIG ownership interest during 2012, which at one time reached 92 percent, and achieved a net positive investment return of $22.7 billion.

AIG's significant role in the U.S. structured settlement market, and the impact of AIG's 2008 financial collapse, are apparent from annual AIG structured settlement annuity premium results (compiled by Melissa Evola) with AIG's estimated annual share of the U.S. structured settlement annuity market in parentheses.

• 2002 - $1.179 billion (19%)
• 2003 - $1.195 billion (20%)
• 2004 - $1.221 billion (20%)
• 2005 - $1.316 billion (21%)
• 2006 - $1.463 billion (24%)
• 2007 - $1.468 billion (24%)
• 2008 - $1.454 billion (23%)
• 2009 - $0.429 billion (8%)
• 2010 - $0.499 billion (9%)
• 2011 - $0.395 billion (11%)

For the first three quarters of 2012, based upon Evola's reporting, AIG (Amgen/AILife) sold $409,213,518 of total structured settlement premium representing 11 percent of total U.S. structured settlement annuity premium ($3,570,584,333) for the same period. 

Additional post in S2KM's blog series: "Structured Settlements in 2012":

• Part 1 - Primary market

• Part 2 - Settlement planning

• Part 3 - Secondary market

• Part 4 - Executive Life of New York

Superintendent Seeks ELNY Contempt Order

Attorneys representing Benjamin M. Lawsky, Superintendent of Financial Services for the State of New York (Superintendent), in his capacity as Receiver of Executive Life Insurance Company of New York (ELNY), have filed Notice of a Motion with the Nassau County New York State Supreme Court requesting oral argument on January 4, 2013 at 9:30 a.m. or as soon thereafter as the parties may be heard:

• to enjoin three ELNY structured settlement shortfall payees and their legal counsel from proceeding with a class action lawsuit in the United States District Court Southern District of New York;
• to hold in contempt of court the shortfall payees' legal counsel; and
• to require their payment of the related costs and attorney's fees incurred by the Superintendent.

The purpose of motion, according to the notice, "is to punish the accused for a contempt of court, and such punishment may consist of fine or imprisonment, or both, according to the law."

Class Action Lawsuit

The named ELNY shortfall payees, Jeanice Dolan, Daniel A. Malin, and Keith Vincent, (objector plaintiffs) through their legal counsel, Edward S. Stone, and Roger P. Christensen, Karra J. Porter, and Kristen C. Kiburtz of Christensen & Jensen, P.C. (objector legal counsel), filed the class action lawsuit November 8, 2012 naming as defendants the Superintendent in his non-regulatory capacity as ELNY's Receiver, including predecessor ELNY Receivers (Receiver), Metropolitan Life Insurance Company (MetLife) and Credit Suisse Group, AG (Credit Suisse).

This S2KM blog post re-configures selected allegations from the class action complaint into an ELNY "allegation timeline". A copy of the class action complaint is posted on the structured settlement wiki.

ELNY Appeal

Previously, on May 30, 2012, the objector legal counsel, on behalf of 18 ELNY shortfall payees, filed a Notice of Appeal (ELNY appeal) with the Appellate Division of the Supreme Court of the State of New York, Second Department, challenging the Executive Life of New York (ELNY) Order of Liquidation and Approval of the ELNY Restructuring Agreement signed by New York State Supreme Court Judge John M. Galasso on April 16, 2012.

The oral arguments in the ELNY appeal occurred November 15, 2012 and a decision is expected before 2012 calendar year end.

• This S2KM blog post summarizes the Appellant/Objectors' appellate allegations that no statutory or common law basis existed for Judge John Galasso's "extraordinarily broad grant of injunctive relief" to protect the Superintendent and his agents, including the New York Liquidation Bureau (NYLB).
• This S2KM blog post summarizes the injunction arguments in the Superintendent's appellate brief and the ELNY shortfall payees' reply brief.

Preemptive Correspondence

Prior to filing the December 8, 2012 Notice of Motion seeking to enforce injunctions and a contempt order, attorney Steven M. Bierman, representing the Superintendent, and objector legal counsel exchanged preemptive letters, copies of which S2KM has reviewed.

