Part I (Identification) and Part II (Valuation) of this series provided insight into identifying and correctly valuing the appropriate cases to approach for settlement. In Part III, we will turn an eye toward successful negotiation and resolution.
Beyond the financial aspect of the negotiation are underlying factors that are not always obvious. The most important aspect to understand is that there is an individual whose life has been seriously affected by an industrial injury. Many times this fact is lost in the volumes of reports, bills and correspondence.
After the valuation of the case has been completed, several elements still remain that need to be addressed before proceeding with negotiation.
First, the future indemnity exposure and its value must be evaluated. Next is consideration of the injured workers’ Medicare status. Criteria have been outlined in various memoranda put out by Centers for Medicare and Medicaid Services (CMS); critical elements include:
- Is the individual receiving Medicare benefits?
- Is there a reasonable expectation in the next 30 months that the individual will be entitled to Medicare benefits, and the settlement is in excess of $250,000?
If the answer to either question is “yes” then the parties should conduct a Medicare Set-Aside analysis. Is it best to fund the MSA with cash or an annuity? In most high-exposure cases, the MSA is substantial, and the use of an annuity is critical to settlement. Once the MSA is completed, submission to CMS for review and approval should be sought as soon as possible. At present, the turnaround time is approximately four to five weeks, though it sometimes takes considerably longer.
The next consideration is the value (future and discounted) of items such as home/attendant care, non-covered equipment and off-label medications. These are all the “medical” items that cannot be paid for through the MSA and would become the responsibility of the injured worker.
Finally, as each case is unique, are there any other factors specific to the individual’s case that must be considered, such as retroactive or unpaid benefits, disputed costs or out-of-pocket expenses?
In most high-exposure settlements, a combination of cash and annuities are going to be the critical elements. At a minimum, most MSAs are funded via “seed” (initial payment) and annual payments via an annuity. The balance in some instances is paid in cash; however, in most cases, some form of future income stream should be created to ensure the injured worker has funds to pay for non-Medicare-covered items as well as some level of income replacement for either a fixed period or for the remainder of his life.
The human element cannot be overlooked. Many times, the individual needs to “vent” by telling his story. This can be a cathartic moment that forms a bond with the injured worker and establishes a level of trust.
Bringing all parties together face-to-face to lay out the issues from all sides is crucial. This creates an environment of understanding and illustrates a seriousness about resolution, and the intelligence gained is invaluable. Many times, an injured worker makes a seemingly benign comment that is the key to resolving a case. For example: “I want to make sure my family is taken care of after I die.” Or, “All I want to do is move to my house in Oregon and spend the rest of my days bass fishing,” or “I would like better living arrangements for myself and my Rottweilers.”
These are actual comments made during initial discussions that, with a little creativity, let the parties craft a settlement that fit the needs of injured workers. This is not to suggest that these cases could not have otherwise settled, but the key to resolving them was to find what was important and unique to the injured workers.
Many workers are frustrated by the workers’ compensation system and are seeking a way to move on to the next chapter of their lives.
There is no such thing as “one size fits all” in high-exposure claims. Crafting the most beneficial settlement for the injured worker is the key. Gone are the days of a fixed amount of cash plus the funding of the MSA.
For the worker who wanted to bass fish, for example, a settlement was crafted to include a bass boat, a small amount of cash and a lifetime income stream through an annuity. The agreement was reached in a very short time. For the worker who wanted to be sure his family was cared for after his death, a settlement was crafted — again, within the framework of the value of the case — to provide him an upfront sum of cash, an annuity to fund his MSA and a tax-free annuity referred to as a “Joint and Survivor Benefit” that produced income for him and his wife as long as either was still living. For the worker worried about her pets, a creative solution provided for housing accommodations for her and her two very large dogs.
The point is to pay close attention and understand what is important to an injured worker. While we all may have opinions about the best way to craft a settlement, ultimately it is the injured worker who has to live with it. Providing workers with settlements that meet their specific needs and wants will not only engage them in the settlement process but will leave them with the satisfaction that they got what they wanted.
Once terms are agreed on, we arrive at the resolution phase. At this point, jurisdictional requirements need to be considered, and they are quite variable.
The first issue is to ensure that Medicare’s interests have been adequately considered. Then, aside from any conditional payments by CMS that may exist and will need to be addressed post-settlement, the remaining issue is to ensure that settlement documents are drafted that meet the requirements of the specific jurisdiction (state, federal, etc.). Typically, this is handled by defense counsel.
If the parties are prepared, the negotiation and resolution phase moves rather quickly from an initial discussion to an agreement of terms, to the preparation of settlement documents and finally to submission to the appropriate entity for approval. Beyond preparedness, the keys to success include understanding the human element and being creative about addressing the needs and concerns of the worker while staying within the value of the case.
Addressing the three elements covered in this series on high-exposure workers' compensation claims — Identification, Valuation and Negotiation/Resolution — will benefit all parties. The carrier/self-insured will reduce projected exposure. For the injured worker, while a settlement cannot replace what he lost, it will let him move forward with his life based on an adequate, fair settlement.