Beyond Structured Settlements

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.

Robinson New ABA President

Structured settlements have been supported by public policy and endorsed by prominent attorneys, judges and legislators since they were first introduced in the United States during the late 1970s.

Today, William T. Robinson lll, a Cincinnati attorney who espouses and endorses structured settlements, becomes the new President of the American Bar Association (ABA).

Founded August 21, 1878, the ABA has 410,000 members and is recognized as the world's largest voluntary professional association. The Mission of the ABA is "to serve equally our members, our profession and the public by defending liberty and delivering justice as the national representative of the legal profession."

As a featured speaker at the 2011 Annual Meeting of the National Structured Settlement Trade Association (NSSTA), Robinson praised structured settlements as "professional and dignified solutions" for injury victims based upon his first-hand experience as a litigation attorney. According to Robinson, structured settlements represent "state of the art" tools for all attorneys to consider when negotiating and resolving personal injury cases. Robinson also suggested the ABA and NSSTA should identify shared interests and lobbying opportunities.

To honor Robinson and highlight his support for structured settlements, NSSTA is featuring a new video on its website capturing Robinson's 2011 NSSTA speech.

Congratulations to Bill Robinson. Thank you for supporting structured settlements and good luck with your new responsibilities as ABA President.

Joseph Dehner Interview

Joseph Dehner is a partner in the Frost Brown Todd law firm and co-author of "Structured Settlements and Periodic Payment Judgments" (S2P2J). He has been studying and writing about structured settlements since 1977 and agreed to be interviewed for this S2KM blog post.

S2KM: Your Frost Brown Todd biography highlights your expertise in multinational securities and business disputes. How do structured settlements fit into your legal practice?

Dehner: Through some of my clients, I was part of the birth of the structured settlement industry many years ago. It is great to see the structured settlement industry evolve into a robust part of the U.S. economy. I continue to advise attorneys and firms on structured settlement and periodic payment judgment issues. One example was the honor of serving as the U.S. Government’s expert witness in the criminal trial of James Gibson, who besmirched the good names of structured settlements and US Government bond trusts, and is now serving a long prison term.

S2KM: William T. Robinson lll, your Frost Brown Todd partner and President-Elect of the American Bar Association (ABA), was be a featured speaker at the NSSTA 2011 Annual Meeting. In addition to Robinson and yourself, does Frost Brown Todd have other attorneys with structured settlement expertise?

Dehner: We have a large litigation department, but I am the primary person specializing in structured settlement matters within our firm.

S2KM: You and your co-authors have been writing and updating S2P2J since 1986. Who is your target audience and how to you track new developments?

Dehner: Our target audience includes attorneys, as well as structured settlement consultants, judges and funding providers. We review on a monthly basis all reported cases and news reports about structured settlements and periodic payment judgments, and follow information as it flows about case and other developments.

S2KM: Having recently completed S2P2J Release 49, what important legal issues and developments do you see emerging?

Dehner: There is a growing experience of post-settlement issues emerging from a variety of directions – including fights among beneficiaries of holders of structured settlement rights, factoring company fights and disputes arising from Protection Act hearings, tax rulings (e.g., wrongly incarcerated persons can receive tax-free payments, despite prior uncertainty whether they suffered a “physical” injury), rights in bankruptcy, whether structured settlement rights are marital property, and many other issues that are being resolved over time by individual case rulings. The growing use of structured settlements outside the “tax-free” arena represents recognition that settlement is a time to put into place good financial planning.

S2KM: How do structured settlements in the United States differ from structured settlements in other countries?

Dehner: Many countries have more of a safety net philosophy and less of a litigation-driven means of addressing the needs of injured persons. But for common law countries, many have moved well ahead of the USA in insisting that compensation meet needs – meaning that payments should correspond over time to the actual needs of injured persons. So, in the UK, Ireland and elsewhere, we are seeing a conversion from the ancient lump-sum one-time system to what we in the USA would find normal in the workers compensation context. This is a real sea shift in thinking.

S2KM: Are there any lessons or ideas the United States structured settlement industry can gain from other countries?

Dehner: Sure – read Chapter 1 of our book about other country experiences and approaches.

S2KM: How do you view the secondary market? Are structured settlement transfers good or bad for the industry generally - and more specifically for structured settlement recipients?

