Beyond Structured Settlements

Structured Settlements 2014 - Settlement Planning

During the late 1970s, and throughout the 1980s, when defendants retained exclusive control of structured settlements, many brokers and their liability insurance company clients referred to unsuccessful sales as "cash outs". Their professional interests and curiosity were narrowly defined and focused upon their own product to the exclusion of other settlement related products and services.

With the advent of plaintiff structured settlement brokers, continuing legislative and regulatory developments, plus an expanding array of settlement planning professionals, products and product providers, structured settlements are now viewed by most stakeholders as a subset of the larger and more complex personal injury settlement planning market.

For future success, a new generation of structured settlement leaders must look beyond structured settlements and learn to re-position their product as a fundamental and catalytic settlement planning component. This strategic adjustment requires a more comprehensive understanding of, and interaction with, other professional associations whose members also provide settlement planning products and services.

During 2014, S2KM attended 13 national educational conferences sponsored by such professional associations. What follows are 2014 summaries, from a settlement planning perspective, of the educational programs offered by these professional associations plus links to related S2KM reporting. Prior S2KM blog posts provide 2014 summaries of the primary and secondary structured settlement markets. A subsequent S2KM blog post will summarize continuing 2014 developments related to ELNY and Reliance.

American Association for Justice (AAJ)

The role of personal injury attorneys historically has encompassed settlement planning and negotiation as well as litigation. As settlement planning has become increasingly complex, however, personal injury attorneys now require the services of other settlement planning professionals including: tax attorneys, special needs attorneys, settlement trustees, financial planners, structured settlement specialists, life care planners, case managers, economists, Medicare set-aside (MSA) specialists and damage allocators.

Regardless of case complexity, plaintiff attorneys continue to perform the following essential settlement planning roles:

• Recognizing settlement planning issues which impact their clients;
• Recommending appropriate settlement planning professional resources to their clients; and
• Retaining ultimate responsibility for effectuating settlements.

As one result, plaintiff attorneys represent the primary marketing target for for companies and professionals offering settlement planning services. Seven primary market brokers, one structured settlement annuity provider and one factoring company were among the 141 sponsors and exhibitors at the AAJ 2014 Annual Conference which also included companies offering lien resolution, MSA compliance, life care planning, legal finance and economic consulting services.

Notable features of the 2014 AAJ conferences:

• AAJ's educational programs focused on litigation issues with no structured settlement, no Affordable Care Act (ACA) and almost no settlement planning presentations.
• Exhibiting structured settlement brokers shared one distinguishing characteristic - their product and service offerings extended far beyond traditional structured settlements.

Related Resources:

• AAJ 2014 Winter Meeting
• AAJ 2014 Annual Meeting

Society of Settlement Planners (SSP)

SSP is a professional association most of whose members are plaintiff structured settlement brokers. SSP's 2014 Annual Conference provided three important contributions to settlement planning.

First, SSP President Neil Johnson's SSP keynote speech, which he repeated at NSSTA's Fall Conference, highlighted continuing polarization among structured settlement professionals and proposed the following solutions: 1) recognizing and accepting product diversity; 2) focusing on client and customer service; 3) identifying and pursuing permanent shared interests without necessarily agreeing on all issues; 4) engaging all perspectives to discuss industry problems and issues; 5) improving relationships among stakeholder groups; 6) promoting and practicing settlement planning not settlement selling.

Second, consistent with Johnson's proposed unification solutions, SSP's Secondary Market Panel featured two leading structured settlement transfer experts whose clients typically oppose each other in secondary market cases: NASP Executive Director Earl Nesbitt and Stephen Harris, former co-Chairman of NSSTA's legal committee.

Third, SSP speaker Michele Fuller identified her list of 2014 settlement planning "game changers" as a baseline for industry discussion:

1. Affordable Care Act.
2. Lien resolution statutory and regulatory developments.
3. Federal recognition of same-sex marriages.
4. Wrongful death caps determined unconstitutional.
5. State and federal tax reform.
6. Potential reductions in social security benefits.
7. MSAs in liability cases.
8. Settlement planning goes cyber.
9. Increasing need for Qualified Settlement Funds.
10. Increasing number of persons with disabilities.

Related Resources - SSP 2014 Annual Conference

• Part 1 - Secondary market panel.
• Part 2 - Conference summary.

National Structured Settlement Trade Association (NSSTA)

By inviting NASP President Patricia LaBorde and SSP President Neil Johnson to speak at its members-only 2014 Fall Educational Conference, NSSTA took a symbolic step toward restoring its original vision as articulated by David Ringler, NSSTA's first president: "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."

For the past several years, NSSTA's leadership has superimposed a political litmus test for membership, as well as for topics and speakers at its educational conferences. NSSTA's near-sighted strategy has limited the potential growth of structured settlements within the larger and more complex settlement planning market and created multiple challenges for the next generation of structured settlement leaders.

Structured settlements, however, represent a core settlement planning product with emerging product improvements and nontraditional products demonstrating the potential for settlement planning market expansion. In addition, NSSTA's Fall conference underscored, and re-enforced, NSSTA's and NSSTA members' strategic settlement planning relationship knowledge about and with: 1) plaintiff attorneys; 2) insurance associations; 3) insurance claims adjustors; 4) national consumer associations; 5) U.S. Congressional members; and 6) MSA administrators - as well as with SSP and NASP.

