Beyond Structured Settlements

NAMSAP 2016 Annual Conference

The National Alliance of Medicare Set-Aside Professionals (NAMSAP), "the only non-profit association exclusively addressing the issues and challenges of the Medicare Secondary Payer (MSP) Statute and its impact on workers’ compensation and liability settlements", hosted its 2016 Annual Conference September 14-16 in San Antonio, Texas.

NAMSAP, which also seeks and welcomes opportunities to help improve Medicare set-aside (MSA) industry standards for documentation, work product and business practices, encompasses a highly diverse professional membership consisting of attorneys, MSA allocators, MSP compliance consultants, CPAs, claims professionals, structured settlement consultants, guardians, nurses, pharmacists, rehabilitation professionals, and life care planners.

As S2KM has observed in reports about past NAMSAP conferences (see links below), the combination of membership diversity, subject matter complexity, legislative and regulatory developments plus an expanding MSA market create extraordinary challenges for NAMSAP in planning and organizing its educational programs. This year's conference, co-chaired by NAMSAP President Gary Paturneau and Michelle Allan, should be congratulated for setting new standards for attendance (180) and sponsor/exhibitors (15) as well as the quality and organization of the speakers and extensive handout materials. The conference educational program was divided into two parts: an "MSP Crash Course" and the General Conference.

NAMSAP 2016 CONFERENCE

TOPICS AND SPEAKERS

MSP "CRASH COURSE"

• MEDICARE SECONDARY PAYER ACT 101 - Dan Anders and Leslie Schumacher
• GENERAL ANATOMY OF THE WCMSA REFERENCE GUIDE - Jake Reason and Kathleen Wyeth
• WHAT WOULD CMS DO? - Barbara Fairchild and Erin O'Neill

GENERAL CONFERENCE

• CONFERENCE INTRODUCTION - Gary Paturneau and Michelle Allan (Co-Chairs)
• MEDICARE ADVANTAGE ORGANIZATION CASE LAW - Ciara Koba; Heather Sanderson Hon Lee Yeakel; Jennifer Jordan
• CIVIL MONETARY PENALTIES - Katie Fox; Monika Boswein
• CURRENT STATE OF CONDITIONAL PAYMENT RECOVERY - Michele Carey; Shawn Deane; William Delaney
• PRIMARY PAYER APPEALS - Deborah Robinson Stewart; Melissa Woitalewicz; Kim Young
• ADVENTURES IN ALLOCATING - Christine Melancon; Beth Hostetler; Jake Reason
• SUBMISSION VS. NON-SUBMISSION (OPT-OUT) FOR WC - John Cattie; Jennifer Jordan; MeLinda Petit; Robert Sagrillo; Mark Sidney; Rita Wilson; Mark Walls (Moderator)
• LIABILITY MSAS - David Cherry; Roy Franco; Thomas Spratt
• SETTLEMENT LANGUAGE - Joy Brewer; James Raines; Vincent Quatrini
• CONFLICTS WITH STATE LAW - Jeanmarie Calcagno (IL), Rodney McColloch (GA), Joseph Schneider (TX)
• WCMSA RE-REVIEW PROCESS - Carmen Folluo; Shannon Metcalf; Kimberly Wiswell
• MITIGATING COSTS WHILE PROVIDING QUALITY CARE - Amy Bilton; Amy Lee; Mark Pew; Pamela Schweitzer.
• WHAT IS AFFECTING STAKEHOLDERS - John Cattie; Doug Holmes; Greg McKenna; Gary Paturneau

NOTEWORTHY NAMSAP PRESENTATIONS

Among NAMSAP's many outstanding conference presentations, S2KM found the following most noteworthy from a structured settlement perspective:

• The "Crash Course" presentation "Medicare Secondary Payer Act 101", which also featured an informative Medicare Overview and included exceptional handouts, did not reference structured settlements. With that single proviso, however, this NAMSAP presentation successfully captured, organized and communicated applicable information and data better than any prior presentation S2KM has attended - and should become part of the core curriculum for future educational programs offered by the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP).
• Another NAMSAP "Crash Course" presentation which arguably should have, but did not, discuss structured settlements, was titled: "General Anatomy of the WCMSA Reference Guide". Specific references to "structured settlements" exist throughout the WCMSA Reference Guide - see, for example: Table of Contents 5.0; 5.2; 19.3; Appendix 3 (Glossary entry for "structured settlement"); and Appendix 5:15. Paradoxically, and more importantly, the subtitle for this NAMSAP's Crash Course presentation (the "Final resting place for the old CMS memos"), is critically important for understanding why structured settlements provide an inherent cost advantage, compared with cash, in funding WCMSAs - as S2KM first explained in this 2013 blog post and which appears to remain just as applicable and important in the context of CMS WCMSA Reference Guide Version 2.5.
• Only one NAMSAP 2016 conference presentation ("Settlement Language") substantively addressed structured settlements issues. Significantly, based upon S2KM's review, the structured settlement documentation included with the NAMSAP conference handouts for this presentation raised potential tax issues and highlighted a fundamental problem. The CMS WCMSA Reference Guide Glossary defines "structured settlement" as "[a] settlement in which the agreed-on funds are paid from an initial deposit and subsequent deposits on a regular basis for a given amount of time." Unfortunately, there is no specific link in the CMS WCMSA Reference Guide to either structured settlement tax law generally or the tax definition for “structured settlement” in IRC 5891(c)(1) or the tax requirements of IRC 130 and 104(a)(1) more specifically. Settlement documentation which may satisfies CMS, therefore, does not automatically satisfy the IRS.
• The concluding NAMSAP panel discussing "What is Affecting Stakeholders" provided a valuable, if overly brief, summary of the complex Federal and state legislative and regulatory developments re-shaping personal injury claim management and settlement planning. Although many of the Medicare-related developments were addressed individually by separate NAMSAP presenters, the "Big Picture" perspective helped to reinforce how dramatically and quickly systemic changes are redefining the marketplace. For the structured settlement industry to expand and retain a leadership position within these dynamic claim management and settlement planning markets, it follows (at least from S2KM's perspective) that industry leaders must improve their collective knowledge of the changing landscape (much of it related to government benefits) in order to help industry participants learn to re-position their sale from a stand alone alternative product to a critical component of integrated claim and settlement solutions.

ADDITIONAL S2KM OBSERVATIONS

During the NAMSAP 2014 Regional Conference, then NAMSAP President Michael Westcott explained why structured settlements and MSAs produce "a perfect match that also saves stakeholders 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.

Just as Westcott pointed out in 2014, structured settlements continue to be underutilized in 2016 - especially considering the inherent cost advantage CMS has provided for structured settlement funding of WCMSAs compared with cash. Among the reasons (from S2KM perspective): a strategic knowledge gap separates most of the structured settlement industry from the MSP community creating, especially for structured settlements, educational needs but also business opportunities. Some examples and thoughts:

• Among a diverse, intelligent and influential group of NAMSAP speakers, 15 exhibitors and 180 attendees, only six structured settlement brokers attended this year's NAMSAP conference; none of whom were featured speakers; and only one broker company exhibited. No structured settlement annuity provider representatives attended or exhibited.
• NSSTA's current Certified Structured Settlement Consultant (CSSC) certification program does not cover MSAs, or the MSP Act or government benefits more generally. This educational omission probably results, at least in part, from NSSTA's historic political and marketing slogan that: "structured settlements enable injury victims to live free of reliance on government assistance".
• Regardless of its historic accuracy and/or value, this political/marketing slogan now appears not only false but contradictory and counterproductive. For many of the most promising and strategic structured settlement submarkets (including not just MSAs, but also special needs trusts, the Affordable Care Act, and the ABLE Act) the challenges and growth opportunities require integrating structured settlements with government benefits.
• In 2014 NSSTA commissioned separate surveys of senior claims executives, claims professionals and plaintiff attorneys. Significant for Medicare and MSAs, two thirds of the senior claims executive survey participants said they believed that structured settlement broker/consultant skills had stayed the same compared to 10 years ago and that they would value more educational and informational services about MSA requirements. They also recommended that structured settlement broker/consultants expand their Medicare services. Claims professionals, when asked their preferred areas for more education, gave their highest response by far (71%) to MSAs.
• Providing a "carrier perspective" on MSA compliance during their 2014 NAMSAP Regional Conference presentation, claims executives William Paxman and Todd Reimer pointed out that, although MSA issues are increasingly complex, they tend to align plaintiff attorneys and defendants - a decidedly positive characteristic for the structured settlement industry which has struggled historically with plaintiff vs. defendant broker "issues".