Dehner: It’s not a question of bad or good. It’s a question of how individuals react in the real world. People who hold structured settlement rights chose to take money over time at one point, and then decide for various reasons to get cash now in exchange for giving up future rights that have greater value overall. But that’s their choice. The reality is that high-pressure tactics, coupled with what would have been viewed as usury and heresy in the Middle Ages, robbed those individuals of a truly fair and efficient secondary market when the factoring industry arose. Protection Acts now exist in 47 states. When you review the reported decisions about transfers of structured settlement rights, virtually every case where a judge wrote an opinion rejects the transfer and recites in pointed language why discount rates and other factors compel denial of a transfer application. Most transfers go through anyway because of no real contest and no real focus by the court on the underlying issues. I would hope that the impact of factoring over time does not dissuade Congress from maintaining favorable government support for structured settlements through a continuation of 104(a)(2) treatment.

S2KM: What factors, in your opinion, have contributed to the recent decline in growth of the structured settlement annuity premium?

Dehner: It’s pretty simple really. Interest rates are so low for so long that structured settlements have not stood out as bargains compared to receiving a lump sum and investing it for potentially greater returns (though the performance of the US equity markets should cause a reasonable observer to think twice).

S2KM: Do you have any thoughts or ideas about how to improve and/or grow the structured settlement industry?

Dehner: Greater focus on its basic point is where to start. Regardless of tax treatment, putting into place a compensation plan that actually aims to match needs with resources makes sense. Although there is no solid statistical evidence to support the concept that recipients of windfalls have nothing left after five years, we all know the realities that confront anyone who obtains a large sum as a first time experience with wealth. Charities, friends and relatives want a piece. It’s easy to spend money sitting in the bank. And then at some point there is nothing left to deal with what in some cases is a lifetime of needs. My favorite structured settlement example was an elderly fellow I represented who was pushed over in a grocery store, broke his hip and ended up in a nursing home that at the time cost about $1100/month. He would have run out of money from his savings in about two years. Instead of getting a small lump sum settlement for what happened, the insurer provided a structured settlement that paid $1400/month for the rest of his life. The cost was minimal, given his age and the magic of actuarial science. He died 15 years later, but never had to worry about his nursing home bills. Keep the focus on this example and what it represents, and the structured settlement industry merits a bright and expanding future.

S2KM: What lessons, if any, do the Spencer v. Hartford and Macomber v. Travelers class action settlements provide for the structured settlement industry?

Dehner: Transparency. As long as underlying economic realities are known and disclosed to those involved, I don’t see an issue. One can argue about Spence and Macomber should ultimately have been decided, but there is an easy solution to the issues that underlay both cases – being up front and clear in documentation and negotiation as to what was going on. When we wrote "Structured Settlements and Periodic Payment Judgments" in 1986 (since updated 49 times), our negotiation chapter talked about how a good structured settlement negotiation should be about how much a claimant would receive when over time. It was not about negotiating an amount first, and then finding out what it would buy. Focusing on what payments will be received when (and the reliability of the financing mechanism) and disclosure of who does what and receives what are consistent with best practices, and should not be subject to later court challenges about what participants earned how much in the process.

S2KM: What impact, if any, would the expanded use of 468B funds in single event tort cases have on structured settlements?

Dehner: It would simplify matters for a defendant, of course, but would require clear IRS or statutory guidance that is missing now. It would give greater leverage to the claimant than exists now, so the defense side understandably is reluctant to embrace the tool generally, and absent clear guidance on the efficacy of single-claimant 468B funds, there is no point in the rhetorical debate that rages about this issue.

S2KM: Assuming federal malpractice reform legislation is enacted, should periodic payment of judgments be included?

Dehner: Of course. Read the recent paper of the Irish judiciary, or the UK Government’s papers that led to widespread use of periodic payment judgments there as a matter of course. Or just think about what the law really accomplishes at its best – matching compensation with actual need. This is not about favoring the defense or plaintiff side of the bar. And it is not about who wins and loses. This is about trying to make sure as well as possible that injured persons receive compensation that meets their needs. If it lowers cost, fine. If it increases cost, fine. I would argue that this is unknowable, but it is obvious to a rational individual that trying to match compensation against need is better than the equivalent of a lottery, where some people lose completely, others win it big, and many get a lump sum that does not last enough to get them through their lifetimes.