Related Resources:

• NSSTA 2014 Fall Educational Conference
• Potential "Game Changing" Structured Settlement PLR
• Structured Settlements 2014 - Primary Market

National Association of Settlement Purchasers (NASP)

Assuming settlement planning includes adjustments during an injury victim's lifetime, structured settlement transfer (factoring) companies should be included among settlement planning participants. Like NSSTA, its primary market counterpart, NASP and its members face serious challenges which NASP president Patricia LaBorde acknowledged during NASP's 2014 Annual Conference.

"There are some forces working against us right now" Laborde stated, "and we need to remain diligent so our customers (structured settlement recipients who sell payment rights to NASP member companies) continue to have access to liquidity." These "negative" forces include predicted secondary market "chaos" resulting from the Washington Square v. RSL case as well as market restrictions resulting from anti-assignment lawsuits.

Shared educational dialogue among representatives of NASP, NSSTA and SSP during 2014 appear to support the possibility of increasing primary and secondary market integration as predicted by Peter Arnold during his NASP conference presentation.

Related Resources:

• NASP 2014 Annual Conference
• Structured Settlements 2014 - Secondary Market

Academy of Special Needs Planners (ASNP)

ASNP is one of three national associations of attorneys whose members practice special needs (SN) planning. SN planning encompasses individuals with congenital and developmental defects, as well as personal injury victims, and therefore represents a parallel market which overlaps with personal injury settlement planning.

For the past eight years, ASNP has sponsored some of the best educational programs addressing settlement planning topics including such fundamental issues as: "know your client", "needs analysis", "best practices", "industry standards" and "product suitability", as well as "professional responsibility, qualifications and liability".

Among other topics, the ASNP 2014 Conference expanded previous ASNP educational programs about the Patient Protection and Affordable Care Act (ACA aka "Obamacare") including a multi-professional "ACA Panel" consisting of: David Lillesand (attorney); Ann Koerner (life care planner); and Scott MacDonald (investment adviser).

Other settlement planning topics addressed during ASNP's 2014 Annual Conference:

• Blaine Brockman and Patricia Kefalas Dudek spoke about "Housing, Food Assistance, Employment Benefits" - critical topics for many people with disabilities which are rarely addressed at structured settlement and settlement planning educational conferences.
• Cynthia Barrett discussed "Post-Windsor Issues for LGBT Couples & Children" - another settlement planning subject other settlement planning conferences failed to encompass.

Expanding its settlement planning educational programs, ASNP is currently sponsoring a 12-part settlement planning webinar series which demonstrates both the growing importance of settlement planning for SN attorneys as well as the broad scope of settlement planning topics.

Related Resources:

• ASNP 2014 Annual Conference
• ASNP Settlement Planning Webinar Series
• ACA and Future Medical Expenses

National Alliance of Medicare Set-Aside Professionals (NAMSAP)

NAMSAP is the only national professional association whose singular focus is Medicare Set-Aside (MSA) arrangements. NAMSAP's growth has paralleled the expansion of workers compensation MSAs (WCMSAs) to satisfy the requirements of the Medicare Secondary Payer (MSP) Act. Enacted in 1980, the MSP Act requires certain insurers, including liability, automobile, no-fault and workers compensation insurers, to make payment first for services to Medicare beneficiaries regarding claimed injuries, with Medicare responsible only as a “secondary payer.”

The Center for Medicare & Medicaid Services (CMS) published a WCMSA Reference Guide (WCRG) on March 29, 2013 plus a WCRG Version 2.0 on November 7, 2013. Both address structured settlement issues and provide guidelines for their utilization. WCMSAs represent one of the few submarkets where structured settlements sales have increased since 2008 - in large part because the method CMS requires for calculating WCMSA present values provides an inherent cost advantage for annuities compared with lump sum alternatives.

CMS withdrew its Notice of Proposed Rulemaking (NPRM) related to liability MSAs in October 2014 because it failed to gain approval from the Office of Management and Budget (OMB). Therefore, settlement planners must continue to analyze each liability case individually to determine whether and how to protect Medicare's interests.

During NAMSAP's 2014 Regional Conference, Roy Franco predicted the following settlement planning changes likely to result from the Bipartisan Budget Act of 2013, implementation of the ACA and the still anticipated CMS rules for liability MSAs: "workers' compensation, liability and no-fault insurers will all become primary payers vis a vis Medicare, Medicaid and ACA health providers" as part of integrated settlement planning models similar to WCMSAs." Franco added, however, that different state models are likely to develop as a result of both state-specific collateral source rules and the new Medicaid reimbursement rules promulgated by the Bipartisan Budget Act of 2013.

Related Resources

• NAMSAP 2014 Regional Conference
  • Part 1
  • Part 2
• NAMSAP 2014 Annual Meeting
• Bipartisan Budget Act of 2013

Evolve Qualified Settlement Fund (QSF) Symposium

Organized "to provide a forum for open dialogue that helps shape industry developments", the 2014 Evolve QSF Symposium avoided the single claimant controversy and focused instead on other important QSF and settlement planning issues including:

• How QSFs reconfigure the traditional settlement planning process.
• QSF-related compensation issues for administrators and structured settlement brokers.
• The increasingly important settlement planning roles for life care planners and case managers.
• QSF-related tax issues such as state taxation, foreign structured settlement assignment companies and structured attorney fees.