The structured settlement and Medicare Secondary Payer communities of professional practice increasingly overlap and share complementary knowledge and clients. A more formal working relationship that encompasses their respective professional associations and addresses shared educational, marketing, legislative, and regulatory considerations would likely improve and further expand both communities.

MSP ACT AND MSA BACKGROUND

MSAs are administrative and funding mechanisms utilized in certain categories of settlements to protect Medicare's interests as "secondary payer" under the 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.”

The Centers for Medicare & Medicaid Services (CMS), the Federal 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 workers compensation (WC) MSAs. 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 - since updated to Version 2.5. The Reference Guide'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." CMS has also published a WCMSA Self-Administration Toolkit to help self-administrators manage their WCMSA accounts appropriately. Both the Reference Guide and the Toolkit prominently feature structured settlements.

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, WCMSA Reference Guide or the WCMSA Self-Administration Toolkit. As a result, there currently is no consensus among tort practitioners as to whether and when MSAs are required in liability cases. Lack of CMS guidance has not prevented an increase in the number of liability MSAs, according to leading professional MSA administrators. Unlike WCMSAs, however, liability MSAs typically are not submitted to CMS for approval.

S2KM Reporting for Prior NAMSAP Conferences

• 2005 NAMSAP Annual Meeting
• 2008 NAMSAP Annual Meeting
• 2010 NAMSAP Annual Meeting
• 2014 NAMSAP Regional Meeting
  • Part 1
  • Part 2
• 2014 NAMSAP Annual Meeting
• 2015 NAMSAP Winter Regional Conference
• 2015 NAMSAP Annual Conference

NAMSAP 2015 Annual Conference

Although some of the 143 attendees at the 2015 Annual Conference of the National Alliance of Medicare Set-Aside Professionals (NAMSAP), held September 30 - October 2 in New Orleans, (including S2KM) may have been confused by the conference theme ("Back to the Future") , the take away conference message was clear:

The Medicare Set-Aside (MSA) market continues to grow in size and complexity and NAMSAP remains "the only non-profit association exclusively addressing the issues and challenges of the Medicare Secondary Payer [MSP] Statute and its impact on workers’ compensation and liability settlements". NAMSAP also seeks and welcomes opportunities to help improve MSA and settlement planning industry standards for documentation, work product and business practices.

MSAS AND STRUCTURED SETTLEMENTS

An MSA is an administrative and funding mechanism utilized in certain categories of settlements to protect Medicare's interests as "secondary payer" under the MSP statute. Although Federal law does not define MSAs, or mandate specific types of MSA funding mechanisms, CMS (the responsible federal agency) has established certain basic guidelines for workers compensation MSAs (WCMSAs).

Following a series of policy memoranda, CMS published a WCMSA Reference Guide (WCRG) on March 29, 2013 plus a WCRG Version 2.0 on November 7, 2013. The WCRG explains WCMSAs as follows: "A WCMSA allocates a portion of the WC settlement for all future work-injury-related medical expenses that are covered and otherwise reimbursable by Medicare. When a proposed WCMSA amount is submitted to CMS for review and the individual or beneficiary obtains CMS’approval, the CMS-approved WCMSA amount must be appropriately exhausted before Medicare will begin to pay for care related to the beneficiary’s settlement, judgment, award, or other payment."

Both the CMS policy memoranda and the WCRG address structured settlement issues and provide guidelines for their utilization in funding WCMSAs. Significantly, these guidelines create an inherent cost advantage for structured settlements compared with lump sum alternatives because of the method CMS requires for calculating WCMSA present values. As a result, WCMSAs represent one of the few submarkets where structured settlements sales have increased since 2008.

Unlike WCMSAs, almost no regulatory authority exists for MSAs in third party liability settlements. In 2012, CMS published an Advanced Notice of Proposed Rule Making (ANPRM) for liability MSAs in the Federal Register - which it subsequently withdrew following negative public comments and rejection by the Office of Management and Budget (OMB). Nevertheless, according to one professional MSA administrator, liability MSAs now represent 30% of his company's cases and the percent is growing. No one, he adds, currently submits liability MSA cases for CMS approval.

NAMSAP ACCOMPLISHMENTS AND POLITICAL ADVOCACY

Under the leadership of current president, Kimberly Wiswell, and its Board of Directors, NAMSAP's 2015 accomplishments and enhanced membership values have included: expanding membership; regional conferences; educational webinars; a recurring "legal roundtable"; an active website listserv; improved communications with CMS; a new strategic plan; sponsorship of NAMSAP's first "Take the Hill" Day in Washington D.C.; plus a new association management team.