In response to attorney Bierman's threats to file a motion "to enforce the Receivership Orders and to obtain an order of contempt", the objector legal counsel replied in part:

• "[W]e view your recent letter on behalf of the Superintendent as an attempt at intimidation and as further evidence of complicity by the Superintendent in the long-standing cover-up regarding the aborted rehabilitation of ELNY and the illegal wasting of its assets. As you know such wasting was in direct violation of the Supreme Court's orders."
• "[I]f you do elect to initiate contempt proceedings, you can anticipate a cross motion raising, among other things, the Superintendent's violation of the Supreme Court's orders, which are serious and numerous."
• "[W]e are puzzled by the current position taken by Superintendent Lawsky. While it was proper to name him in the subject complaint, he is currently in a position to distance himself from the failings of his predecessors under whose watch the critical failings occurred."
• "[W]e are willing to explore with you the possibility of Superintendent Lawsky's joining with us in protecting and asserting the rights of the shortfall payees."

Legal Memorandum in Support of Motion

In support of their motion to enforce the court's injunctions and for a contempt order, attorneys for the Superintendent also filed a Memorandum of Law from which selected excerpts follow:

• "During the rehabilitation and liquidation proceedings of ELNY under Article 74 of the Insurance Law, and consistent with Insurance Law § 7419, this Court has entered various antisuit injunctions—in 1991, 1992 (which were continued by this Court’s order on December 17, 2010), and 2012—that 'enjoined and restrained [all persons] from bringing or further prosecuting any action at law, suit in equity, special or other proceeding against [ELNY] or its assets, or the Superintendent of Insurance of the State of New York and his successors in office as Rehabilitators thereof, or their agents'.”
• "In their pending appeal, those objectors and their counsel recognized the force of these injunctions, stating that this Court 'granted the Receiver’s request to permanently enjoin the bringing of any claims against the Receiver or others, including claims in their personal capacities.' They also conceded that '[l]eave of the court must be obtained to sue a receiver in his or her representative, as opposed to individual, capacity.'”
• "Notwithstanding their admissions that the Court enjoined 'the bringing of any claims against the Receiver,' three of the objector-appellants, Jeanice Dolan, Daniel A. Malin, and Keith Vincent ..., through their counsel Edward S. Stone and Roger P. Christensen, Karra J. Porter, and Kristen C. Kiburtz of Christensen & Jensen, P.C. ..., recently filed a putative class action in the United States District Courtfor the Southern District of New York that violates this Court’s anti-suit injunctions."
• "It is literally hornbook law that '[a] violation of an injunction constitutes a contempt.'”
• "Here: (1) this Court’s anti-suit injunctions expressly enjoined actions against the Superintendent as ELNY’s Receiver, (2) the Objector Plaintiffs and Counsel unquestionably violated these injunctions by filing suit in federal district court, (3) Counsel for the Objector-Plaintiffs admittedly had knowledge of the Court’s injunctions, and (4) the Superintendent has been prejudiced because, inter alia, he has had to retain counsel, to analyze the claims, and to begin preparing a responsive pleading to the federal court complaint against him, which has distracted from his work and that of his staff in orderly liquidating ELNY."
• "Disobedience of a court order is 'sufficient to sustain a finding of civil contempt, regardless of motive, where . . . it was calculated to or actually did defeat, impair, impede, or prejudice the [other party’s] rights.'”
• "Counsel for Objector-Plaintiffs’ refusal to comply with the anti-suit injunctions has caused the Receiver to incur costs and expenses, including attorney’s fees (both in analyzing and preparing a response to the Complaint and in bringing this contempt action)."
• "Accordingly, the Court should include such costs and fees as part of a contempt order and require Counsel for Objector-Plaintiffs to pay to the Superintendent the full amount of his costs and attorney’s fees that are incurred as a result of their contempt."

For S2KM's complete ELNY reporting and an Executive Life timeline, see the the structured settlement wiki.