Related Resources

• Evolve 2014 QSF Symposium
• Single Claimant QSFs Revisited
• "How the ACA Affects Nurse Life Care Planners"
• Wendie Howland Interview

National Academy of Elder Law Attorneys (NAELA)

NAELA was the first and remains the largest U.S. professional association focused on the needs of elder and special needs law attorneys. Responding to its own strategic challenges, NAELA organized its 2014 Annual Conference to address what it perceives to be its two primary strategic issues: 1) the future needs of persons with disabilities; and 2) the future of elder law.

Compared with ASNP, however, NAELA's educational programs rarely address settlement planning or structured settlements. When NAELA members discuss special needs planning, many tend to think about developmental (as opposed to personal injury) disabilities. Unfortunately, many NAELA members view structured settlements negatively despite familiarity with the concept and a general affinity for annuities.

Related Resources

• NAELA 2014 Annual Conference
• Person-Centered Planning
• Cornell Disability Studies, Research, Statistics

AAJ 2014 Annual Meeting

Increasing use of structured settlements by plaintiff attorneys and their clients requires a more "unified marketing strategy" by stakeholders according to multiple brokers who exhibited at the recent American Association for Justice (AAJ) 2014 Annual Conference in Baltimore.

Seven primary market brokers, one structured settlement annuity provider and two secondary market companies were prominent among the 141 sponsors and exhibitors at the AAJ conference which also included as exhibitors multiple companies offering lien resolution, MSA compliance, life care planning, legal finance and economic consulting services.

Other marketing advice from AAJ structured settlement exhibitors offering insights into how to grow the primary market:

• "Our industry needs more educational marketing.
• "The secondary market has stolen our brand and we need to get it back.
• "Many plaintiff attorneys do not discuss structured settlements with their clients.
• "We need to educate plaintiff attorneys to stop thinking of their clients as 'investors' and to recognize the benefits of structured settlements.
• "Most plaintiff structured settlement brokers are too narrowly focused on product.
• "Future success requires 'full service' not just annuities - financial planning, settlement trusts and lien resolution.
• "Plaintiff brokers need to be more holistic and offer plaintiff attorneys a 'brain trust' of strategic relationships.
• Offering non-structured settlement products and services to plaintiff attorneys 'has taken the lid off' our company's original view of the size of the settlement planning market."

Underperforming Market

Many industry observers view the United States structured settlement primary market as a strategic, underperforming segment of the larger personal injury settlement planning market:

• Primary market structured settlement annuity premium increased approximately seven (7%) percent to $5.134,380,855 in 2013 (compared with $4,819,124,617 in 2012) according to industry estimates compiled by Melissa Evola.
• Total structured settlement cases in 2013 also increased to 26,533 from 25,038 a year earlier for an average case premium of $193,495.
• The 2013 annual premium totals, however, fell 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.
• Evola's 2013 compilation also reported an annual decrease in annuity premium for non-qualified structured settlements (from $170.1 million in 2012 to $164.9 million in 2013) despite earlier industry projections of a large and growing market .
• Non-qualified structured settlements represent transfers of periodic payment obligations that do not meet the requirements of IRC sections 130 and 104(a)(1) or (2) including deferred plaintiff attorney fees.
• Independent industry sources further report a substantial shift in recent structured settlement premium with increasing sales to fund workers compensation Medicare set-aside arrangements (WCMSAs).

For comparison, based upon Towers Watson's 2011 Annual Study of "United States Tort Cost Trends" and utilizing Tower Watson's 2002 "best estimate" of payout percentages, S2KM estimates that more than $170 billion of United States tort costs annually have represented payments to injury victims and their attorneys. The Towers Watson study excluded: 1) no-fault auto insurance; 2) property coverages; 3) workers compensation; 4) certain extraordinary (one time) costs.

Structured Settlement Marketing - to Defendant Insurers

Although primary market structured settlement participants have successfully marketed their products and services to defendants and their insurers, they have been less successful marketing to plaintiff attorneys and their clients.

A 2011 National Litigation Management study, commissioned by the Council on Litigation Management (CLM) and conducted by Revere Advisory, identified structured settlement as the "most penetrated external initiative" among 30 litigation-related service areas analyzed based upon interviews with leading litigation management executives.

The success of structured settlement marketing to defense insurers was further evidenced by a 2014 study of "how senior claims executives perceive the value of structured settlements and the value that structured settlement consultants bring to the table" commissioned by the National Structured Settlement Trade Association (NSSTA) and conducted by CLM Advisors. Among the findings - ninety percent of respondents:

• Indicated their organizations maintain a “formalized structured settlement program”; and
• Reported their belief that, when a structured settlement consultant is involved, claims are “more likely to settle.”

