WHAT'S OLD IS WHAT'S NEW AGAIN IN
SETTLING HIGH EXPOSURE CLAIMS
By Thomas P. Vecchio
With the dramatic changes imposed by the 2003 workers' compensation law, it is easy to lose sight of the even more sweeping changes implemented in 1994. The January 1, 1994 amendments to the workers' compensation law were more extensive than those imposed in 2003.
Prior to the 1994 law, only the wage loss/indemnity portion of the claim could be settled. Settlement of future medical benefits was prohibited. The 1994 law created the opportunity to settle both indemnity benefits and future medical benefits via lump sum. This change applies to all dates of accident.
The administrative, actuarial, and underwriting benefits of settling a claim in its entirety cannot be overstated. There is nothing in the 1994 law that compels settlement of both medical and indemnity benefits simultaneously, but the standard practice that developed after 1994 was that the entire claim settled or nothing settled.
With the advent of Medicare Set-Aside Allocations (MSAs) imposed by the Centers for Medicare and Medicaid Services (CMS), however, many employer/carriers are recognizing the value, with certain claims, of settling the indemnity portion of the claim while leaving the medicals open. The MSA mandates are often so high that settlement of the medicals via lump sum is simply not a viable option.
Anyone who has looked closely at a high exposure claim over the past several years has recognized the massive administrative impediments imposed by the CMS requirement that the parties secure an MSA which must ultimately be approved by CMS. The MSA figure demanded by CMS often bears no reasonable relationship to the employer/carriers' legitimate future medical expenditures. CMS often indicates that employer/carriers must pay for medical care and treatment that has absolutely nothing to do with the industrial accident. This creates a significant financial obligation which employer/carriers never anticipated and should not have to fund.
We have all seen cases where an injured worker is receiving minimal medical treatment, but CMS has demanded an MSA that is grossly inflated over what the employer/carrier can reasonably anticipate to spend in future medicals. Unfortunately, there is no statutory method by which a CMS determination can be appealed. The parties can only submit new records and request reconsideration.
This federally-mandated obstacle to settlement has caused many carriers to revert to the practice of settling the indemnity portion of the claim, while leaving the medicals open. This allows the claimant to "cash out" the indemnity side of the claim via lump sum. Although the medicals are left open, the employer/carrier often pays less than what CMS demands, and makes those smaller payments over time, lessening the financial impact even more. This is often a more attractive option than overpaying the medical side of the claim just to achieve settlement.
After earning a fee on settlement of the indemnity portion of the claim, the attorneys who represent injured workers often lose interest in the case. Claimants generally receive less medical treatment once litigation settles down, and medical expenditures in such a circumstance can drop off dramatically. This enables the parties to secure an updated MSA at a later time, which can be much less than an MSA based on medical exposure when the claim is in the midst of litigation.
This approach can create problems with respect to "tail claims" and the inability to close old claims permanently. When the figure demanded by CMS, however, is so high that it puts settlement out of reach, think about implementing an "old school" settlement technique by resolving the indemnity portion of the claim while leaving future medicals open.