State Medicaid Reform

As state governments struggle with budgetary shortfalls resulting from the economic recession and try to anticipate the financial impact of the Affordable Care Act (ACA), reforms to state Medicaid programs have become a primary focus of their efforts to achieve cost control and budgetary predictability.

In an article titled "The Impact of State Medicaid Reform on Vulnerable Populations Needing Long-Term Care Services and Supports" featured in the Fall 2012 issue of the NAELA Journal, co-authors Elizabeth P. Allen, Wendy Cappelletto, and Shana Siegel review recent legislative actions in Florida, Illinois and New Jersey related to their Medicaid programs and assess the potential impact of these changes on senior citizens and persons with disabilities.

Their analysis offers a valuable and unique state perspective of the forces now reshaping Medicaid, the single largest health care program in the United States - already covering more than 55 million individuals prior to its anticipated expansion under the ACA.

The NAELA Journal article:

• Begins with a primer on the Medicaid program.
• Highlights important Medicaid changes resulting from health care reform.
• Provides a national overview of the states’ overall budgetary and fiscal condition.
• Outlines the types of actions and reforms states have undertaken to reduce Medicaid and control growth.
• Specifically analyses legislative steps taken in Florida, Illinois, and New Jersey to control Medicaid costs as well as their potential impact.

Medicaid Primer - Selected Highlights

• Medicaid is a jointly financed partnership where the federal government provides a framework of minimum standards and states have flexibility for program design and administration.
• Each state’s Medicaid program, referred to as its “state plan,” identifies the services a state elects to provide and how the state intends to comply with federal requirements.
• States can change their Medicaid program by several methods (which must be approved by CMS) including a state plan amendment or a waiver to make a program change not otherwise allowable under federal rules.
• Federal law requires states to cover “mandatory” groups but states have flexibility to determine their own income and asset tests.
• For both mandatory groups and optional benefits, states determine the amount, duration, and scope of covered benefits,
• Senior citizens and persons with disabilities represent 25 percent of the Medicaid population but account for 66 percent of Medicaid spending.
• Low-income individuals enrolled in both Medicare and Medicaid make up 18 percent of the Medicaid population, but account for 46 percent of Medicaid spending.
• For several years before the 2008 financial crisis, Medicaid enrollment increased 4.2 percent per year.
• Between June 2008 and June 2009 Medicaid enrollment grew by 3.3 million, or 7.5 percent.

Impact of Health Care Reform (ACA) - Selected Highlights

• Beginning January 1, 2014, states must provide Medicaid coverage for individuals under age 65 with incomes up to 133 percent of the federal poverty level (FPL) without any asset test.
• Although not be entitled to standard comprehensive Medicaid benefits, states must provide at least a benchmark benefit package to the majority of this newly eligible population.
• This new enrollment will represent the largest ACA-related Medicaid cost and states with the lowest previous Medicaid eligibility enrollment will have the largest enrollment increases.
• The federal government will finance approximately 96 percent of the increase in Medicaid costs attributable to the ACA through 2020.
• All states will receive a 90 percent federal medical assistance percentage (FMAP) beginning in 2020.
• The ACA does not significantly change Medicaid’s eligibility rules or coverage methodologies for long-term care services and supports (LTCSS).
• The ACA does authorize new programs and enhances existing programs to help Medicaid recipients access community services.
• The most significant immediate source of ACA savings for states will be their reduced payments for uncompensated care for uninsured or low-income populations.
• Some estimates project aggregate savings due to reductions in uncompensated care will outweigh new state costs under the ACA.
• In addition, because newly eligible individuals will likely be healthier than traditional Medicaid enrollees, some experts expect they will not require full Medicaid benefits.

States' Fiscal Condition - Selected Highlights

• At the start of FY 2012, 42 states faced budget shortfalls.
• Legally required to balance their budgets, state options to achieve that goal include using reserves, increasing taxes, or cutting spending.
• On average, states spend about 20 percent of their general funds on Medicaid, making it the second largest item, following education, in most states’ general budgets.
• Before the 2008 economic downturn, Medicaid enrollment increased at an average annual rate of 4.2 percent.
• Between June 2008 and June 2009, however, Medicaid enrollment grew by 3.3 million, or 7.5 percent.
• The federal government provides matching dollars for state Medicaid expenditures using the FMAP based on state per capita income.
• In 2011, matching rates ranged from 50 percent (the floor amount) to 75 percent with poorer states receiving more federal assistance.