 Structured Settlement Marketing - to Plaintiff Attorneys and Injury Victims

Earlier in 2006 (before interest rates crashed), NSSTA sponsored a survey of plaintiff attorneys involved in structured settlements (43 telephone surveys) and structured settlement recipients (1275 telephone and Internet surveys) titled: "A Study of the Structured Settlement Process Conducted on behalf of the National Structured Settlement Trade Association." Among the results, as reported at NSSTA's 2007 Winter and Annual meetings:

• Structured settlement recipients:
  • 65% said they had not heard about structured settlements prior to settlement.
  • Most were uncertain whether a structured settlement consultant was involved with their case.
  • 34% recalled receiving educational information while 75% of this 34% said the information was helpful.
  • 66% first learned about structured settlements from their trial attorney.
  • 75% said they were very happy their settlement included structured settlement annuities.
  • 75% said they would recommend a structured settlement.
• Plaintiff attorneys involved in structured settlements:
  • 95% said they are proponents of structured settlements.
  • 70% said they retain a structured settlement consultant at least for some cases.
  • When asked: "Whom do you prefer to use for purposes of financial planning for your clients?", the attorneys responded:
    • 30% - Trust company/department.
    • 28% - Financial planner.
    • 23% - Structured settlement consultant.
    • 19% - No response.

Based upon the 2006 survey results, however, NSSTA estimated only 7% of personal injury settlements between $75,000 and $200,000 include structured settlements; and only 30% of personal injury settlements above $1 million include structured settlements.

Growing the Primary Market

What explains the apparent differences in marketing success by the primary structured settlement industry to 1) defense insurers; and 2) plaintiff attorneys and personal injury victims?

Several explanations are possible. They deserve and require greater analysis by the primary market. As one example, while defense brokers essentially sell a singular structured settlement product to their clients without direct competition from other financial/insurance product providers, plaintiff brokers must compete with settlement trustees, financial planners and other providers of asset management services.

As a result, plaintiff structured settlement brokers increasingly are evolving into alternative business models that offer structured settlement annuities as one of multiple products and more fully participate in a larger, more complex business (personal injury settlement planning) than structured settlement defense brokers.

Growing the primary structured settlement market therefore requires its proponents to ask themselves these fundamental questions: "what business are we in?", or, stated somewhat differently, "in what markets do we, or should we, participate?"

Failure to sufficiently address these issues has perpetuated both "inside-the-box" strategic thinking and traditional marketing strategies responsible, in part, for recent sales declines of the structured settlement product - a product which offers multiple, unique advantages and benefits from public policy endorsement, multiple tax preferences and statutory consumer protection.

The Settlement Planning Market

Despite an abundance of related professional associations, participants and conferences, as well as legislative and regulatory developments, personal injury settlement planning remains an evolving concept and market with competing definitions, standards and business models and many unanswered questions.

Many recent and continuing legislative and regulatory developments impact personal injury settlement planning, including:

• Affordable Care Act
• CMS WCMSA Reference Guide
• The SMART Act
• Defense of Marriage Act
• Dodd-Frank Uniform Fiduciary Standard
• Bipartisan Budget Act of 2013

Settlement planners consist, or represent a blend, of several professionals in addition to traditional personal injury litigation participants. These professionals include: tax attorneys, special needs attorneys, trustees, financial planners, structured settlement specialists, life care planners, economists, Medicare set-aside (MSA) specialists and damage allocators.

Professional associations, in addition to AAJ, whose members engage in settlement planning include: NSSTA, SSP, NAELA, ASNP, SNA, NAMSAP, AANLCP - and NASP assuming the definition of settlement planning includes adjustments during an injury victim's lifetime.

To grow the primary market, structured settlement proponents must learn how to better market the benefits and applications of structured settlements to plaintiff attorneys and these other professional groups and associations in the context of evolving settlement planning marketing, work product, business standards and educational priorities.

This educational and marketing challenge requires all structured settlement participants to fundamentally "re-think" structured settlements and their own roles in personal injury settlement planning. One result should be consideration of a more unified marketing strategy to plaintiff attorneys and their clients among heretofore competing professional associations such as NSSTA, SSP and NASP.

Conversations with structured settlement exhibitors at the AAJ 2014 Annual Meeting indicate some primary market plaintiff brokers already understand this message and are transitioning their business models accordingly.

For S2KM's report about the AAJ 2014 Winter Meeting, see this prior blog post.

ACA and Future Medical Expenses - 3

Is the Affordable Care Act (ACA) good or bad for structured settlements? What impact will it have on settlement planning in personal injury cases?

Four years following the ACA's enactment, and two years after the U.S. Supreme Court upheld its primary provisions as constitutional, including the individual mandate and elimination of pre-existing condition restrictions which became effective nationally on January 1, 2014, those questions not only lack definitive unanswers - they have not yet been comprehensively addressed in any public forum.

One primary related issue is what impact the ACA will have upon future medical expenses in personal injury cases. The answer depends, however, not only on the terms and conditions of the ACA, but also on how the ACA interacts with other related laws and legal developments such as Medicaid (including the Bipartisan Budget Act of 2013), Medicare (including WCMSAs , liability MSAs and MMSEA) as well as state specific collateral source and subrogation rules.

To provide a point of reference for future S2KM reporting about the legal interplay involving the ACA, personal injury cases and structured settlements, S2KM is publishing a series of blog posts looking generally at the "ACA and Future Medical Expenses":

• Part 1 reviews an article written by Seth Cardeli, titled "Thwart the Assault on Future Medical Expenses", which appeared in the May 2014 issue of the American Association for Justice (AAJ) Trial Magazine.
• Part 2 summarizes ACA-related analysis by speakers at professional conferences S2KM has previously attended and includes excerpts from prior S2KM reviews of those conferences.
• Part 3 (this post) summarizes similar ACA analysis from articles and papers previously reviewed by S2KM and also features excerpts from those reviews.

