Beyond Structured Settlements

WCMSA Self-Administration Toolkit

Continuing a series of workers compensation (WC) Medicare set-aside (MSA) regulatory compliance initiatives, the Centers for Medicare and Medicaid Services (CMS) has published a WCMSA Self-Administration (SA) Toolkit.

CMS' stated purposes for this Toolkit are to help WCMSA self-administrators:

• Manage their WCMSA accounts appropriately.
• Satisfy Medicare’s interests related to future medical care.
• Ensure Medicare will pay future Medicare-covered costs related to their WC injuries when the WCMSA is depleted.

MSA Background

MSAs are administrative and funding mechanisms utilized in certain categories of settlements to protect Medicare's interests as "secondary payer" under the Medicare Secondary Payer (MSP) statute. Enacted in 1980, the MSP Act requires certain insurers, including liability, automobile, no-fault and workers compensation insurers, to make payment first for services to Medicare beneficiaries regarding claimed injuries, with Medicare responsible only as a “secondary payer.”

CMS, the agency responsible for administering Medicare policies, failed to take practical steps to enforce the MSP rules until 2001 when it issued the first of several policy memoranda addressing WCMSAs. These policy memoranda created a format, checklists and procedures for seeking approval for WCMSAs to "protect Medicare's interests" when workers compensation cases are settled.

Several of these WCMSA policy memoranda address, directly or indirectly, structured settlement issues. One of these policy memoranda (dated October 15, 2004) addresses WCMSA present value calculations and provides an important pricing advantage for annuity funding compared with lump sum funding.

During 2013, CMS published both an 88 page WCMSA Reference Guide (WCRG) and a 13 page supplement (WCRG Version 2.0). The WCRG's intended purpose is to help WCMSA professionals, beneficiaries and other stakeholders "understand CMS' [WCMSA] amount approval process and to serve as a reference for those electing to submit such proposals to CMS for approval."

S2KM has written two blog posts summarizing the initial WCRG:

• Part 1 - Non-structured settlement issues.
• Part 2 - Structured settlement issues.
• For highlights of the WCRG Version 2.0, see this blog post written by Douglas Shaw.

Significantly for structured settlements, WCRG Appendix 4 defines "present-day value" as "the cost to fund a WCMSA annuity" and further states: "[t]he WCRG follows all CMS policy memorandums currently in effect."

Neither WCRG Version 2.0 or the WCMSA SA Toolkit address "present value". Therefore, it appears the October 15, 2004 CMS WCMSA policy memorandum remains in effect and annuities continue to offer lower-cost funding alternatives compared with lump sums for many, if not most, WCMSAs.

Although CMS and its field offices have also issued informal guidance about the use of MSAs in liability cases, nothing comparable exists to the CMS WCMSA memoranda, WCRG or WCMSA SA Toolkit. As a result, there currently is no consensus among tort practitioners as to whether and when MSAs are required in liability cases. Anticipating publication of MSA rules for liability cases, however, CMS has published HHS/CMS RIN: 0938-AR43.

Structured Settlements - Comparing the WCMSA SA Toolkit and the WCRG

Although both the MSAWC SA Toolkit (Toolkit) and the WCRG both address structured settlements in multiple sections, the administration (post-settlement) focus (including structured settlements) of the Toolkit is narrower than the WCRG and its treatment of structured settlement issues is generally less comprehensive.

The following Toolkit sections address structured settlement issues. S2KM has added references to related WCRG sections where applicable.

• Section 3: How Your WCMSA is Funded - compare WCRG Section 5.0.
• Section 8: Annual Attestation
• Section 11: Topics Unique to Structured Accounts - compare WCRG Section 19.3.
• Section 13: Letters and Examples - which includes three sample structured account attestation and expenditure letters which do not appear in the WCRG:
  • Annual attestation.
  • Temporary exhaustion.
  • Permanent exhaustion.
• Section 14: Glossary - The Glossaries of the both Toolkit and the WCRG include definitions for "structured settlement". Although consistent, the two definitions are worded slightly differently. Neither definition mentions annuities or references the tax definition for "structured settlement" in IRC 5891(c)(1).

The Toolkit does not address structured settlement issues which appear in the following WCRG sections:

• Section 10.1.1
  • WCMSA cover letter
  • Settlement amount
• Section 10.1.3 - Rated Age Information or Life Expectancy
• Appendix 5:15 - Rated Age Information or Life Expectancy
  • Rated Age Statement
  • Annuity Provider Underwriting Assessment
  • Annuity Broker Statement
• Appendix 5:25 - Settlement Agreement or Proposed or Court Order

Related S2KM reporting

• Medicare Compliance Legislation
• The Medicare, Medicaid and SHIP Extension Act (MMSEA)
• NAMSAP 2014 Regional Conference
• Part 1 - Speakers and Topics
• Part 2 - WCMSA Market Metrics

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.