In addition to tracking Medicare compliance developments generally, NAMSAP's 2015 political agenda has sought to address perceived CMS WCMSA approval deficiencies such as:

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

Based upon the success of its first "Take the Hill Day", NAMSAP is planning a two-day "policy focus" for its 2016 Regional Meeting - which will take place in Washington, D.C. sometime during March or April and include one day of lobbying and one day of education. Two WCMSA bills (H.R. 1982 and S. 2731) are currently being considered by Congress. Each contains a "direct payment" provision which could have negative consequences for structured settlements as well as professional MSA administrators.

NAMSAP 2015 ANNUAL CONFERENCE

NAMSAP's membership is the most professionally diverse of any U.S. settlement planning association. It includes a mix of attorneys, MSA allocators, MSP compliance consultants, CPAs, claims professionals, structured settlement consultants, guardians, nurses, pharmacists, rehabilitation professionals, and life care planners.

The combination of membership diversity, subject matter complexity, legislative and regulatory developments plus an expanding MSA market create extraordinary challenges for NAMSAP in planning and organizing its educational programs. NAMSAP Conference Chairperson Tom Matson, Education Committee Chairman Thomas Spratt, Executive Director Brian Bailey and Meeting Planner Sarah Zenna, therefore, deserve congratulations for an outstanding program.

The NAMSAP conference itself was preceded by a three-day "Certified Medicare Secondary Payer Professional" (CMSP) certification program created and administered by the Louisiana Association of Self-Insured Employers (LASIE). Although "designed to give advanced knowledge and practical skills required to acquire certification in Medicare Secondary Payer Compliance", this educational program appears to offer a valuable and comprehensive MSP and MSA introductory curriculum appropriate for any settlement planning or structured settlement professional.

To supplement it primary program, NAMSAP offered its own MSP introduction - a half-day of "Pre-Conference Sessions" addressing: 1) MSA Submitter Errors; 2) MSP Industry Ethics; and 3) an MSP Compliance Situational Case Study.

These two optional preliminary programs allowed the NAMSAP conference organizers to focus its primary educational conference on its largest membership constituencies (MSA allocators and MSP attorneys) which created its own set of challenges. Because of their different backgrounds and roles, a predictable knowledge gap exists between MSP attorneys and MSA allocators - with MSA administrators, insurance professionals, structured settlement brokers and other MSP/MSA professional stakeholders falling somewhere in between.

The following S2KM listing of topics ( with speakers) attempts to communicate both the range of NAMSAP's 2015 Annual Conference educational offerings as well as NAMSAP's efforts to maintain and expand the MSP/MSA community of professional practice:

Directed Toward All MSP/MSA Professionals

• MSP Compliance - Kathleen Wyeth and Steve Pratt
• How the ACA Impacts Medicare, Medicare Compliance and MSAs - Patrick Hindert and Ann Koerner
• Case Study - Liability MSAs - David Cherry and Wayne Fontana
• Common MSP Questions - Christine Melancon
• Networking Lunch - New Orleans History and Culture - Carolyn Kolb

Directed Primarily Toward MSA Allocators

• Applying Evidence Based Medicine Guidelines to Fusions for Injured Workers - Dr. Marjorie Eskay-Auerbach
• Long-Term Narcotic Use in MSAs - Meredith Warner and Steve Miller
• Re-Review/Reconsideration - Michelle Letter; James Raines; Jeff Knipper
• Data and Development Committee Update - Debbe Marciko and Sandra Mackler
• Limited Medical Records and the MSA - Denise Wrenn
• Weaning and Detox Strategies in the MSA - Jill Breard; Jennifer Doherty; Dr. Steven Moskowitz
• Pharmacy Formularies and MSAs - Mark Pew; Dr. Matthew Foster; Dr. Steve Feinberg

Directed Primarily Toward MSP Attorneys

• Legal Update - Heather Schwartz Sanderson; Michelle Ready; Annie Davidson
• Private Cause of Action - Amy Bilton and Heather Hatch
• State Workers Compensation Laws and CMS - Jennifer Jordan and Danielle Marone

Among NAMSAP's most impressive conference offerings for attendees was a beta test mobile app. The app featured a comprehensive event guide (including speaker bios, notes and handouts) and social networking tools. It also offered a Google map centered on the conference hotel plus a simple, but effective search feature. Assuming NAMSAP offers similar mobile apps at future conferences, this dynamic resource deserves even greater promotion including an introductory demonstration.

