Delay in Calculating a Structured MSA Can Cost You, It’s Free, So Why Wait?

Delay in Calculating a Structured MSA Can Cost You, It’s Free, So Why Wait?

 By Teddy Snyder, Esq.

I got the call again. I’m in California, but this case closure scenario can happen anywhere. “I have a signed C&R for $46,000 with CMS approval. Can you save me some money?” The answer is “Probably, but it will be more complicated, because you waited so late in the process to call me.”

A structured settlement can reduce the cost of an MSA pretty much every single time. That’s because a structured settlement is the only CMS-approved way to reduce the cost of an MSA to present value. Plus, CMS rules require calculation of the MSA using a projection of life expectancy which may not result in the lowest price. The structured settlement, on the other hand, can guarantee the required income stream at the lowest price. Oh, and by the way, any time you annuitize the MSA, that is a structured settlement. To say, “I only want to annuitize the MSA, not a structured settlement” is contradictory.

Reducing the MSA to present value using a life expectancy personalized for this claimant can create a cost savings that the parties can share. Or it can create more cash for the Applicant to pocket, thereby clinching the deal. It can free up necessary cash to pay the attorney fee or cover non-Medicare covered expenses.

Perhaps most importantly, spreading out the payments over the Applicant’s life expectancy mitigates the chance that inappropriate self-administration will create Medicare reimbursement liability for all concerned. If the fund is spent inappropriately one year, more payments are coming in years to come which may be adequate to pay the claim-related Medicare-eligible expenses. This benefits the employer, the Applicant’s attorney, but most especially the Applicant, who stands to lose Medicare benefits or face garnishment of social security. These advantages are available at absolutely no cost to any party (the structured settlement broker is paid as overhead of the annuity company), but to get the best deal you have to lay the groundwork.

1. Provide narrative medical reports (AME, QME, PTP within the last two years) to the structured settlement broker who will obtain underwriting of the Applicant. This determines whether any medical condition, industrial or not, has impaired Applicant’s life expectancy. It costs less to pay medical benefits over a shorter life expectancy. The structured settlement broker will provide underwriting information to your MSA company who will then use it in calculating the appropriate MSA funding figure.

2. Approximately simultaneously with task #1, request that Claims order the MSA report. The MSA allocation company will need all medical records and a print-out of paid medical expense from the last two years. If expenses were paid for any condition which is denied, Claims needs to let them know that. The MSA company also needs to know who the broker is so they can coordinate.

3. Obtain the Applicant’s signature on the authorizations provided from the MSA allocation company. The broker probably has these forms. An MSA cannot be submitted for CMS approval without the authorizations.

4. After you get the report, create a draft Compromise & Release document which includes a structured settlement addendum—even if the Applicant has refused the structure. Why? If you submit as a structure, the approval will come back as a structure with CMS’ allocation between Initial Deposit (“seed”) and annual payments. Then you can easily finalize the settlement as a structure or as cash. But if you send it in as cash, and later the parties want to structure, it gets complicated. In the past, we have seen CMS approve an amount, but change the allocation. For example:

  • MSA for $100,000 submitted-- $20,000 in the seed, $80,000 in annual payments
  • It comes back approved for $100,000--$25,000 in the seed, $75,000 in annual payments

So often the MSA comes back higher than anyone anticipated and the only way the deal will fly is if the MSA is structured, but if the submission was for cash, it creates hoops to jump through which could have easily been avoided.

The draft Compromise & Release need not be signed by anyone. It need not be the real deal. With the wait time now up to six months, many claims organizations are submitting earlier in the process. The draft settlement document reflects the structured MSA plus perhaps a “shim” figure representing a minimum value or attorney fee.

5. Confirm the MSA company has everything they need to submit. This includes all medical records, print-out of medical expenses, and list of dispensed pharmaceuticals from the dispensing pharmacy or treating physician, all from the last 24 months.

6. Submit. After 30 days, see if CMS has acknowledged receipt. It is the acknowledgement date that starts their clock ticking. Follow up to make sure Claims has responded to any request from CMS for additional records. These requests have a 30-day short fuse. If the requested documents are not provided timely, the file goes inactive. When the necessary papers are sent in, the file goes to the back of the review queue. Sit back and wait.

7. When the CMS approval comes in, immediately provide a copy to the structured settlement broker. Even if the allocation was approved as submitted, interest rates will have changed and the approval will specify the start date for annual payments. The broker will re-compute the figures and provide a revised addendum.

8. Assuming everyone is still on board with the overall settlement, the revised documents can then be executed and walked through at the WCAB. If the MSA will be paid as cash, send in a “change of funding” letter.

As a structured settlement broker, I am a bit like Rumpelstiltskin from the fairy tale. Like him, I can turn straw into gold. For me, the straw consists of timely information and participation in the process outlined above. The gold is a successful settlement.

What if you’re already well into the process before anyone realizes you need to call a broker? It’s usually not too late to help; I just need to jump through some new hoops. I can do that, but, again, you have to give me the straw. For my recent caller, she couldn’t locate the original MSA report, so I had absolutely nothing to work with to figure out what the allocation for seed money vs. annual payments should be.

Teddy Snyder is an attorney and structured settlement broker at the Beverly Hills office of Ringler Associates. She can be reached at TSnyder@RinglerAssociates.com or 888/734-3910.

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