Authors of Articles and Papers Addressing ACA Issues

NAELA Journal

NAELA devoted the entire Spring 2011 edition of its "NAELA Journal" to health care reform generally and the ACA more specifically. Available to NAELA members only, this NAELA analysis featured a detailed introduction by NAELA Journal's then Editor-in-Chief William J. Brisk plus eight articles and a supplement of online resources.

• Brisk's introduction addressed why health care reform is "too significant to ignore" and highlighted its most important features. His analysis identified what the ACA actually does and does not accomplish and emphasized the important roles Medicare, Medicaid, private health insurance companies and health maintenance organizations will play in implementing health care reform.
• Additional NAELA Journal topics and authors:
  • Health Care Changes: Challenges to Medicare - Vicki Gottlich, Patricia Nemore, and Alfred J. Chiplin Jr.;
  • The New CLASS Act - Morris Klein;
  • Nursing Home Regulations - Charles Perez Golbert;
  • Health Care Reform’s Impact on Small Businesses and Individuals - Ben A. Neiburger;
  • Health Care Reform and End-of-Life Issues - Fay Blix;
  • The Affordable Care Act’s Changes to Medicaid’s Coverage for Long-Term Services and Supports - Gene Coffey;
  • Health Insurance Reforms: Once In a Lifetime Change or Same as It Ever Was? - Lucinda E. Jesson;
  • Medicaid Expansion Under the 2010 Health Care Reform Legislation: The Continuing Evolution of Medicaid’s Central Role in American Health Care - Renée M. Landers and Patrick A. Leeman;
  • Online Resources Available to Supplement Health Care Reform Discussion - prepared by Claire DeMarco.

Alfred Chiplin, Jr. and Bethany Lilly

In addition to the Spring 2011 edition of the NAELA Journal, NAELA awarded its 2014 John Regan Writing Award, honoring the authors of the best article published in the "NAELA Journal" during the past year, to Alfred Chiplin, Jr. and Bethany Lilly, for their 2013 article titled "Medicare’s Future: Letting the Affordable Care Act Work, While Learning From the Past" analyzing various ACA cost-saving components on Medicare.

Chiplin and Lilly begin their article with an extensive review of the historical debate concerning public health insurance in the United States including a summary of key components of the current Medicare system and current concerns about Medicare solvency.

This historical debate not only defines the current structure of the Medicare program but also, according to Chiplin and Lilly, "the on-going debate ... about the necessary elements of a comprehensive program, including health care financing and accessing the quality of necessary services."

Chiplin and Lilly provide statistical evidence to highlight the negative impact of rising health care costs on Medicare and Medicare beneficiaries as well as the United States economy. Following their historical and statistical summaries, Chiplin and Lilly address the central issue in their article: "how will the ACA reduce health care costs?"

The ACA's cost-containment programs, according to Chiplin and Lilly, are based upon the theory that costs can be reduced by demanding a higher quality of care and greater efficiency from providers and allowing providers to share in the savings. ACA programs the authors highlight include:

• Patient-Centered Medical Home
• Medicare Shared Savings Program
• The Independent Payment Advisory Board
• Quality Review Mechanisms.

Chiplin and Lilly view ACA as "a vast experiment in paying for high-quality health care while preserving the Medicare program and expanding access to health care for other population segments." Implementation will be a tough, but doable challenge so long as we "let the tools of the ACA work".

Among the implementation challenges: the "fiscal cliff", insurance exchanges, and integrating services for "dual-eligibles". Overtime, the authors believe the ACA's spending and cost-containment provisions should at least slow the health care spending curve.

Seth Cardeli

The impact of the ACA on future medical expenses, perhaps the most important ACA-related issue for personal injury stakeholders, including settlement planners and structured settlement professionals, was addressed most recently by plaintiff attorney Seth Cardeli in an article  featured in the May 2014 issue of the AAJ's Trial Magazine, and summarized by S2KM, titled "Thwart the Assault on Future Medical Expenses".

In his article, Cardeli labels as "speculative and misleading" current defense efforts to convince courts the ACA changed how courts should calculate future medical expenses thereby transforming the ACA into "the latest tort 'reform' vehicle." Their efforts should fail, Cardeli maintains, because they wrongly attempt to circumvent states' collateral source and subrogation rules.

Cardeli's article cites cases from several state venues where courts have rejected defendants' attempts to limit plaintiff evidence of future medical expenses or to present their own evidence of ACA-related health care coverage. He urges plaintiff attorneys to aggressively oppose all related motions in limine by arguing:

• The effect of the ACA on a plaintiff's recoverable future medical expenses is speculative.
• Evidence of collateral sources is prejudicial to personal injury plaintiffs.
• Tortfeasors should bear the risk that any future medical expenses will not be covered by medical insurance.

Joshua Congdon-Hohman and Victor Matheson

A 2012 research paper titled "Potential Effects of the Affordable Care Act on the Award of Life Care Expenses" and written by economists Joshua Congdon-Hohman and Victor Matheson provides a notable counter argument to Seth Cardeli's Trial Magazine article. Contrary to Caredi, these economists maintain: "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".

Their argument:

• 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."