For S2KM's reporting of prior NAMSAP conferences, see:

• NAMSAP 2015 Winter Regional Conference
• NAMSAP 2014 Annual Conference
• NAMSAP 2014 Regional Conference
  • Part 1
  • Part 2

For previews of additional upcoming settlement planning conferences, see: 2015-2016 Educational Conferences

NSSTA 2015 "Structures 202" Conference

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

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

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

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

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

TOPICS AND SPEAKERS

NSSTA Congressional Activities - Eric Vaughn

Structured Settlement Fundamentals

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

Structured Settlement Business Development

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

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

S2KM Observations and Opinions

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

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

Structured Settlement Update - 2014 Annuity Sales

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NAMSAP 2014 Annual Meeting

The National Alliance of Medicare Set-Aside Professionals (NAMSAP), the only national professional association whose singular focus is Medicare Set-Aside arrangements (MSAs), celebrated its 10th anniversary last week in Las Vegas with a congratulatory acknowledgement of past accomplishments, a comprehensive educational program and a confident look at the future.

Incoming NAMSAP President Leslie Schumacher and Immediate Past President Douglas Shaw complimented NAMSAP's founding members for their innovative spirit and sustaining priorities: education; best practices; and certification - the Medicare Set-Aside Consultant Certified (MSCC) program.

Schumacher and Shaw highlighted NAMSAP's recent accomplishments and enhanced membership value: expanding membership; regional conferences; educational webinars; a recurring "legal roundtable"; an active website listserv; improved communications with CMS; a new strategic plan; and sponsorship of NAMSAP's first "Take the Hill" Day in Washington D.C.

NAMSAP also seeks and welcomes opportunities to help improve MSA and settlement planning industry standards for documentation, work product and business practices, according to Shumacher and Shaw.

MSP Act and MSAs

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 Centers for Medicare and Medicaid Services (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 memorandums created a format, checklists and procedures for seeking approval for WCMSAs to "protect Medicare's interests" when workers compensation cases are settled.

CMS subsequently published a WCMSA Reference Guide (WCRG) on March 29, 2013 plus a WCRG Version 2.0 on November 7, 2013. The WCRG's intended purpose: 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."

The WCRG explains WCMSAs as follows: "A WCMSA allocates a portion of the WC settlement for all future work-injury-related medical expenses that are covered and otherwise reimbursable by Medicare. When a proposed WCMSA amount is submitted to CMS for review and the individual or beneficiary obtains CMS’approval, the CMS-approved WCMSA amount must be appropriately exhausted before Medicare will begin to pay for care related to the beneficiary’s settlement, judgment, award, or other payment."

Both the CMS policy memoranda and the WCRG address structured settlement issues and provide guidelines for their utilization in funding WCMSAs.

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 has not yet published definitive rules for using MSAs in liability cases (LMSAs). CMS did publish an Advanced Notice for Proposed Rule Making (ANPRM) on June 14, 2012 in the Federal Register which included seven different option to satisfy obligations for future medicals in liability cases. CMS also published RIN: 0938-AR43 in Spring of 2013 outlining a timetable for the proposed rule. No such LMSA rule, however, has yet been published.

Topics and Speakers

Among the challenges in selecting topics and speakers for any NAMSAP conference is the diversity of MSA subject matter expertise. A significant knowledge gap exists between many MSA attorneys and many MSA nurse/life care planner/allocators - with MSA administrators, insurance professionals and structured settlement brokers falling somewhere along this educational axis.

NAMSAP continues to select topics which, and attract speakers who, meet the learning needs of its multi-professional membership during a period of rapid industry change and development. The following S2KM listing of topics ( with speakers) attempts to communicate both the range of NAMSAP's 2014 annual conference educational offerings as well as NAMSAP's success in maintaining and expanding a unified MSA community of professional practice.

Directed Toward All MSA Professionals

• Professionalism in the MSA Industry - Preston Holloway; David Jankosky; Leta Sharkey.
• Problematic Areas in MSP Compliance - Lavonya Chapman; Stephanie Ragsdale; Linda Wolden.
• How Medication Impacts MSAs - Dr. Marcos Iglesias; Kayla Tortorich; Melissa Woitalewicz.