S2KM: Are there any opportunities for the structured settlement industry to benefit from proposed changes (including budget decreases) for Medicare, Medicaid and/or Social Security?

Dehner: Yes, and one can expect both further pressures for Medicare and Medicaid reimbursement at settlement time, as well as increasingly sophisticated settlement planning. Our book tries to keep abreast of these rapidly changing areas and how attorneys and other participants in the structured settlement industry can do a good job for their clients (and not make serious mistakes in the process).

S2KM: From an historic legal perspective, what impact have structured settlements and periodic payment judgments had on the U.S. tort system?

Dehner: The rule thought to be enunciated first in England in Fetter v. Beale that an injury should be compensated with a single one-time payment – the lump-sum system – has been met with deviation when it matters most – in workers compensation systems, in vaccine cases, in other applications. And even in England, the lump sum award system is slowly disappearing based on statutory changes. Structured settlements in the US have continued to chip away at lump sum thinking in America. History should show that structured settlements and periodic payment judgments will prove to be a far better alternative to the jackpot theory of litigation. Do we really want injured people to go to courthouse casinos for justice?

SSP and NSSTA 2011 Annual Meetings - 2

This blog post continues S2KM's discussion of the 2011 annual conferences of the Society of Settlement Planners (SSP) and the National Structured Settlement Trade Association (NSSTA) with a strategic perspective. A prior S2KM blog post identified speakers and topics featured by SSP and NSSTA. Subsequent S2KM blog posts will summarize and provide commentary about selected speaker presentations.

SSP's conference, open to members and non-members, addressed two general topics: "Special Needs Settlement Planning" and "Practice Improvement: Marketing and New Products". NSSTA's conference, for members only, celebrated NSSTA's 25th anniversary. It also included a NSSTA business meeting with reports from immediate Past-President Michael Kelly, new President Dan Finn, Executive Director Eric Vaughn, Assistant Executive Director Peter Arnold and the Chairpersons of NSSTA's several committees.

One of the highlights of NSSTA's 2011 conference was the honoring of NSSTA's past presidents. David Ringler, NSSTA's first president, spoke briefly at the conference and re-stated his original vision for NSSTA:

"Although we do need to constantly be on the watch for legislative change, I still believe having a place where everyone and anyone can sit down with each other and discuss the issues and viewpoints regardless of beliefs is the most important reason for NSSTA. I have called it a common “talk table”, although I agree that is not exactly a very elegant term. If we can continue this tradition, there is no problem we cannot overcome."

Many industry participants, including some NSSTA members, question whether NSSTA has lost sight of this original purpose and tradition. Does NSSTA continue to represent "a place where everyone and anyone can sit down with each other and discuss [structured settlement] issues and viewpoints regardless of beliefs"? The answer, unfortunately, is "no".

For the past several years, NSSTA's leadership has superimposed a strict political litmus test for membership as well as for topics and speakers at its educational conferences. As one result, structured settlement industry participants with alternative issues, viewpoints, beliefs and educational interests have founded two other national structured settlement associations: the National Association of Settlement Purchasers (NASP) in 1996 and SSP in 2000.

Fortunately for NSSTA members and the structured settlement industry, based upon its 2011 conference, NSSTA appears to be expanding the scope of its educational programs to address important but controversial industry topics such as IRC 468B Qualified Settlement Funds, IRC 5891 and state structured settlement protection statutes. The educational programs offered by both NSSTA and SSP also increasingly discuss three fundamental transitions reshaping the structured settlement industry:

• From structured settlements to settlement planning;
• From a singular, illiquid, and non-assignable product to multiple products with greater flexibility to address changing needs and circumstances of injury victims;
• From traditional (pre-Internet) to web-based business models, processes and skill sets.

With the structured settlement industry facing these and other challenges, including aging leadership, declining structured settlement annuity sales, anticipated legislative changes plus an increasingly complex legal and regulatory business environment, where is the strategic vision and what are the strategic priorities for NSSTA and SSP?