Similar to Cardeli, and significantly, Congdon-Hohman and Matheson acknowledge a collateral source issue is "at play" and "remains of significant importance". Unlike Cardeli, however, they argue "there is reason to believe the ACA changes the underlying reason of excluding collateral source compensation from inclusion in tort cases."

More specifically, Congdon-Hohman and Matheson 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."

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 also differ by state.

Rebecca Levenson and Ann Levin

During 2013, S2KM reviewed two law review articles which address whether and how the ACA will impact the collateral source rule (CSR):

• Rebecca Levenson (Levenson), "Allocating the Costs of Harm to Whom They are Due: Modifying the Collateral Source Rule after Health Care Reform" (Levenson article), University of Pennsylvania Law Review, Volume 160.
• Ann S. Levin (Levin), "The Fate of the Collateral Source Rule After Health Care Reform" (Levin article), UCLA Law Review, Volume 60.

Although every state and federal court recognizes the CSR in some form, many states have limited its scope or abolished it completely as a result of tort reform. Plaintiffs in different states and/or different courts therefore can receive widely different damage awards for the same injury because different courts measure medical costs differently.

Levenson and Levin each summarize traditional arguments favoring and opposing the common law CSR. However, neither Levin nor Levenson:

• Directly address whether and/or how the CSR will affect calculations of future medical damages, as opposed to past medical damages.
• Discuss how the ACA's restrictions against pre-existing conditions impact calculations of medical damages.

CSR proponents emphasize the deterrence theory of tort law which seeks to punish tortfeasors and deter them from injuring future plaintiffs:

• Defendants should not be unjustly enriched if a plaintiff purchases medical insurance.
• The CSR incentivizes plaintiffs to purchase medical insurance.
• Collateral sources never fully reimburse plaintiffs.
• Subrogation rights reduce and/or prevent double recoveries.
• The CSR promotes independence of jury determinations.

CSR opponents argue the purpose of tort law is compensation for harm not deterrence. They criticize the CSR for:

• Allowing some plaintiffs to recover twice.
• Generating different damage awards for the same injuries in different cases.
• Adding an unjustified element of punitive damages.
• Inflating awards.
• Encouraging claimants to go to trial.

Both Levenson and Levin agree the ACA's individual mandate weakens the traditional common law CSR rationale and that medical damages should now be calculated differently. However they do so for different reasons and propose different solutions.

• Levin - Levin's primary argument for changing the traditional common law CSR is that it calculates medical damages based on medical provider bills instead of the lower negotiated reimbursement rate paid by most health insurers. To achieve fairness and accuracy post-ACA, Levin maintains courts should calculate medical damages using: 1) the negotiated reimbursement rate; and 2) a portion of the premium payments the plaintiff has paid for medical insurance.
• Levenson - The purpose of changing the CSR after the ACA, according to Levenson, should be to align the CSR's outcome with the underlying goal of the individual mandate. Whether and what changes will occur, however, will vary from jurisdiction to jurisdiction depending upon a number of factors which Levenson identifies including the current status of the CSR in a particular state. Levenson insists any changes in the CSR must account for the different groups affected: insured plaintiffs, willfully uninsured plaintiffs and exempt plaintiffs.

Conclusion

For personal injury and settlement planning professionals who are attempting to understand how the ACA impacts personal injury damage analysis, future medical expenses, negotiation strategy, work product, and funding options, this S2KM blog series hopefully captures some of the complexity of the related laws, issues and perspectives and encourages continuing and more comprehensive analysis.

The impact of the ACA on structured settlements, and settlement planning more generally, depends not only upon the terms and conditions of the ACA itself, but also upon the new and evolving legal construct for future medical expenses in personal injury cases created by the interaction of the ACA with these related laws and legal developments.

For S2KM's continuing coverage of ACA-related issues, see the structured settlement wiki.

NAMSAP 2014 Regional Conference - 2

WCMSA Market Metrics

The recent National Alliance of Medicare Set-Aside Professionals (NAMSAP) Regional Conference highlighted the strategic importance of workers' compensation Medicare set-aside arrangements (WCMSAs), and their growth potential for structured settlements - as well as the need for more comprehensive and public MSA market metrics.

One logical starting point for determining MSA market metrics [as well as Medicare and Medicare Secondary Payer (MSP) metrics] is the CMS Financial Report for Fiscal Year 2013 which covers the October 1, 2012 to September 30, 2013 time period. Selected highlights:

• Medicare
  • "Medicare processes over one billion fee-for-service (FFS) claims a year, and accounts for approximately 15 percent of the Federal Budget."
  • "Medicare enrollment has increased from 19 million beneficiaries in 1966 to over 52 million beneficiaries."
  • "CMS and its contractors process over one billion Medicare claims annually."
• MSP and WCMSAs
  • "CMS’ efforts in the MSP area saved the Medicare Trust Funds approximately $8.93 billion in FY 2013."
  • "Under MMSEA section 111 requirements, group health plans began limited reporting of data in January 2009 and were fully phased in as of January 2011. Workers' compensation, liability insurance and no-fault insurance began limited reporting of data in June 2010, and reporting thresholds will gradually be implemented through January 1, 2015."
  • "As of October 2013, there were over 1,400 insurers reporting data to CMS under section 111."
  • "The implementation of section 111 is the single largest contributor to growth of Medicare savings of $6.5 billion in FY 2007, to approximately $7 billion per year in FY 2011 and FY 2012 and almost $9 billion in FY 2013."
  • "CMS has calculated WCMSA amounts totaling approximately $1.8 billion in FY 2013." (emphasis added).

