Structured Settlements
How to Fund Future Medical Payments Through the Use of an Annuity
When an injured individual’s case settles, the funding of their future medical treatment is essentially done in one of two ways; through a lump sum payment or a structured settlement. A structured settlement is an arrangement that provides for a pre-determined amount to be paid to an injured individual each year of their remaining life expectancy or longer depending on the terms of the agreement. Medicare Set Asides (MSAs) often use structured settlements to pay for future medical treatments, especially in high value cases.
One of the many pros of having a structured settlement to fund the future medical needs is that an injured individual is guaranteed to receive a set sum each year. Having a steady stream of funds each year guarantees that money will be available in the future for medical needs. Furthermore, structured settlement payments do not fluctuate based on the stock market. An injured individual is guaranteed to receive the exact amount negotiated for in their settlement agreement as annuity companies must make this payment.
One of the major benefits, in relation to MSAs is that an annuity generally reduces the overall cost of the MSA. This can make settling a case much easier. When a structured annuity is purchased, you are essentially paying for the future treatment of individuals at today’s current rates. For a MSA with a structured annuity, generally the first two years of expenses plus the first surgery or procedure are included in the cost of the seed money to fund the MSA. Thereafter, an annual fixed payment amount is made to the MSA to pay for future care. This ensures that an individual has enough up-front funds to cover any costly procedure they may need while also providing comfort knowing that more funds will replenish the MSA at a future date.
However, one drawback to funding through an annuity or structured settlement is the possibility of a temporary depletion of MSA funds. Predicting future care with 100% accuracy is virtually impossible. While allocators generally try to predict service pricing and medication pricing as accurately as possible, injured individuals may change their course of treatment. This can result in a temporary depletion of MSA funds. The burden of this temporary depletion falls back on the injured individual. Payment by Medicare will be delayed until the individual proves to Medicare that the funds in the MSA were properly exhausted. To avoid delays in having Medicare pay bills during periods of temporary depletion, it is best to hire a professional administrator. A professional administrator will provide for a timelier transition from payment by the MSA to payment by Medicare. Click here to learn more about professional administration.
Lastly, if the annuity is purchased by the Carrier and not by the Plaintiff, it is important to be aware of any Reversionary Interests an Insurance Carrier may have built into the annuity. It is becoming more and more common for Insurance Carriers and their MSA vendors to include a clause that states all remaining funds in a MSA must be returned to the Carrier or Annuity Company at the time of a beneficiary’s death.