Directed Primarily Toward MSA Allocators

• Evidence Based Medicine - Dr. Shari Ling; Mary Nix; Ken Eichler; Beth Hostetler.
• Transitioning to ICD-10 - Marci Moorhead; Carlos Navarro.

Directed Primarily Toward MSA Attorneys

• Workers Compensation Cases with a Liability Component - William Delaney; Jill Schroeder.
• Dual Eligibility: MSAs within Special Needs Trusts - Kristen Behrens; Shannon Laymon-Pecoraro.
• Developments in the MSA Courtroom - Chelsie Allan; Patrick Czuprynski; Jennifer Santoro.
• Impact of Outside Factors on the Distribution of MSA Funds - Gregg Chapman; Danielle Marone; Daniel Simones.

Congratulations to the speakers, as well as NAMSAP's conference and educational committee chairmen Thomas Matson, Gary Patureau and Thomas Spratt, for maintaining NAMSAP's impressive educational standards.

For S2KM's most recent prior NAMSAP reporting, see "NAMSAP 2014 Regional Conference":

• Part 1 - Topics and Speakers
• Part 2 - WCMSA Market Metrics

For S2KM's summary of structured settlement issues in the CMS WCMSA Reference Guide, see this blog post.

 

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

Primary Market Update

Structured settlement primary market annuity sales 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 and recently published by Melissa Evola. Total 2013 structured settlement cases 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, still fall substantially short of the historic 12 month industry high ($6,226,578,725 in 2008) after consistently averaging close to $6 billion annually from 2001-2007.

Adding these 2013 results to historic U.S. structured settlement totals, S2KM estimates the following primary market metrics from 1976 thru 2013:

• Total annuity premium: $139.5 billion.
• Total structured settlement cases: 802,000
• Average annuity premium: $174,000.

Berkshire Hathaway, which re-entered the structured settlement market in 2011 following a multi-year hiatus, assumed primary market leadership by generating $1,424,306,831 of structured settlement annuity premium (28% of the industry total) during 2013.

With announced departures of Allstate and John Hancock during 2013, the U.S. structured settlement market now consists of eight annuity providers. 2013 sales results for other structured settlement annuity providers (per Evola's report) plus the rounded increase (+) or decrease (-) from comparable 2012 results:

• Pacific Life - $848,725,000 (+ $11.7 million)
• MetLife - $726,000,000 (+ $62 million)
• Amgen/USL - $587,367,753 (+ $61.3 million)
• Liberty Life - $558,106,000 (+ $147.3 million)
• Prudential Life - $548,700,000 (- $86.7 million)
• New York Life - $275,253,601 (- $47.5 million)
• Mutual of Omaha - $86,598,027 (+ $29 million)

Evola's 2013 compilation also reports an annual decrease in annuity premium for non-qualified structured settlement assignments (from $170.1 million in 2012 to $164.9 million in 2013) as a portion of the overall structured settlement numbers.

Non-qualified assignments represent transfers of periodic payment obligations that do not meet the requirements of IRC sections 130 and 104(a)(1) or (2) including deferred attorney fees. Despite earlier industry projections of a large and growing market, only two structured settlement annuity providers (AmGen and Liberty) currently offer non-qualified assignments.

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 S2KM's most recent analysis of structured settlements and WCMSAs, see this prior blog post.

Many industry observers continue to view the United States structured settlement primary market as a strategic, underperforming segment of the larger personal injury settlement planning market. S2KM looked at some of the related issues in a three-part 2013 blog series titled "Growing the Primary Market"

• Part 1 - Daniel Durbin's survey of primary market leaders.
• Part 2 - NSSTA and NASP 2013 Fall Conferences.
• Part 3 - NSSTA's marketing boot camp - "What business are we in?"

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.

CMS WCMSA Reference Guide - 2

The Centers for Medicare and Medicaid Services (CMS) published an 88-page WCMSA Reference Guide (WCRG) on its website  March 29,2013. Its intended purpose: 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."

A prior S2KM blog post highlights selected excerpts from the WCRG addressing and summarizing non-structured settlement specific issues. This blog post identifies and discusses structured settlement issues, including rated age information requirements for determining WCMSA beneficiary life expectancy, featured in the WCRG.

