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Are Structured Settlements Still
Relevant in Settling Workers’
Compensation Cases?
By Steve Chapman and Gregg Chapman, Esq.
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Steve Chapman and Gregg
Chapman, Esq. specialize in structured settlements of workers’ compensation
cases. In this article they answer some FAQs.
For more information on structured settlements and the structure
broker’s role, see:
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In this era of economic instability
and increased governmental regulation, when the settlement of a workers’ compensation
case is becoming more and more time consuming and complex, many ask
if the utilization of a structured settlement is still necessary
and relevant. In this question and answer session we will explore
various topics including interest rates, government benefits and
high MSA amounts. As it turns out, structured settlements are more
relevant than ever in resolving certain issues of concern to both
sides, and in getting the case settled.
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| Structured settlements are more
relevant than ever in getting the case settled. |
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Question: I see that interest rates
are low. Is that a good environment for my client to get involved
in a structured settlement that will go on for life? What will happen
if and when interest rates go higher?
Answer: Structured Settlement
annuities are a unique and very special type of annuity. They do
not have to abide by the normal rules of the standard annuity products
in the market place. As we know, virtually any type of payout schedule
can be designed by the Applicant and their family. This special settlement
annuity can also take advantage of any comorbid medical conditions
and illnesses that the Applicant may have; this is known as medical
underwriting and the process of underwriting results in a “rated
age”. The rated age allows for the annuity to be purchased
at a “discount” which results in a greater rate of return
for the Applicant. We are regularly able to provide an Applicant
with a 5-6.5% rate of return and tax free on top of that. Once again
it is important to point out that the lifetime monthly payments are
guaranteed not to change over the life of the Applicant. In the event
that the Applicant may feel that interest rates may be higher in
a few years, the Applicant can create a structured settlement designed
to have lump sum payments made at different points in the future.
These sums can then be diversified into other investments hopefully
at a higher interest rate. This strategy works very well because
the money can grow tax free until it is paid out, and when it is
paid out it is tax free as well.
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Annuity
payments are tax free
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Question: I have a client
who considers himself a savvy investor. Why should I recommend a
structured settlement as opposed to an all cash settlement that he
can then invest as he chooses?
Answer: There are many reasons, one
of which, the rate of return, has already been addressed. However,
one of the most important reasons for a structured settlement is
security. I’m sure many of us like to consider ourselves above
average investors. It was just 3 short years ago when the “smart” investor
had a diversified portfolio which included stocks, bonds and real
estate. Within 18 months, that “smart” investor had seen
the value of his holdings drop by 60% in many cases. This might not
be the end of the world to a young or middle aged individual who
had a good job and many years ahead of him to recoup from these losses.
However, consider the elderly Applicant who settled her case in 2007,
was no longer able to work, didn’t structure her settlement
and invested the entire cash value of the settlement in real estate
and stocks. That workers’ compensation settlement that was
supposed to provide income for the rest of her life is now more than
half gone and there isn’t sufficient time to make it back.
The security provided by a structured settlement makes sense when
the risk from an economic downturn is unacceptable.
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Structured settlements offer
security from economic downturns
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Question: I have
heard other attorneys talk about using structured settlements to
assist in the preservation of other benefits that the Applicant may
be receiving. Is this truth or fiction?
Answer: As alluded to in a previous answer,
the structured settlement annuity carries with it the ability
to customize the payment schedule to meet the specific needs
of the Applicant. As some of you may be aware, certain governmental
agencies and individual insurance plans may be entitled to
take offsets of payments made to Applicants, depending on the
funds they receive from their workers’ compensation settlement.
In any potential settlement, it would be worthwhile to explore
deferring the beginning of the periodic payments until a point
in the future where the offsets will be at a lower rate or
non-existent. Please consult with a structured settlement expert
as to the opportunities available in utilizing and customizing
the structure to take advantage of lower offsets.
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Structured settlements may provide
some protection against offsets
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Question: Sometimes
I am approached by a workers’ compensation carrier and am
told that I must use a structured settlement and I must use a certain
life insurance company to fund the settlement. Do I have to go
along with this?
Answer: The situation referenced in this question
involves the use of in-house structure programs. The largest of
these programs are Liberty Mutual & Liberty Life, Chartis and
American General. Some of the examiners working for these carriers
have the ability to insist on utilizing a structured settlement
if the case is to settle by C & R. If you find yourself in
one of these situations and believe that settlement with a structured
settlement will make sense for your client, it is essential that
you retain a structured settlement expert of your own (at no cost
to you or the Applicant) regardless of what you are being told
by the other side. While Chartis wants you to use American General
Life and Liberty wants to utilize Liberty Life, each of these programs
allow other life insurance companies to be used. Your own broker
can shop the marketplace to make sure you are receiving the maximum
benefits for your client. You cannot rely upon the structure broker
for the defendant to inform you of this or shop the market for
you since they are often bound to quote just one company. Your
own broker has a fiduciary responsibility to you and the Applicant
and can perform this due diligence for you, once again at no cost.
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If defendant insists on using
their own structure program, contact your own broker, who can shop
the marketplace to make sure you are receiving the maximum benefits
for your client.
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Question: I’ve
seen Medicare Set-Aside (MSA) amounts increase substantially over
the last 2 years. Can structured settlements still provide a solution
that will make a C & R viable when there is a large MSA?
Answer: The short answer is yes. The truth
of the matter is that a structured settlement may be the only way
to achieve a C & R when there is a disproportionately
large MSA. One of the reasons for this increase is related
to The Centers for Medicare & Medicaid Services (CMS) implementing
new prescription drug pricing guidelines for MSAs on July 1,
2009. These new rules included the requirement that all drugs
be priced according to the Average Wholesale Price. Additionally,
CMS began indiscriminately requiring that every drug mentioned
in a medical report be included in the MSA and priced out over
the individual’s entire life expectancy based on the
This is not only unrealistic, but leads to
extremely high MSA amounts. A structured settlement can substantially
reduce the cost of the MSA. In many cases, the structure cost
of the MSA is 40-50% lower than the lump sum value. With such
a substantial savings, a C & R can be a viable settlement
option. For example, consider the case where the agreed upon
settlement amount is $750,000 but CMS rejects the submitted
$300,000 MSA and instead requires a new MSA amount of $650,000.
This settlement would be all but dead if the MSA was funded
with a lump sum payment. However, by using a structure, the
cost of the MSA annual payments is $325,550 and even with the
seed amount of $50,000, this case is able to settle by way
of C & R.
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A structured settlement may be
the only way to achieve a C & R when there is a disproportionately
large MSA
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Steve Chapman strives to remain current on all issues affecting
the settlement of the case, including Medicare set-aside allocations,
life care plans, medical cost trends, Long Term Disability, and Social
Security issues.
To contact
Steve Chapman:
Steven F. Chapman
National Settlement Consultants
12039
Jefferson Blvd.
Culver City, CA 90230
Phone: 800-845-2969
Fax:
310-450-3132
Cell: 310-480-5742
Email: SettleMan@aol.com
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Gregg Chapman has been a member
of the State Bar of California for twenty years. Over the last
eight years, he has worked for two of the largest national MSA
vendors in various positions including General Counsel, National
Sales Manager and Director of MSA Education. He has provided hundreds
of presentations on all topics regarding Medicare Set-Asides to
the insurance industry and attorney associations across the country.
To contact Gregg Chapman:
Gregg Chapman
National Settlement Consultants
12039 Jefferson Blvd.
Culver City, CA 90230
Phone: 800-845-2969
Fax: 310-450-3132
Email: greggchap@aol.com |
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