Beyond Structured Settlements

NSSTA 2015 "Structures 202" Conference

It was "Showtime in Las Vegas" last week as the National Structured Settlement Trade Association (NSSTA) introduced its newest educational offering ("Structures 202") to a cross-section of 150 association members including many "Next Generation" structured settlement participants.

Preliminary informal reviews were enthusiastic and positive as NSSTA provided its audience with a comprehensive program of case management fundamentals and business development opportunities.

Structures 202 afforded an opportunity for NSSTA to showcase many of its talented professional members and they did not disappoint. Much of the educational program focused appropriately on case administration issues as a significant portion of NSSTA's target audience consisted of structured settlement case managers.

Unlike Structures 101 (a prior NSSTA educational program for case managers), Structures 202 is also designed for structured settlement brokers who are new to the market and therefore included an important, primarily plaintiff-oriented, business development component.

Overall, Structures 202 represents a valuable learning (or re-learning) resource for all structured settlement professionals regardless of experience or role. Attendance currently is limited to NSSTA members.

TOPICS AND SPEAKERS

NSSTA Congressional Activities - Eric Vaughn

Structured Settlement Fundamentals

• Section 104(a)(2) Grey Area Cases - John McCulloch
• Payee Issues - Betty Gregware
• Assignment Documents - Jeanne Ragusa
• Settlement Documents - Toni Warbington
• Resolving Post-Settlement Problems - Andy Prindable
• Post Issuance Service - Sean Alleyne, Scott McGill, Michelle Caine
• Structured Settlement Litigation and Factoring Issues - Peter Vodola
• Long Term Obligation Risk - Geoff Kissel and Ravi Vaswani
• Next Generation Work Flow - Mitch Fish

Structured Settlement Business Development

• Comprehensive Settlement Designs - Joe DiGangi
• QSF Best Practices - Christi Fried
• Special Needs Trusts - Jay Kearns
• Workers Compensation Clients - Pat Law and Anne Davison
• MSA Professional Administration - Joe Anderson and Marques Torbert
• Marketing Attorney Fees - Spooner Phillips and Rebecca Metzger
• Affordable Care Act - Jordan Bossler

Congratulations to NSSTA, conference co-chairpersons Erin Muller and Nolan Robinson, as well as NSSTA conference speakers, for an outstanding educational program. NSSTA's 2015 Annual Meeting is scheduled for April 22-24 in Washington, D.C.

S2KM Observations and Opinions

• Settlement Planning - Although NSSTA has been slow to embrace plaintiff-focused personal injury settlement planning, Structures 202 provided an excellent foundation for future educational programs. Many NSSTA members already are leading practitioners within the developing settlement planning profession. The structured settlement annuity represents a strategic settlement planning product. NSSTA and its members, however, would benefit from greater educational interaction with other professional associations whose members engage in settlement planning. Among the settlement planning issues needing greater educational attention: 1) the role of the structured settlement professional as part of the settlement planning team; 2) how best to market and integrate the structured settlement product into a settlement plan; 3) risks of expanded professional liability when a structured settlement broker engages in settlement planning.
• Defense Business Development - Change always creates opportunities. During 2014, NSSTA commissioned two valuable marketing surveys in which claims executives and managers reported their perceptions about the value of structured settlements and structured settlement consultants. The dramatic changes created by recent Medicare Secondary Payer (MSP) compliance requirements, which have greatly complicated the lives of claims professionals, represent a related marketing issue which also deserves NSSTA's educational attention. As more than one defense representative has emphasized at recent NAMSAP conferences: "Medicare compliance is not just about preparing a good Medicare set-aside (MSA). It is about understanding and complying with the MSP statute."
• MSA Education - Workers compensation MSAs (WCMSAs) have become an increasingly important submarket for structured settlements. S2KM has previously estimated that as much as eight (8%) percent of recent structured settlement premium and 24 percent of recent structured settlement annuities are attributable to WCMSAs. Within the past two years, CMS has published both a WCMSA Reference Guide and a WCMSA Self-Administration Toolkit - each of which features extensive rules for structured settlements. In the WCMSA context, structured settlements have one primary advantage (lower cost), which results from one CMS policy memorandum (dated: October 15, 2004) which sets forth the CMS "set-off" approach for calculating present value.Two current legislative proposals (H.R. 1982 and S. 2731) could impact this structured settlement advantage. During the past two years, CMS has submitted and withdrawn a Notice of Proposed Rule Making (NPRM) for liability MSAs. NSSTA's most recent MSA education, however, has ignored all of these developments and "doubled down" instead on professional MSA administration.
• Secondary Market - Structures 202 represented the first NSSTA educational program following NSSTA's 2014 Fall Educational Conference . The Fall Conference symbolically and effectively highlighted the generational succession occurring within the structured settlement primary market by juxtaposing panels featuring past NSSTA Presidents and "Next Generation" brokers. The Fall Conference also represented the first time NSSTA had invited a representative of the National Association of Settlement Purchasers (NASP President Patricia LaBorde) to speak at a members-only educational program. Structures 202 therefore provided the first opportunity for NSSTA to "change the conversation" of its educational programs about the secondary market - as well as other historically controversial topics - and thereby allow the "Next Generation" to form their own opinions. This change occurred successfully with some topics in Las Vegas - for examples: settlement planning generally and Qualified Settlement Funds more specifically. Unfortunately, this conversational change has not yet occurred in NSSTA presentations about the secondary market which retain the same degree of objectivity as Fox News reporting on the Affordable Care Act.