NSSTA President Dan Finn and Executive Director Eric Vaughn identified the following:

• NSSTA challenges:
  • Promote the expanded use of structured settlements
  • Expand the structured settlement market
  • Protect structured settlement annuitants
  • Defend IRC sections 104(a) and 130
  • Enhance the Certified Structured Settlement Consultant (CSSC) program
  • Unify the structured settlement industry
• NSSTA objectives
  • Expand IRC section 104 (a)(2) to include wrongful imprisonment and sexual abuse cases
  • Expand government use of structured settlements
  • Promote structuring of MSAs in liability cases
  • Promote the structuring of Social Security disability payments
  • Promote the professionalism of structured settlements

SSP President Jack Meligan prioritized three objectives:

• Improve SSP's marketing to plaintiff attorneys
• Create an SSP lobbying presence
• Enhance the Registered Settlement Planner (RSP) certification program

Two of NSSTA's featured speakers, Jim Morris, President, Chairman and CEO of Pacific Life Insurance Company, and William T. Robinson lll, President-Elect of the American Bar Association (ABA), added important and positive assessments for structured settlements.

Morris accentuated the current financial strength of U.S. life insurance companies and explained why structured settlement annuities represent an excellent strategic product for life companies. As corollaries to Morris' presentation:

• NSSTA announced that two highly rated annuity providers, Mutual of Omaha and Berkshire Hathaway, have re-entered the structured settlement market; and
• Thomas Ronce and Craig Ulman clarified the life and health guaranty association system and how that system applies to structured settlements.

Robinson praised structured settlements as "professional and dignified solutions" for injury victims based upon his first-hand experience as a litigation attorney. Structured settlements represent "state of the art" tools for all attorneys to consider when negotiating and resolving personal injury cases according to Robinson. In his capacity as President-Elect of the ABA: Robinson also:

• Spotlighted the current funding crisis facing state courts; and
• Suggested the ABA and NSSTA should identify shared interests and lobbying opportunities.

For S2KM's reporting and commentary about past SSP and NSSTA conferences, see S2KM's structured settlement wiki.

SSP and NSSTA 2011 Annual Meetings - 1

This blog post begins S2KM's reporting and outlines results from the 2011 annual meetings of the Society of Settlement Planners (SSP - May 15-17) and the National Structured Settlement Trade Association (NSSTA - May 18-20).

Elections

• NSSTA
  • President - Dan Finn
  • New Directors - Tom Donahue; Christine Logan; Kevin Silo; Mike Wostoupal
• SSP
  • President - Jack Meligan
  • New Directors - Tony Alfieri; Tim Denehy; Charles Schell; Michelle Whitmore.

Honors - NSSTA

• President's Award - Betty Gregware
• Leadership Award - Toni Warbington
• CSSC Designation Certificates
• NSSTA Past Presidents - honoring NSSTA's 25th Anniversary

Educational Programs - speakers by topic with recommended related resources from "Structured Settlements and Periodic Payment Judgments" (S2P2J), S2KM wikis and prior S2KM blog posts.

Legislative Update

• NSSTA - Eric Vaughn: Washington Update
  
• SSP - Roy Franco: HR 1063
  

Government Benefits

• NSSTA
  • MSA Panel -Toni Warbington; Doug Brand; David Korch; David Hayes
  • Special Needs Trusts - Jay Sangerman
• SSP
  • Liability MSAs - Jason Lazarus; Roy Franco; Mark Pololizio; Doug Shaw
  • Liens Panel - Roy Franco; Tevra Johnson
• Recommended resources
  • S2P2J Chapter 15 - "Government Benefits and Structured Settlements"
  • S2 wiki - "Government Benefits"

Taxation

• NSSTA: 468B QSF Funds - Martin Jacobson
• SSP
  • 468B QSF Funds - Robert Wood
  • Taxation of Damages - Robert Wood
  • Medical Expense and Estate Tax Issues - Jeremy Babener
• Recommended resources
  • S2P2J Chapter 2 - "Taxation of Damages"
  • S2P2J Section 3.08B - "Section 468B Settlement Funds"
  • S2 public policy wiki pages featuring: Robert Wood and Jeremy Babener

