Frank C. Kilcoyne, CSSC

Personal Injury Settlements in 2014

Time was we approached a bodily injury case by reviewing the cost to replace a claimant’s past and future wages, their medical care, and their lost household services. We would examine the facts, test assumptions, and then develop potential settlement plans which funded these needs through a combination of cash and periodic payments. Straightforward, simple and easy. That was then; this is now.

Today, that very same case is a totally different animal. Now we must consider not only the items listed above, but also how a proposed settlement might impact the claimant’s eligibility for a wide range of public assistance programs. These include not only Medicare and Medicaid but also many lesser known but still critically important programs such as Medicaid “waiver programs” and the like. Add to all that now the Affordable Care Act (ACA) and we really have our hands full.

Let’s take a first pass at the ACA. Essentially, this program provides insurance coverage for the uninsured or previously uninsurable. No longer can people be denied coverage for a current medical condition, claims experience, medical history or disability. It eliminates lifetime monetary limits on benefits for any participant or beneficiary and provides coverage for pre-existing conditions. Think of the ACA insurance coverage as simply extending Medicare-type coverage to almost everyone in the U.S. (1)

Perhaps the most significant feature from the standpoint of personal injury settlements is the preexisting condition mandate. Under the ACA, an individual with preexisting conditions must be covered without regard to medical history. Traditionally a large component of most personal injury settlements was the amount paid by the defendant to fund a claimant’s future medical care. Going forward under the ACA, out-of-pocket cost to fund a claimant’s future medical care may be significantly reduced, perhaps to just the cost of their annual premium and deductibles under their ACA policy. But that brings into play the collateral source rule.

Let’s examine how this might play out in various jurisdictions. Current law in New York provides that in any action in which a plaintiff seeks to recover the cost of any past or future medical services, the court may reduce the amount of damages awarded by amounts the plaintiff is entitled to receive from collateral sources. N.Y. C.P.L.R. 4545(a).(2) These sources have generally included insurance policies (except for life insurance policies), most social security benefits, workers' compensation awards, and employee benefit programs.

New Jersey’s collateral source statute N.J.S.A. 2A:15-97 requires that a successful plaintiff disclose to the court any “benefits received for the injuries allegedly incurred from any other source other than a joint tortfeasor’s and, where the amount of those “benefits” “duplicates any benefit contained in the award, the court should deduct it from plaintiff’s recovery”.(3) Notably, these “benefits” include payments that were covered by health insurance, less insurance premiums paid by plaintiff or a member of plaintiff’s family.

ACA premiums vary depending upon geographical area and the coverage plan selected. The average annual premium for a 50-year-old individual in Platinum plans across 34 different states is $6,516.(4) The ACA specifies that the maximum annual deductible and out-of-pocket cost-sharing expenses for a qualified insurance plan cannot exceed $2,000 for single coverage. Thus, the annual cost to provide our 50-year-old with Platinum coverage under the ACA is $8,516 per year.

When preparing a cost analysis to provide this plan for the life of the claimant, you must factor in future cost increases also. The average annual inflation rate for the last 10 years was 2.42%.(5) Therefore, the projected cost to provide lifetime healthcare to our 50-year-old is what it would take to provide $ 8,516 per year for life increasing by 2.5% per year or, using current settlement annuity rates, $222,881.

Even with this basic formula, a correct process would still not be quite this simple. Like Medicare, the ACA does not address long-term care or home- and community-based support for activities of daily living, such as feeding, dressing and bathing. The claimant might require Supplemental Security Income (SSI) or such Medicaid benefits as long-term care, residential support or employment assistance. If Medicaid is needed, then they will likely need to establish a Special Needs Trust to preserve their continued eligibility. Failure to anticipate and handle all these considerations may render the claimant ineligible for these critically needed programs.

We have one more thing to sort out: the ACA’s ban on caps for lifetime or annual limits does nothing to prevent limits being placed on specific benefits such as the number of visits or treatments per plan year.

Going forward, a good settlement plan will take into consideration the costs to fund the ACA for life, the costs to fund care not covered or treatments excluded, and the costs to fund long-term care and residential support not covered by Medicaid. These funds will need to be paid into the proper trust vehicle to preserve eligibility for public benefits, all the while shielding settlement funds from undue taxation. If the folks at Oldsmobile had decided to move into claims resolution, they might have said: “This is not your father’s claim settlement.”

Do you have a case with intricate future care issues? Would you like help with navigating all the complexities of today’s settlement environment? Call Frank C. Kilcoyne, CSSC at 800-544-5533. I am here to help.


Sources:

(1) http://www.begleylawyer.com/2013/06/the-impact-of-the-affordable-care-act-on-personal-injury-settlements/#_ftnref8
(2) http://codes.lp.findlaw.com/nycode/CVP/45/4545
(3) http://definitions.uslegal.com/c/collateral-source-rule/
(4) http://www.specialneedsalliance.org/the-affordable-care-act-and-personal-injury-awards/
(5) The Consumer Price Index as found at: http://www.usinflationcalculator.com/inflation/current-inflation-rates/