For S2KM reporting on past NSSTA educational conferences, see the structured settlement wiki.

Structured Settlement Update - 2014 Annuity Sales

Structured settlement primary market annuity sales increased by $115,881,836 (approximately 2%) to $5,250,262,691 in 2014 compared with $5,134,380,855 in 2013 according to industry estimates compiled and recently distributed by Melissa Evola Price. Total 2014 structured settlement cases also increased to 26,572 from 26,533 a year earlier for an average case premium of $197,586.

The 2014 annual premium totals, however, still fall substantially short of the historic 12 month industry high ($6,226,578,725 in 2008) after consistently averaging close to $6 billion annually from 2001-2007.

Adding these 2014 results to historic U.S. structured settlement totals, S2KM estimates the following primary market metrics from 1976 thru 2014:

• Total annuity premium: $144.75 billion.
• Total structured settlement cases: 828,600
• Average annuity premium: $174,700.

Berkshire Hathaway, which re-entered the structured settlement market in 2011 following a multi-year hiatus, continued its recent primary market leadership in 2014 by generating $1.424 billion of structured settlement annuity premium (28% of the industry total) during 2014. Evola Price's report did not indicate how much of Berkshire Hathaway's premium was attributable to reinsurance and/or non-qualified structured settlement sales.

The U.S. structured settlement market now consists of eight annuity providers which are members of the National Structured Settlement Trade Association (NSSTA). 2014 sales results (rounded in millions) for the seven other structured settlement annuity providers (per Evola Price's report) plus the rounded percentage increase (+) or decrease (-) from comparable 2013 results:

• MetLife: $868 MM (+20%)
• Pacific Life: $773 MM (-9%)
• Prudential: $712 MM (+30%)
• Liberty Life $608 MM (+9%)
• Amgen: $477 MM (-19%)
• New York Life: $312 MM (+13%)
• Mutual of Omaha: $46 MM (-47%)

Evola Price's 2014 compilation also reports an annual increase in annuity premium for non-qualified structured settlement assignments (from $164.9 million in 2013 to $182.3 million in 2014) as a portion of the overall structured settlement numbers. Non-qualified assignments represent transfers of periodic payment obligations that do not meet the requirements of IRC sections 130 and 104(a)(1) or (2) including deferred attorney fees.

Although Evola Price's report does not indicate the percentage of structured settlement premium and/or annuities attributable to workers compensation Medicare set-aside (WCMSA) cases, WCMSAs have become an increasingly important submarket for structured settlements. S2KM has previously estimated that as much as eight (8%) percent of recent structured settlement premium and 24 percent of recent structured settlement annuities are attributable to WCMSAs.