State Reforms in General - Selected Highlights

• States have used a variety of tactics trying to contain Medicaid spending: provider rate reductions, limitations on benefits, use of co-pays, increased use of waivers and managed care, and limits to Medicaid planning techniques.
• In recent years, states have increased the use of managed care to deliver and finance Medicaid services with the goals of increasing access to care, improving quality, and reducing costs.
• With managed care, states establish a network of providers or contract with health plans and/or providers who agree to accept Medicaid patients and meet certain access to care requirements.
• The share of Medicaid beneficiaries enrolled in some form of managed care reached 71.7 percent as of June 30, 2009, according to CMS.
• Many states are expanding managed care to serve persons newly eligible for Medicaid in 2014 as a result of the ACA.
• Although public demand for home and community-based services is high, overall spending for such services represents only 43 percent of Medicaid long-term care spending.
• As of 2009, the number of individuals nationally on waiting lists for home and community-based services waiver programs totaled over 365,000.

State Specific Reforms - Selected Highlights

• Florida
  • In 2010-2011, Florida's Medicaid program had over 2.9 million enrolled recipients costing $20.3 billion and representing 28 percent of the state's annual budget.
  • Florida's Medicaid enrollment increased by 42 percent during the past several years mostly as a result of the state’s economic condition.
  • Since 1996, the Florida legislature has cut $5.2 billion from its Medicaid program using rate reductions, utilization limits, fraud and abuse efforts, and other cost control initiatives.
  • As a result of the ACA, Florida is expected to gain 379,000 new Medicaid enrollees in 2014.
  • Florida also expects significant continuing growth in its population eligible for Medicaid long-term care services (those age 65 and older).
  • Attempting to close a $4.5 billion budget shortfall in 2011, Florida enacted legislation (subject to CMS approval) to replace its fee-for-service Medicaid model with a capitated managed care model.
  • Managed care advocates anticipate savings based upon studies and because HMOs:
    • Are better able to prevent, reduce, or eliminate systemic fraud and abuse; and
    • Can better address healthcare disparities due to their emphasis on primary care, member education, disease and case management, and provider collaboration.
  • Managed care opponents argue, however, that a Florida managed care pilot program initiated in 2005 did not demonstrate any cost savings.
• Illinois
  • In 2011, Illinois had more than 2.7 million individuals receiving Medicaid benefits.
  • As a result of the ACA, another 500,000 adults are expected to qualify for Medicaid in 2014.
  • In 2011, Illinois had $9 billion in unpaid bills, approximately $2 billion of which were Medicaid related.
  • The Medicaid shortfall existed despite Illinois having the tenth lowest average Medicaid cost per enrollee of any state due in part to low provider reimbursement rates.
  • In 2011, the Illinois legislature enacted Medicaid reform mandating Medicaid managed care programs.
  • Among other provisions, the 2011 legislation also authorized Illinois Medicaid authorities to gain information from various state and federal agencies for the purpose of verifying individual eligibility for Medicaid benefits.
  • In June 2012, Illinois enacted additional legislation intended to save $2.7 billion in Medicaid costs by cutting spending and eliminating certain optional services including most pooled trusts for individuals age 65 and over.
• New Jersey
  • New Jersey faces a total $10.5 billion state budget deficit in 2012 with anticipated state Medicaid spending in excess of $10 billion for its 1.3 million Medicaid beneficiaries.
  • New Jersey's Medicaid program historically has offered optional services (including dental, durable medical equipment, and vision) and has covered additional eligibility groups such as low-income parents of eligible children.
  • Medicaid coverage for long-term care, however, has been inadequate and inefficient despite spending $3.5 billion for long-term care in 2010.
  • New Jersey spends 70 percent of its Medicaid long-term care dollars on nursing home care compared to 41 percent nationally.
  • Prior to 2011, New Jersey attempted to limit its Medicaid long-term care budget primarily by restricting Medicaid planning strategies such as gift and return, caregiver agreements, promissory notes, and annuities.
  • In October 2011, New Jersey submitted a comprehensive waiver application to CMS seeking : 1) expansion of managed care to all Medicaid recipients; 2) consolidation of various Medicaid programs into one unified system; 3) greater flexibility for the scope and duration of services and co-payments; 4) expanded use of home and community-based services; and 5) an expedited process for future CMS approvals.