Arguably, the most important WCRG statement for structured settlements is the following comment about CMS WCMSA policy memorandums which appears in WCRG Appendix 4 - WCRC Proposal Review Reference Tools: "CMS has issued policy memorandums since 2001 on a variety of topics related to WCMSAs, such as review thresholds, pricing of services and prescription drugs, rated ages, life expectancy, and more. "The WCRG follows all CMS policy memorandums currently in effect. The memorandums are published on the CMS website."

Why is this statement so important for structured settlements?

• First, because one of the policy memorandums (dated: October 15, 2004) includes the following questions and answer:
  • "Q4. Inflation Adjustment/Discount for Present Value/Change in Policy - Must the WC Medicare Set-aside Arrangement include an upward adjustment for inflation? May the WC Medicare Set-aside Arrangement include a downward adjustment as a discount for the present-day value of the total WC Medicare Set-aside Arrangement?"
  • "A4. Effective with the issuance of this memorandum, CMS's position is that the WC Medicare Set-aside Arrangement does not need to be indexed for inflation and may not be discounted to present-day value."
• Second, as a result of this CMS policy:
  • Structured settlement annuities have had an inherent cost advantage over lump sum alternatives for funding WCMSAs; and
  • Structured settlement annuities have underfunded WCMSAs, because they do not include any inflationary component, with Medicare ultimately responsible for the underfunded amount.
• For a simplified example, assume the projected WCMSA payments are $10,000 per year for 10 years.
  • Lump sum - Without any inflation index or discounting, the lump sum present value will be $100,000 which will be invested in an interest-bearing account.
  • Structured settlement - Ignoring "seed money" (see below), the cost of a certain only annuity to fund $10,000 per year for 10 years (even with today's low interest rates) is approximately $94,000 - which is $6,000 less than the lum sum present value because the annuity incorporates a discount rate. Without inflationary increases (which CMS' October 15, 2004 policy memorandum does not require), however, the annuity payments of $10,000 per year will not keep pace with future increases in medical costs. Note also: other types of annuities (eg. temporary life) could cost less than a certain only annuity.
  • Medicare responsibility - If the $10,000 per year proves insufficient, Medicare will make up the difference (see below) and once the WCMSA is fully paid out, Medicare becomes responsible for any further Medicare-related medical expenses.
• Third, the WCRG does not address the inflation-discount issue. The Glossary in Appendix 4 defines "present-day value" as "the cost to fund a WCMSA annuity". Therefore, it appears the October 15, 2004 CMS WCMSA policy memorandum remains in effect and that annuities will continue to represent a lower-cost funding alternative than lump sums for many, if not most, WCMSAs.
• Bottom line: during this era of low interest rates and declining structured settlement sales, WCMSAs have represented, and apparently continue to represent, a singular sub-market where structured settlements enjoy an inherent cost advantage compared with lump sums. The new CMS WCRC appears to maintain that cost advantage by re-affirming the applicability of the October 15, 2004 policy memorandum.

The WCRG further underscores the continuing importance of structured settlements for WCMSAs by the considerable attention structured settlements receive in the in the following sections:

• Section 5.0 - WCMSAs Can Be Funded in Two Ways: a Lump Sum or Structured Payments
• Section 5.2 - Structured WCMSAs
• Section 10.1.1 - Cover Letter - E. Settlement Details
• Section 10.1.3 - Rated Age Information or Life Expectancy
• Section 19.3 -Structured WCMSA Topics
  • 19.3.1 - Funds Left Over / Carried Forward
  • 19.3.2 - Funds Used in a Given Period
• Appendix 3 - Glossary - entry for "structured settlement"
• Appendix 5:15 -Rated Age Information or Life Expectancy - includes sample:
  • Rated Age Statement
  • Annuity Provider Underwriting Assessment
  • Annuity Broker Statement
• Appendix 5: 25 -Settlement Agreement or Proposed or Court Order
  • Includes annuity payout

What follows are non-sequential S2KM comments about selected structured settlement issues addressed in the WCRG. Quotes are excerpted from the WCRG.

Definition - The WCRG Glossary defines "structured settlement" as "[a] settlement in which the agreed-on funds are paid from an initial deposit and subsequent deposits on a regular basis for a given amount of time." Although other sections of the WCRG discuss annuities in the context of structured settlements, this definition fails to mention annuities. In addition, there is no specific link in the WCRG to either structured settlement tax law generally or the tax definition for “structured settlement” in IRC 5891(c)(1) more specifically.