Evola Price's reports do not provide information about the structured settlement secondary market. Based upon interviews with secondary market experts in 2012, S2KM previously estimated 2012 structured settlement secondary market activity to be:

• 12,000 secondary market transfers - with less than 120 contested by annuity owners and/or providers.
• $360 million of total secondary market purchases (money paid to transferors).
• $30,000 average individual transfer.

Industry opinions differ as to secondary market sales growth during 2013 and 2014 ranging from no growth to 7% growth per year.

Accepting those 2012 secondary market estimates and assuming level secondary market sales during 2013 and 2014, S2KM estimates historical 1986-2014 structured settlement secondary market metrics as follows:

• Approximately 160,000 structured settlement transfers have occurred since 1986;
• Involving approximately 80,000 recipients - many of whom have made multiple transfers;
• With approximately $5.1 billion PV in aggregate sums paid to those recipients.
• For an average of approximately $32,000 per transfer.

For related S2KM reporting about structured settlement 2014 developments, see:

• Primary market
• Secondary market
• Settlement planning
• ELNY and Reliance

S2P2J Release 57 Highlights

The United States structured settlement market has been in existence for more than 35 years and continues to expand its scope, complexity and importance within the context of personal injury settlement planning.

Since it was first published in 1986, "Structured Settlements and Periodic Payment Judgments" (S2P2J), has provided structured settlement stakeholders with an authoritative reference guide, consisting of 16 chapters with extensive footnotes and Appendix documents, to help them understand issues and fashion settlements and judgments utilizing periodic payments. Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) have utilized S2P2J as an educational resource for their certification programs.

Co-authored and updated semi-annually by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert, S2P2J now features an online version as well as the traditional hardcopy. Online S2P2J includes a search feature and download capability as well as link features to access individual book sections, appendices, footnotes, cases and statutes.

Publisher Law Journal Press anticipates a March 2015 distribution date for hardcopy supplements for S2P2J Release 57 with online S2P2J subcribers receiving their update simultaneously with no additional subscription charge. Competent professionals confronted by structured settlement issues should have access to an up-to-date copy (or the online version) of this indispensable source book.

Release 57 Highlights - Release 57 will feature new, updated and/or expanded sections addressing the following structured settlement topics:

• WCMSAs - Release 57 re-positions and expands S2P2J's extensive summary of the new CMS rules for workers compensation Medicare set-asides, the fastest growing segment of the structured settlement primary market. Regulatory rules for liability MSAs remain essentially unchanged following the withdrawl by CMS on August 8, 2014 of it the liability MSA-related NPRM it had earlier submitted to the Office of Management and Budget.
• Indexed Annuities - PLR 143928-13 highlights the potential importance of indexed annuities and annuity riders as structured settlement funding alternatives. Release 57 features a new section explaining indexed annuities, differentiating variable annuities and summarizing the related PLR.
• Commutation Riders - PLR 143928-13 also provided favorable tax treatment for a commutation rider pursuant to a Notice of Hardship Conversion as a potential alternative to factoring transactions. This PLR justified an expansion in Release 57 of S2P2J's current section discussing commutations.
• Non-qualified Assignments - Most non-qualified assignments depend upon off-shore assignment companies which raise tax and security issues for participants. Release 57 expands S2P2P's analysis of non-qualified assignments to address these issues.
• CLM Advisors Surveys - Release 57 summarizes results from two surveys commissioned by NSSTA to determine the value claims executives and adjustors place on structured settlements and structured settlement consultants. The results and related metrics are generally favorable and arguably provide a valuable marketing blueprint for defense brokers.
• ABLE Accounts - Release 57 features a new section describing ABLE Accounts, a tax-preferenced funding option authorized by the Achieving a Better Life Experience Act (ABLE Act) of 2014. Although some structured settlement consultants view ABLE Accounts as a competitive product, others see opportunities to fund ABLE accounts using structured settlements.
• Insurance Regulation - States historically have regulated insurance in the United States. As a result of the 2008 global financial crisis, however, new federal and international insurance regulatory agencies now exist which are targeting some of the largest structured settlement annuity providers among other financial and insurance companies. Release 57 adds a new section to introduce and explain these new regulatory developments and entities.
• ELNY and Reliance - The recent ELNY and Reliance liquidations have each impacted thousands of structured settlement recipients. Although judicial solutions have been fashioned, litigation continues - as least involving some ELNY shortfall payees. Release 57 updates S2P2J's extensive coverage of the ELNY and Reliance liquidations.
• Role of Plaintiff Attorneys - As structure settlements and personal injury settlement planning have become more complex, and plaintiff attorneys increasingly require the services of other settlement planning professionals, plaintiff attorneys should continue to perform certain essential structured settlement and settlement planning roles. Release 57 identifies and discusses those roles and provides additional related advice for plaintiff attorneys.
• Secondary Market Update - The continuing expansion of the secondary market has generated controversy and litigation as well as legislative reform and changing business practices. S2P2J continues to track these developments in expanding chapter 16 titled "Transfers of Structured Settlement Payment Rights". Release 57 highlights include "anti-assignment" issues in Illinois originating with the Brenston case and the market "chaos" some secondary market participant see occurring as the result of the Washington Square v. RSL Funding case.
• IRC 104(a)(2) Treasury Regulations - Recent U.S. Treasury Regulations for IRC 104(a)(2) relating to the exclusion from gross income for amounts received on account of personal physical injuries or physical sickness make two primary changes to the current regulations which Release 57 summarizes in the context of S2P2J more extensive analysis in Chapter 2 of "Taxation of Damages Received by the Claimant".