S2KM discussions with MSA industry experts following the NAMSAP Regional Conference provided these additional estimates:

• Annual number of WCMSAs - estimates vary between 30,000 and 40,000.
• Average size of WCMSAs (including professionally and self-administered WCMSAs) - estimates vary up to $100,000.
• Professional administration - less than 10 percent of WCMSAs are professionally administered.
• Structured settlements - less than 25 percent of WCMSAs are funded with structured settlements.
• Seed money - seed money for WCMSAs funded with structured settlements averages approximately 10 percent of the total per case cost.
• CMS turn around time - the average CMS turnaround time for WCMSAs is 35 days - and increasing.

Structured Settlements and WCMSAs - Estimates Based Upon Trend Projections

Although final 2013 structured settlement primary market annuity sale totals have not yet been reported, 2013 third quarter results are available for comparison. Note: earlier this week, Berkshire Hathaway reported selling $1.42 billion of structured settlement annuities in 2013 which appears to represent the largest single year company total in the history of the U.S. structured settlement industry.

Correction (1/24/14) - Amgen/AILife exceeded Berkshire Hathaway's 2013 structured settlement annuity sales total in 2006, 2007 and 2008.

Based upon a comparison with 2012 structured settlement primary market production results, projected total 2013 sales can be expected to approximate 26,310 annuities and $5.1 billion of premium (approximately $192,000 average premium). Note: S2KM will report actual 2013 structured settlement primary market sales once they have been compiled by Melissa Evola.

Assuming:

• 26,310 structured settlement annuities were sold during calendar year 2013 producing $5.1 billion of premium; and
• 25 percent of the CMS calculated $1.8 billion of WCMSAs for fiscal year 2013 were funded with structured settlements; and
• The seed money for WCMSAs funded with structured settlements averages 10 percent; and
• The average size of WCMSAs funded with structured settlements is $70,000 ($63,000 annuity and $7,000 seed money);

Then, approximately:

• Eight (8%) percent ($405 million) of projected 2013 structured settlement premium ($5.1 billion) was attributable to WCMSAs; and
• 6429 (24%) of projected 2013 structured settlement annuities (26,310) funded WCMSAs.

Growing the Structured Settlement Market

Based upon the CMS inflation/discount methodology for WCMSAs, as promulgated in the October 15, 2004 CMS WCMSA Policy Memorandum, structured settlements have had an inherent cost advantage over lump sum alternatives for funding WCMSAs.

As explained in this prior S2KM blog post, the CMS Workers' Compensation Reference Guide published in 2013 appears to have retained this structured settlement cost advantage.

Strategic Question: Why, therefore, has the structured settlement industry failed to further penetrate the WCMSA market?

The importance of this strategic question will be magnified if, as suggested in Part 1 of S2KM's NAMSAP Regional Conference Report, the CMS WCMSA primary payer model ultimately is applied to:

• Liability MSAs as a result of HHS/CMS RIN: 0938-AR43;
• Medicaid reimbursements as a result of the Bipartisan Budget Act of 2013; and
• Implementation of the Patients' Protection and Affordable Care Act.

Structured settlement professionals identify multiple reasons "why more WCMSAs are not funded with structured settlement annuities". The most significant reasons appear to be:

• The relatively smaller size of WCMSA structured settlements; and
• The administrative burden created by CMS rules for submitting annuity quotes with rated ages to establish reduced life expectancy.

Conclusion

One strategy for growing the primary structured settlement market: improve administrative rules for determining MSA life expectancies - which should represent a shared priority goal for both structured settlement and MSA stakeholders.

A second and related educational strategy: continue to develop more focused industry study about the respective roles of structured settlements and MSAs within the changing rules of personal injury settlement planning.

S2KM welcomes additional input about market metrics from structured settlement and MSA stakeholders.

NAMSAP 2014 Regional Conference - 1

The National Alliance of Medicare Set-Aside Professionals (NAMSAP) Regional Conference, held earlier this month in Miami, Florida, highlighted the strategic importance of workers' compensation Medicare set-aside arrangements (WCMSAs), and the growth potential of structured settlements, resulting from recent legislative and regulatory developments impacting historic personal injury settlement planning models.

Among these recent legislative and regulatory developments:

• The SMART Act.
• CMS WCMSA Reference Guide.
• Bipartisan Budget Act of 2013.
• Implementation of the Patients Protection and Affordable Care Act (ACA).
• HHS/CMS RIN: 0938-AR43 - anticipating publication of MSA rules for liability cases.

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 appears to be the most professionally diversified of any U.S. settlement planning association. The 46 attendees at the NAMSAP Regional Conference included a mix of attorneys, Medicare Secondary Payer (MSP) consultants, CPAs, claims adjustors, structured settlement consultants, guardians, nurses, pharmacists, rehabilitation professionals, and life care planners.

Structured settlement professionals, who comprise approximately nine (9%) percent of NAMSAP's 500 plus members, have played an important role in NAMSAP's development ever since the association was founded in 2004.