WCMSA cover letter - When a WCMSA is funded with a structured settlement, the cover letter seeking CMS approval must identify the following:

• Name of the carrier
• Cost of the annuity
• Proposed initial deposit (seed money)
• Minimum annual deposit for the balance of the claimant’s life
• Annuity starting date
• Length of annuity
• Annual payout of annuity
• Annual funding date

Settlement amount - "Medicare determines the value of the annuity based on how much the annuity is expected to pay over the life of the settlement, not on the Present Day Value (PDV) or cost of funding that annuity." The WCRG includes an example calculation and requires submission of annuity rate sheets to support calculations of settlement amounts.

Initial deposit - If a WCMSA is funded with structured settlement, the WCRG requires an initial deposit "to cover the first surgical procedure or replacement and two years of annual payments" and provides an example to illustrate how to calculate this seed money. The WCMSA cover letter must disclose whether any portion of the projected prescription drug expenses has been included in the initial deposit.

Scheduled periodic payments - With a structured settlement, the initial deposit is followed by subsequent annual payments to the WCMSA account (or a shorter time period if CMS agrees), to cover projected expenses for a fixed number of future years on the anniversary of the first deposit. It is significant that the CMS WCRG requires annuities with fixed numbers of future years despite allowing/encouraging the use of rated ages to determine reduced life expectancies.

Over-and-under funding - If structured settlement deposit for a given year is not used up, the remaining amount is carried forward to the next payment period. Medicare's threshold to begin paying claims in any subsequent period would then be increased by the amount of the carry-forward. Alternatively, if a WCMSA fund is appropriately exhausted (including roll-over amounts) in a given time period, Medicare will become the primary payer for the remainder of that period assuming CMS receives proper verification. The WCRG includes an example to help explain this over-and-under funding process. When the entire WCMSA fund is exhausted, including all future structured settlement payments, Medicare will pay primary for any future WC-related medical expenses. Obviously, any such over-and-under funding requires additional work for both CMS and the WCMSA administrator compared with lump sum funding.

Rated age information

The WCRG Glossary does not provide any definition for "rated age". Generally the terms "rated age" and/or "substandard age rating" refer to an annuity provider's determination that an annuitant's life expectancy is less than normal. A rated age generally results in a lower premium for life contingent annuities compared with an annuitant having a normal life expectancy. CMS, however, utilizes rated age information from annuity providers ("insurance companies") to determine the fixed number of years for which a WCMSA must be funded.

If rated age information is not provided, CMS will determine a claimant's life expectancy using the actual age. If, however, rated age information is submitted with a WCMSA for CMS approval, CMS requires the following:

• "Rated age confirmation with original proposal documents as outlined in current procedure memorandums. CMS will not accept any variation or substitute wording.
• "A stand-alone statement indicating that all rated ages obtained on the claimant are included.
• "Each rated age is presented on company letterhead for each insurance company (or companies) that made the rating and for each settlement broker that obtained them from the insurance company. Note: Letterhead includes the name and address of the insurance company or settlement broker.
• "All rated age sources shall be independent, in fact and appearance, of the submitter, carrier, and claimant.
• "If more than one rated age is submitted, CMS will use the median of all rated ages submitted.
• "When multiple rated ages are provided, the submitter becomes subject to enforcement of the requirement to use the median rated age and must provide all rated ages to CMS.
• "All rated ages shall be accompanied by a written justification on how such age was determined. For example, if a rated age obtained from life insurance companies for like injuries/illnesses is the method of evaluation, include documentation to support the life expectancy. CMS will project the cost of the claimant’s future treatment over the claimant’s life expectancy, using the Centers for Disease Control (CDC) Tables unless documentation from a medical professional provides justification for an alternative projection.
• "CMS uses the Centers for Disease Control (CDC) Life Tables for WCMSA life expectancy calculations. Please see the WCMSA site for information on the latest tables to use.
• "Do not include the following:
  • "Actuarial charts or life expectancy charts from the CDC or elsewhere, or statements that there are no rated ages.
  • "Do not include any documents on rated ages that contain redacted data. They will not be considered."

Submitting rated age information for CMS approval requires significant additional work compared with a typical structured settlement. The benefit of obtaining a rated age is a shorter WCMSA payout period resulting in a lower cost of funding whether the funding is lump sum or structured.

For additional S2KM reporting about government benefit issues, see the structured settlement wiki. For analysis of the interaction of structured settlements and government benefits, see Chapter 15 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).