For related S2KM blog reporting about structured settlement 2014 developments, see:

• Primary market
• Secondary market
• Settlement planning
• ELNY and Reliance

 

NAMSAP 2015 Winter Regional Conference

Medicare compliance continues to create "confusion, misinformation and disagreement" among defendants, their insurers and advisors according to speakers at the 2015 Winter Regional Conference hosted by the National Alliance of Medicare Set-Aside Professionals (NAMSAP) January 29 in Orlando.

NAMSAP is "the only non-profit association exclusively addressing the issues and challenges of the Medicare Secondary Payer Statute and its impact on workers’ compensation and liability settlements".

NAMSAP's membership is the most professionally diverse of any U.S. settlement planning association and includes a mix of attorneys, Medicare Secondary Payer (MSP) consultants, CPAs, claims adjustors, structured settlement consultants, guardians, nurses, pharmacists, rehabilitation professionals, and life care planners.

The claims environment has changed dramatically and become much more complex, according to multiple NAMSAP speakers who focused their presentations on issues that arise when Medicare is involved in a case.

Medicare issues are complicated for defendants by adjustor turnover, the need for Medicare education and the comprehensive liability defendants face if Medicare is not protected. Medicare compliance, therefore, is not just about preparing a good Medicare set-aside (MSA). It is about complying with the Medicare Secondary Payer (MSP) statute.

The MSP statute, as amended by the SMART Act in 2013, has three compliance components (past reimbursement; present reporting; and future protecting) which one of the NAMSAP panels succinctly summarized. The greatest confusion for plaintiffs and defendants relates to protecting Medicare's interest in the future. One speaker compared the current situation to the "wild west" and several speakers emphasized "it is all about the data".

Focusing most of its compact program on MSP compliance, NAMSAP's Educational Committee successfully presented multiple complex topics and developments effectively utilizing a case study methodology to advise attendees on issues they can expect to confront in their own case files.

WCMSAs - Structured Settlements

For workers compensation (WC) cases, CMS (the responsible administrative agency) has published both a WCMSA Reference Guide and a WCMSA Self-Administration Toolkit - each of which features extensive rules for structured settlements.

WCMSAs have become an increasingly important submarket for structured settlements. S2KM has previously estimated that as much as eight (8%) percent of recent structured settlement premium and 24 percent of recent structured settlement annuities are attributable to WCMSAs.

In the WCMSA context, structured settlements have one primary advantage (lower cost), which (from a defense perspective) outweighs their one primary disadvantage (administrative complexity), compared with cash. The cost advantage results from one CMS policy memorandum (dated: October 15, 2004) which sets forth the CMS "set-off" approach for calculating present value.