Stakeholder Perspectives

• NSSTA
  • Attorneys - William Robinson lll, President-Elect of the American Bar Association
  • Legal Committee Update (including secondary market) - Peter Vodola; Amy Ravitz; Kathy Scanlon
  • Financial Planners - Laura Tarbox
  • Judges - Peter Vodola, Edward Burke, Stephen Denton
  • Unions - Michael Rott
• SSP
  • Special Needs Attorneys - Kevin Urbatsch; Michele Fuller
  • Plaintiff Attorneys - Jay Fisher
• Recommended resources
  • S2P2J Chapter 4 - "Defense Counsel"
  • S2P2J Chapter 5 - "Plaintiff Counsel"
  • S2P2J Chapter 6 - "Case Preparation"
  • S2P2J Section 16.05 - "Judicial Review of Transfer Applications"
  • S2 wiki - "Secondary Market"
  • S2KM blog - "Ceron v. Henderson"

Marketing

• NSSTA: Business Communications - LuAnn Reeb
• SSP
  • Marketing to Personal Injury Attorneys - Joe Didier
  • Electronic Media and Social Networking - Mark Wahlstrom
• Recommended resources
  • S2 wiki - "S2 and KM"
  • Web 2.0 for Lawyers wiki

Practice Improvement and New Products

• NSSTA: CSSC Continuing Education Online - Karen Meyers; Kathy Moghadas
• SSP
  • Dissecting a Settlement Plan - Jack Meligan; Joseph Tombs
  • Non-qualified Assignments - Brian Michael
  • Indexed Annuities - Rick Miller
  • Re-cycling Structured Settlement Payment Rights - Anthony Prieto; Tim Denehy
• Recommended resources
  • S2P2J Section 3.06A - "Non-Qualified Assignments"
  • S2 wiki - "Re-thinking Structured Settlements"
  • S2 wiki - "Settlement Consulting"
  • S2 wiki - "Business Standards and Practices"
  • S2 wiki - "Spencer v. Hartford"
  • S2KM blog - "Online S2P2J" 

Strength of Life Companies

• NSSTA
  • Strength of Life Insurance Companies - Jim Morris, Chairman, President and CEO of Pacific Life Insurance Company
  • State Guarantee Associations - Tom Ronce; Craig Ulman
  • ELNY Update - Len Blonder; Randy Dyer; Dan Finn; Craig Ulman

• Recommended resources
  • S2P2J Section 3.05[9] - "Life Insurance Guaranty Associations"
  • S2P2J Section 3.05[10] - "Executive Life Insolvency"
  • S2KM blog - "Executive Life of New York"

For S2KM reporting and analysis of prior SSP and NSSTA meetings, see S2KM's 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".

MSAs and Liability Cases

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.

Although their objectives and target audiences are different, the National Academy of Elder Law Attorneys (NAELA) and the American Bar Association (ABA) have each recently issued recommendations addressing MSAs and liability cases.

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. MSA objectives include:

• Protecting Medicare from erroneous billings;
• Releasing settlement participants from Medicare liability;
• Providing a settlement-funding vehicle;
• Utilizing Medicare properly to limit settlement costs.

Although Federal law does no define MSAs, or mandate specific types of MSA funding mechanisms, CMS (the responsible federal agency) has established certain basic requirements for workers compensation MSAs (WCMSA) in a series of memoranda beginning in 2001:

• Maintain an interest-bearing account;
• Reimburse Medicare provider bills at appropriate fee schedules for Medicare allowable services;
• Submit an annual accounting of expenses to the lead CMS contractor.

In addition, the CMS WCMSA memoranda create both an advantage and a problem for using structured settlements to fund WCMSAs:

• October 15, 2004 Memorandum - CMS sets forth a "set-off" method for calculating present value that establishes an inherent cost advantage for annuity funding as opposed to lump sum funding for many WCMSAs.
• August 20, 2008 Memorandum - CMS encourages the submission of annuity quotes with rated ages to establish life expectancy with requirements that have proven burdensome for both structured settlement consultants and annuity providers.

Meanwhile, the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) requires liability insurers to determine the Medicare status for all claimants and to report all claims involving a Medicare beneficiary to CMS when those claims are resolved - or face a civil penalty of $1000 per day per unreported claim.

• On November 9, 2010, CMS delayed the submission deadline for liability insurance claim reports from the first calendar quarter of 2011 to the first quarter of 2012.
• MMSEA does not address the need for MSAs in liability cases and CMS has not offered any related uniform or formal guidance.

