How to Preserve Settlement Income for Future Medical Needs
Despite success at the mediation table, settlement proceeds do not always sufficiently provide for an injured claimant’s future medical expenses. After paying attorney’s fees and liens, the typical claimant still needs money to cover medical costs that will be incurred long after the litigation ends, such as doctor’s bills, surgeries, medications, home modifications, and more.
To worsen matters, the Centers for Medicare and Medicaid Services (CMS) projects that from 2018 to 2027 the price of healthcare goods and services will grow at a faster rate than it has historically. CMS also estimates that healthcare spending will increase at an average rate of 5.5% per year during the same timeframe.
Rather than leaving your client in a vulnerable financial state, it is best practice to develop a solid plan at the time of settlement. Here are two simple ways your settlement consultant can help protect your client’s long-term medical and financial needs:
#1: Provide Education Regarding Financial Pitfalls
Outside of advising your client against taking a cash lump sum and quickly exhausting it, there are additional obstacles that claimants need to avoid, including:
Loss of Needs-Based Government Benefits Eligibility: Claimants who receive needs-based government benefits will likely lose their eligibility for such benefits if they accept a lump sum cash settlement. For example, in most states, assets totaling as little as $2,000 ($3,000 if the claimant is married)1 are considered substantial enough for a claimant to be ineligible for Medicaid (Medi-Cal in California), SSI, and CHIP.
Medicare Non-Compliance: Although Medicare is an entitlement benefit, claimants who receive Medicare benefits have additional responsibilities when it comes to the cost of their future medical care. Medicare Secondary Payer provisions encourage Medicare-eligible claimants to set aside a portion of their settlement proceeds to cover future medical care, typically in what is referred to as a “Medicare Set-Aside.” While in the past, many in the legal community have paid closer attention to future medical expenses in workers’ compensation cases, an MSA industry leader reported a recent case in which Medicare sought reimbursement for future medicals in a liability settlement.
#2: Offer Strategies for Preserving and Maximizing Long-Term Income
Once the complications have been identified, several solutions exist that may help your clients provide for their long-term medical and financial needs:
Special Needs Trusts: Disabled claimants under the age of 65 may meet the criteria for a special needs trust (“SNT”; also known as a (d)(4)(a) trust). Settlement proceeds placed in an SNT are not considered countable assets when determining government benefit eligibility. The claimant can then continue receiving their needs-based benefits while supplementing their needs with approved distributions from the SNT.
Spend-Down: In certain states, “spending down” the settlement proceeds may allow an injured claimant to maintain needs-based benefits, including Medicaid. Proper spend-downs have many stipulations related to the timing of purchases, what constitutes an allowable expense, and whether or not needs-based benefits will be suspended for the month in which the settlement proceeds are received. Claimants who are considering a spend-down should always consult with their caseworker or agency representative before receiving the settlement proceeds.
ABLE Accounts: Individuals who became disabled before the age of 26 may be eligible for an ABLE (Achieving a Better Life Experience) account, a tax-advantaged savings account. Funds held within an ABLE account can be used to cover qualified disability expenses, including healthcare for the disabled individual. While annual and lifetime funding limits for an ABLE account may vary by state, ABLE account funds are exempt from asset tests for needs-based government benefits, provided the funds do not exceed $100,000.
Professional MSA Administration: While some claimants choose to administer their own Medicare Set-Aside accounts, many prefer to use a professional administration firm. After settlement, a professional administrator handles all of the claimant’s medical concerns regarding pharmacies and doctors, and automatically files all reporting for Medicare Set-Aside accounts to CMS, allowing the claimant to treat freely. CMS “highly recommends” the use of professional MSA administration to make sure the funds are extended as long as possible through discounts.
Some administrators also offer subject matter expertise and consultation on federal and state benefits for beneficiaries of worker’s compensation and liability settlements.
Certain programs even offer transparent pricing into the real-time cost of prescriptions and treatment, providing the injured party visibility into the actual pricing of these services.
Contact Sage Settlement Consulting to Learn More
To learn more about these solutions and help your client start planning, contact Sage Settlement Consulting today. Our experienced team will help you and your client create a customized financial plan for a better future.
1 As of July 1, 2022, California raised its Medi-Cal asset limits. More information can be found here.
Thank you to the team at Ametros for their assistance with this article.