Speakers and Topics

Among the featured speakers at NAMSAP's Regional Meeting, Immediate Past President Michael Westcott addressed why structured settlements and MSAs produce "a perfect match that also saves stakeholder on the cost of compliance":

• "A structured settlement is a contract that defines specific future periodic payments for a specific dollar amount for a specified time."
• "An MSA is an agreement with CMS to pay agreed upon future costs for an agreed dollar amount for an agreed period of time."

"Good settlement planning", Westcott added, "requires that all professional advisers know the roadmap to compliance." Unfortunately, he concluded, structured settlements continue to be underutilized amid too much discussion on process and too little on benefits.

During his presentation about the SMART Act, Roy Franco briefly addressed the settlement planning changes likely to result from the Budget Act of 2013, implementation of the ACA and anticipated CMS rules for liability MSAs.

Franco predicted "workers' compensation, liability and no-fault insurers will all become primary payers vis a vis Medicare, Medicaid and ACA health providers" as part of integrated settlement planning models similar to WCMSAs. He added, however, that different state-specific models may develop as state Medicaid agencies begin responding October 1, 2014 to the new Medicaid reimbursement rules promulgated by the Budget Act of 2013.

Multiple NAMSAP Regional speakers addressed case management compliance challenges.

Katie Fox identified and discussed WCMSA case settlement obstacles:

• CMS requests for additional medical reports and pharmacy itemizations.
• Obtaining signed authorizations and scope of those authorizations.
• Failure to proactively address Medicare issues
• Re-allocations with changing numbers as a result of lengthy negotiations.
• Liquidated workers compensation carriers resulting in lost data and miscoded payments.
• Three year statute of limitations prior to final case closure.

William Paxman and Todd Reimer provided a "carrier perspective" on MSA compliance:

• Claim management today is increasingly complex and transparent.
• MSA issues, however, tend to allign plaintiff attorneys and defendants.
• Adjustors are generalists who need to recognize issues and know when to involve specialists.
• No safe harbors and limited regulatory guidance require carriers to develop their own best practices including specific Medicare settlement language.
• Road blocks to settlements:
  • Claimant refusals to sign releases or provide information.
  • Demands for MSAs when they are not necessary.
  • Lack of medical/pharmacy records as well as additional requests for updates by CMS.
  • Claimants who are uncomfortable with government and the future management/reporting of medical treatment.
• Section 111 reporting and compliance challenges:
  • How will claim adjustors see the “value” of Section 111 when it doesn’t help resolve cases faster for less money and increases their workload?
  • Training challenges resulting from higher claim adjustor turnover.
  • How to automate section 111 reporting.
  • Partial vs. full settlements.

Attorneys Daniel Santaniello, Reinaldo Alverez and Shannon Metcalf discussed "Medicare compliance trends" and how attorneys, their clients and the courts are attempting to decipher the Medicare Secondary Payer (MSP) Act without liability MSA regulations. Their presentation provided examples of problem cases and summarized recent liability MSA-related court decisions.

The NAMSAP Regional Conference featured two presentations about the "impact of the aging workforce" on workers compensation and MSAs.

• Barbara Fairchild reviewed the changing demographics of older workers and related workplace attitudes. 40.2 million Americans were aged 65 and over in 2010. This number is expected to increase to 88.5 million by 2050.
• Tron Emptage discussed the special prescription medication management required for aging workers. For WCMSAs, CMS requires the most recent two years of medical records, last two years of payments, and prescription invoices showing dosage, quantity and frequency of the drugs.

Stephanie Volm and Reinaldo Alverez led the most unusual educational session at the NAMSAP Regional. Titled "MSA Jeopardy", this session consisted of collaborative attendee break-out groups competing with each other to answer questions such as:

• What are the top 12 WCMSA submission errors?
• What are the penalties for not paying the final amount in the demand letter?
• What are 10 things CMS wants to see in WCMSAs?
• Name seven criteria for determining whether a lump sum or structured settlement sufficiently takes Medicare's interests into account.
• How do you obtain a conditional payment letter in a liability MSA case?
• What are the requirements for an annuity in a WCMSA?

NAMSAP's 2014 Annual Conference, celebrating NAMSAP's 10th Anniversary, will take place May 8-9 in Las Vegas.

Congress Modifies Federal Medicaid Statute

Section 202(b) of the Bipartisan Budget Act of 2013, enacted by Congress on December 18, 2013, modifies the federal Medicaid Secondary Payer statute and permits recovery for “any payments by such third party.” Under the Medicaid Secondary Payer statute, Medicaid is generally a payer of last resort and proceeds from a settlement or judgment are considered "a primary payer".

In two prior cases, Arkansas v. Ahlborn and Wos v. E.M.A., the United States Supreme Court limited recovery claims by state Medicaid programs in tort actions to amounts allocated for medical costs. Section 202(b) of the Bipartisan Budget Act of 2013 effectively overturns those decisions. The amendments take effect October 1, 2014.

The new rules "will significantly complicate settlements involving Medicaid beneficiaries .... by making them more expensive to settle or by disrupting settlements altogether", according to an analysis published by the King & Spalding law firm. "Medicaid can now recover 100% of its payment 'off the top' of any settlement proceeds, which unfairly reduces the beneficiaries’ recoveries for non-medical expenses and creates barriers to settling cases in the first instance."

For a summary of other significant 2013 personal injury settlement planning developments, see this prior S2KM blog post.