September 9, 2021
Structured settlements may be used to fund a Workers’ Compensation Medicare Set-Aside (WCMSA). Samantha Webster, Synergy’s Director of Case Management, addresses two common questions that come up about funding of a WCMSA with a structured settlement annuity.
Question #1:
“Are there different structured settlement options to fund a Medicare Set-Aside and what is the difference?”
Yes, there are different types of structured settlement payment plans that can fund a Medicare Set-Aside. After an initial cash deposit is made to start the Medicare Set-Aside account (seed), a structured settlement will make annual payments to replenish/ add to the account. The most common structured settlement option offered by the carrier is a temporary life payment stream. With a temporary life payment stream, the annual payments to the MSA account are payable only as long as the injury victim is alive and for a maximum number of years (the life expectancy used for the MSA allocation). If the injury victim dies before reaching the maximum number of years, the payments stop. There are no structured settlement payments payable to their beneficiaries. A great alternative, but higher cost, is a period certain payment stream. With a period certain payment stream, the annual payments to the MSA account are paid for a certain number of years (generally the life expectancy used for the MSA allocation). Every payment is “guaranteed,” which means that in the event of the injury victim’s death before all payments are made, the remaining payments would go to designated death beneficiaries or the injury victim’s estate. While there are other options, these are the two most common.
Question #2:
“My client’s CMS-approved MSA is being funded with a structured settlement, but the payments do not add up to the total on the CMS approval, is that acceptable?”
CMS will provide parameters for the funding of an approved MSA using a structured settlement. In providing the initial seed amount and the annual payments, CMS rounds the numbers down. In doing so, the initial seed/deposit and the sum of all annual payments may be less than the total amount approved. If an MSA is funded with a structured settlement and the proposal follows the recommendation of CMS with regard to the initial seed/deposit and the annual payment amount, CMS will consider the MSA as being fully funded. If you or your client are concerned about the discrepancy, you can add the difference to the seed or ask your settlement planning professional to include the difference in the annual structured settlement payment stream. Both options will allow your client to match the total CMS-approved MSA amount.
Example:
CMS Approved MSA $345,687.00
Initial seed/deposit $48,549.00
Annual Payments $14,149.00
Duration per CMS 21 years
In this case, the seed/deposit plus the annual payments equals $345,679 which is $9 less than the CMS-approved MSA. To relieve any concerns, $9 can be added to the seed/deposit or the annual payments can be increased to $14,149.43.