Authors' Conclusions

• The recession has created significant budgetary shortfalls for states resulting in a greater focus on Medicaid reform to achieve cost control and budgetary predictability.
• States are implementing various types of reforms with managed care playing a prominent role.
• Whether or not the reforms produce cost savings for states, they will likely harm the health and welfare of senior citizens and persons with disabilities.

For additional S2KM reporting about government benefits and health care reform, see the structured settlement wiki.

MSAs and Liability Cases - 3

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.

S2KM has addressed this topic in two prior blog posts:

• MSAs and Liability Cases 1: summarizing recommendations for MSAs in liability cases issued by the National Academy of Elder Law Attorneys (NAELA) for special needs attorneys (case specific) and the American Bar Association (ABA) for the United States Congress (legislative).
• MSAs and Liability Cases 2: reviewing an article by Peter Wayne that offers advice to plaintiff attorneys about Medicare compliance generally in liability cases.

An article by Aaron D. Frishman published in the Fall 2012 issue of the NAELA Journal titled "Medicare Set-asides in Personal Injury Cases: Is There a Standard Method of Practice?" expands and updates analysis of this challenging settlement planning issue.

Frishman's article:

• Provides historical background about the Medicare Secondary Payer (MSP) Act and the evolution of MSAs in workers compensation cases.
• Details the three primary arguments for and against MSAs in liability cases:
  • Statutory basis for MSAs
  • Actions taken by CMS and its regional offices
  • Risks of attorney liability.
• Reviews
  • NAELA's 2010 liability MSA Task Force Report.
  • The ABA's 2011 Resolution 108A urging Congress to enact new MSA legislation.
  • The 2011 Hinsinger v. Showboat Atlantic City case "that found MSAs in third party liability cases to be synonymous with those in workers’ compensation matters." while addressing the issue of whether a liability set aside should be reduced for procurement costs.
  • Proposed MSA rule changes CMS released June 15, 2012 in the form of an "advanced notice of proposed rule-making" (ANPRM).

Frishman's conclusions for MSA's in non-workers compensation personal injury cases:

• No clearly identifiable best practice currently exists.
• MSAs are not currently a mandatory method for satisfying Medicare's interests.
• There is currently no published history of any suit by Medicare against any party in a personal injury suit for the failure to establish an MSA.
• Whether to use an MSA is case specific and ultimately the client's choice.
• Attorneys should fully informed their clients of the issues related to future medical expenses and Medicare’s interest.
• At a minimum, attorneys should discuss the potential use of MSAs in personal injury contexts with their clients and all parties involved.
• An attorney should always consider the size of the settlement, as well as the plaintiff’s Medicare eligibility status, when evaluating whether to use MSAs in personal injury settlements.
• An attorney’s examination of the issues should include an in-depth cost-benefit analysis of the plaintiff’s circumstances.
• When an attorney is determining whether to advise his or her client to use an MSA in a personal injury settlement, it is reasonable to assume that the following CMS rules for workers compensation cases would apply:
  
  • The total settlement amount is greater than $25,000; or
  • The plaintiff has a reasonable expectation of enrolling in Medicare within 30 months from the settlement date and the anticipated total settlement amount is expected to be greater than $250,000.
• Until CMS or Congress provides firm authority regarding the application and enforcement of the MSP Act in personal injury settlements, uncertainty will continue regarding MSA use in these contexts.

For additional S2KM reporting about the relationship of structured settlements and settlement planning to Medicare, Medicaid and health care reform, see the structured settlement wiki.