Within this confusing legal environment, where liability insurers and attorneys must still decide how best to comply with the MSP act in liability cases without over-reacting and establishing an MSA unnecessarily, NAELA and the ABA have each issued recent recommendations.

NAELA published its recommendations on October 27, 2010 as part of a Medicare Set-Aside Task Force Report approved by NAELA's Board of Directors. In addition to recommendations, the NAELA Task Force Report includes findings and legal resources. NAELA's recommendations are intended for special needs and elder law attorneys handling personal injury settlements involving the MSP program and include two caveats:

• "The requirement for future medical expenses set-asides in tort cases is not as clear as it is in WC cases"; and
• "Some Medicare regional offices will not consider MSP set-asides in tort cases. Cases in which the above advice should be communicated to clients should be limited to those cases with large settlement/awards based on specific estimates and evidence of the costs of future medical services."

S2KM summary of NAELA's recommendations:

• Document any advice and counseling about the appropriateness of MSAs for specific cases.
• Advise personal injury (PI) clients to set-aside an equivalent amount of funds for future Medicare-related medical expenses in a self administered MSA.
• Warn PI clients that the Medicare Secondary Payer Act (MSP) applies to all tort settlements and that CMS considers PI plaintiffs to have an obligation to protect Medicare's interests in coordinating future benefits.
• Advise PI clients to consider MSAs with applications for approval to CMS in cases with large settlement/awards based on specific estimates and evidence of the costs of future medical services.
• Be mindful under state law of an attorney's duty to protect a client’s liability recovery from incorrect claims and unnecessary charges.
• The NAELA Public Policy Committee and Medicare Task Force should continue:
  • Dialogue about MSAs with appropriate CMS officials;
  • Educating NAELA members about MSAs through NAELA publications; and
  • Communicating NAELA’s position on MSAs to appropriate PI lawyer trade associations.

Unlike NAELA, the ABA recommendations, approved during the ABA's 2011 Midyear Meeting, are addressed to the United States Congress and urge Congress to amend the MSP Act. The ABA recommendations resulted from resolutions adopted by the ABA's Tort Trial and Insurance Practice Section (TIPS) which also included a list of historical findings:

• "RESOLVED, That the American Bar Association urges Congress to acknowledge that there is no regulatory or statutory basis for Medical Set Asides for third party liability settlements, judgments or awards under the Medicare Secondary Payer Act and provide clear, predictable, and consistent procedures for the submission, uniform determination, and timely approval of any third party medical set aside settlement proposals (MSASP) voluntarily submitted to the Centers for Medicare & Medicaid Services (CMS) in response to the non-binding recommendations of CMS.
• "FURTHER RESOLVED, that legislation to accomplish these goals should incorporate the following principles:
  1. Acknowledge that there are not statutory and regulatory requirements for determining Medical Set Aside payments and the process for approving claims subject to the Medicare Secondary Payer Act for third party liability claims.
  2. Exempt from review by CMS all settlements in which there are no legal obligations to pay medical benefits.
  3. Establish an appeals process that must be completed by CMS within 690 days of request by the claimant, insurer, or their representative.
  4. Prohibit CMS from seeking additional moneys from the settlement proceeds after review and/or appeals processes have been concluded.
  5. Prohibit recovery thresholds for MSASP that are linked to predetermined economic indices.
  6. Prohibit recovery thresholds for MSASP that are linked to predetermined economic indices.
  7. Establish a 30 day deadline by which CMS must respond in writing of its acceptance of the proposed MSASP.
  8. Require CMS to timely (“timely” means within 60 days the information must be delivered to the patient and patient’s lawyers) and reasonably provide a detailed list of any payments it made and/or may make a claim for set aside for, and if it does not, cannot collect or require a set aside for that patient.
  9. Prohibit the “certification” or claim of specialization by any private individual or person or government entity of a process, practice or individual in the determination of MSASP.
  10. Prohibit the use of Social Security numbers and Health Card Numbers in the MSASP reporting process."

For additional analysis of MSAs, MMSEA and the MSP Act, see Chapter 15 in "Structured Settlements and Periodic Payment Judgments".