How to Settle Workers' Comp Cases More Efficiently
Injured workers can resolve their claims using structured settlements. A structured settlement can resolve workers’ compensation claims more expeditiously, allow the injured worker more flexibility in terms of medical treatment, and even provide cost savings to the carrier.
Workers’ Compensation Settlements: Two Distinct Components
Workers’ compensation settlements have two components: indemnity and medical. The indemnity portion of the settlement covers lost wages. There are no restrictions on how the indemnity allocation can be used.
The medical portion of the settlement is used to pay for medical treatment related to the work injury (or illness). If the injured worker (sometimes referred to as “the applicant”) is a Medicare beneficiary or is Medicare-eligible, the worker must report the settlement to Medicare. The medical portion of the settlement must pay for any expenses that Medicare would otherwise cover.
Settling with Cash vs. Structured Settlement Annuity
When resolving a workers’ compensation claim, the injured worker has two options: a cash lump sum or a structured settlement annuity. While neither option is taxable, the structured settlement offers additional benefits, including:
- 100% tax-free payments (including interest earned)
- Guaranteed rate of return
- Guaranteed1 payments
- Flexible plan design
- No ongoing fees or expenses
- Protection from early dissipation
- Bridges the gap between demand and offer
Additionally, a structured settlement provides a cost-effective funding tool for related settlement options, including Medicare Set-Asides and special needs trusts.
Advantages of Structuring an MSA
The government’s preferred method of retaining funds for Medicare-eligible expenses is a Medicare Set-Aside (MSA) account. MSAs can be funded with a cash lump sum or a structured settlement. Funding with a structured settlement can provide many advantages, including:
- Cost Savings to the Injured Worker: Because structured settlements have a guaranteed interest rate, they are less costly than funding with a cash lump sum.
- Maximizing the Settlement: If an MSA is funded with a cash lump sum, the entire account must be depleted before Medicare will resume as the primary payer. If a structured settlement is used, an upfront payment is used to seed the account, and subsequent annual payments continue funding the account. In a given year, if the MSA is depleted, Medicare will pay for remaining Medicare-covered expenses through the end of the year. The next structured settlement payment will be made, and the MSA will begin paying again.
- Cost Savings to the Carrier: A structured settlement increases the possibility of settling a workers’ compensation claim. It also allows the injured worker to seek medical treatment outside the state workers’ compensation system.
Likewise, a structured settlement can also be a cost-saving tool for special needs trusts.
Funding a Special Needs Trust with a Structured Settlement
A special needs trust holds the assets of an individual with a disability. Special needs trust funds purchase goods and services for the beneficiary that government benefits do not cover. Funding a special needs trust with a structured settlement can potentially lower trust management fees because the trust balance remains lower at any given time than if it had been funded with a lump sum. In the meantime, the structured settlement funds continue to grow income tax-free before making the next deposit into the trust.
Contact Your Sage Consultant Today
Sage assists injured workers and their families in creating settlement plans to meet their long-term needs. Contact your Sage consultant today for more information about settling workers’ compensation claims with structured settlements.
1Guarantees are subject to the claims-paying abilities of the issuing insurance company.