Issue 2 | 1st Quarter 2013 | Back to Main | Contact Us

Background
Medicare recognizes the use of structured settlements as a viable method for funding Medicare Set Aside (MSA) accounts, and gives specific instructions for calculating MSAs using structured settlement annuities. Medicare further advises that it will be the primary payer of medical expenses once documentation is provided showing that available settlement (for future medicals) funds were spent appropriately. Medicare may pay for accident-related medical expenses when MSA funds are exhausted. On the other hand, if the MSA money is not spent correctly, the Center for Medicaid and Medicare Services (CMS) can deny benefits to the claimant until the money is reimbursed back to the account and spent properly.

Using a structured settlement annuity to fund an MSA account eliminates exposure to total exhaustion, and assures funds to cover future medical expenses as they are incurred. It is essential to preserve the integrity of the MSA. The utilization of a structured settlement prevents premature dissipation, and mitigates the probability that settlement proceeds are spent incorrectly or improperly for non-Medicare related items.

A study
Along with CMS, structured settlement consultants have long promoted the use of annuities as an efficient approach to funding MSA allocations. We have decided to put their theory to the test. AIG approved consultants were asked to submit data on AIG initiated structured settlement quotes, and eventual purchases produced pursuant to MSA allocations submitted in 2011.The cost to seed (up-front cash prescribed by CMS) each allocation was included in the annuity quote.

Findings
The consultants quoted 1,723 allocations (approved by CMS) with a total funding value of $204 million. Of the quoted allocations, 952 were funded with a structured settlement purchase (55%). This group that funded with a structured settlement would have resulted in a lump sum value of $128.4 million dollars to fund each allocation – instead $81.2 M in structured settlement purchases were made. MSA funding facilitated the settlement of this group and resulted in a cost reduction of approximately $47.2 million dollars or 37% to cover the future medical expenses projected in the MSAs. Structured settlement funding bolstered the resolution (timely and efficient) of the future medical claims. It also helped to protect Medicare’s interests, and in turn reduced AIG's potential post-settlement exposure. Lastly, to the extent that American General was the provider of choice, it benefited from the use of structured settlement sales to fund allocations.

Post script
Structured settlement funding of MSAs is essntial. Please review current requirements with your claims leaders.