The CMS "set-off" approach ignores inflation and discount rates. Annuities, however, incorporate their own discount rates and therefore produce an inherently lower comparable cost for funding future periodic payments. The CMS WCMSA Reference Guide specifically "follows all" of CMS' previously published memoranda and thereby (apparently) maintains the WCMSA pricing advantage for structured settlements.

Following NAMSAP's previous "Take the Hill" Washington D.C. lobbying success, NAMSAP's 2015 political agenda seeks federal legislation to address perceived CMS WCMSA deficiencies:

• Thresholds result in incomplete protection.
• No direct right of appeal exists.
• Review time-lines are uncertain.
• CMS rules ignore state workers compensation laws.
• CMS assumes all settlements are “commutations”.

NAMSAP anticipates two alternative MSP legislative proposals will be re-introduced in the U.S. House of Representatives (H.R. 1982) and Senate (S. 2731) in 2015

Liability MSAs - CMS-6047-ANPRM

Unlike WCMSAs, almost no regulatory authority exists for MSAs in third party liability settlements. In 2012, pursuant to the Administrative Procedures Act, CMS sent to the Office of Management and Budget (OMB) and published in the Federal Register seeking public comment an Advanced Notice of Proposed Rule Making (ANPRM) for liability MSAs.

In CMS-6047-ANPRM (titled: "Medicare Program; Medicare Secondary Payer and "Future Medicals"), CMS offered seven options for dealing with future medicals in liability cases. NAMSAP conference speaker Douglas Shaw reviewed the CMS options and summarized the 107 comments submitted by interested parties.

Virtually all of the comments, according to Shaw, opposed the ANPRM in whole of in part. The primary objections concerned CMS' concept of "equitable apportionment" and the CMS failure to recognize differences between liability and workers compensation cases.

CMS followed up its ANPRM by sending a Notice of Proposed Rule Making (NPRM) to OMB on August 1, 2013, then withdrew the NPRM without explanation on August 8, 2014. Shaw stated that OMB (which reviews NPRM for cost and benefits, duplications, economic impact, effect on stakeholders) rejected the CMS NPRM and no one knows why except OMB and OMB is prohibited from providing explanations.

Shaw cautioned against groups (such as the AAJ) claiming a regulatory victory. He expects CMS to resubmit another NPRM for liability MSAs in the near future. Multiple NAMSAP speakers pointed out the obvious - since the enactment of MMSEA in 2007, CMS has been collecting data for all claims involving Medicare beneficiaries. This Medicare-related claims data is creating a potential tax-free source of revenue for the U.S. government - billions of Medicare dollars not yet collected to fund Medicare.

As for current liability cases and liability MSAs, Shaw advised that "nothing has changed so we should stay the course and do whatever we thought best before this ANPRN/NPRM."

ICD-10

Adding to claim management and settlement planning complexity in 2015, the United States compliance date for the 10th revision of the International Statistical Classification of Diseases and Related Health Problems (ICD-10) is October 15, 2015.

Although most of the NAMSAP audience appeared ICD-10 conversant, Marci Moorehead provided an informative overview of this World Health Organization (WHO) medical classification coding system which many other countries have already implemented. Moorehead predicted the migration to ICD-10 will have a significant impact on business intelligence tools which means life care plans, MSAs and settlement plans likely will be affected.

NAMSAP's 2015 Annual Meeting will take place September 29-October 2 at the Royal Sonesta Hotel in New Orleans.

NAMSAP 2015 Winter Conference - Topics and Speakers

• 3 Parts of Compliance and the SMART Act in 2015
  • Moderator - Katie Fox
  • Monika Boswein
  • Brian Chance
  • Roy Franco
• ANPRM Update - Doug Shaw
• ICD-10 - Marci Moorehead
• Advocacy - Take the Hill and Other Issues
  • Katie Fox
  • Roy Franco
  • Doug Shaw
• Private Cause of Action and False Claims
  • Rasa Fumagalli
  • William Delaney
  • Mark Poplizio
• Working Lunch with Case Studies - Moderator - Thomas Spratt
• Protecting the Client
  • Daniel Hayes - Moderator
  • Ray Alverez
  • Anita Hunt
  • Tracey Jones