Structured Settlement reform called for. Opinion article in The Hill

Earlier this week an opinion segment was published in the widely read Washington news entity, The Hill, that brought up the issue of Structured Settlement reform and looked once again at the AIG class action lawsuit and issues related to transparency, commissions and business practices in the light of how things are done in comparable financial transactions. 

Credit: The Hill

Credit: The Hill

Authored by trial lawyer and former structured settlement planner, Dick Risk, it is entitled "Why Congress needs to reform structured settlements" and it examines crucial issues that are rarely discussed by trial lawyers, Congress and structured settlement professionals. For anyone in the structured settlement profession Dick Risk is a familiar name as a determined advocate for the rights of plaintiffs in settlement to select the adviser, planner and funding company that set's up their structured settlement. This has often brought him into sharp conflict with NSSTA (National Structured Settlement Trade Association) leadership and members, as the type of transparency and plaintiff control Dick advocates directly threaten's the business model upon which the structured settlement profession largely exists and operated on over the last 40 years. 

Further, Dick Risk late in his career went to law school, obtained membership in the bar and commenced lawsuits against the industry and these practices. The most notable being one against The Hartford Insurance Group regarding an undisclosed commission arrangement they had as part of their claims practice. Then more recently Attorney Risk is one of the plaintiff attorney's at the center of the AIG class action filed earlier this year. As a result of his advocacy in this area, many would tend to dismiss this article and it's points as hopelessly slanted given the back ground and career of the author. 

I believe ignoring or trying to minimize this article would be a huge mistake for trial lawyers, but even more of a mistake for the leadership of the Structured Settlement profession as the issues he highlights are at the center of a wave of change that is going to soon overwhelm the structured settlement planning profession. 

While most will want to "shoot the messenger" I am strongly of the opinion that much, if not all of what is being proposed here is totally consistent with the broader trends toward a fiduciary standard, full disclosure to clients and the BICE, Best Interest Contract Exemption, standard that is now being applied to fixed index annuity sales under DOL standards effective June 9, 2017. Just yesterday the Secretary of Labor essentially conceded that it would be disruptive to further delay the implementation of the fiduciary standard of care when dealing with any retirement accounts. This decision came after an avalanche of opposition to the rule from the annuity industry to rules that require them to clearly disclose all compensation, state any conflicts and make clear that the recommendation is in the best interest of the client. Clearly the tide has shifted as such a lobby effort in the past inside a Republican administration would have produced the desired results that life companies are use to getting. 

My questions is how could any reasonable person be opposed to such a standard being applied to the planning of a structured settlement for a badly injured, disabled or impaired individual? Well, the reality is that standard is not applied currently and if you look at the litigation mentioned in the article, it is clear that this important transaction is not even governed using the NAIC standards for suitability. However, there is a sea change coming and articles such as this one by Attorney Risk are just the first warning bells to both trial lawyers and planners that a fiduciary standard eventually needs to be applied on these irrevocable annuity programs. However, as the article makes clear, until the business relationships that prevent trial lawyers and plaintiffs from having the sole choice of who their settlement planner is, what life company they use for the annuity and the control of casualty companies in the decision is removed, these changes simply won't arrive any time in the near future. 

I'll be covering in greater detail in coming posts some of the current conflicts and issues that are stripping away the rights of plaintiffs to control their financial futures, largely due to troubling trends in some federal cases that take all choice of planning away from the client at settlement and during the life of their annuity. It is up to trial lawyers and their state and national organizations to raise the profile of this issue so that a contemporary and transparent level of diligence is required on all structured settlements and that plaintiffs are sufficiently empowered as to their choice of advisers and companies they wish to work with when putting these essential annuity programs into place. 

Structured settlement suits discussed in Thinkadvisor article

Earlier this month, one of the leading online publications covering financial planning, investments and life insurance/annuity issues did an exhaustive review of many of the issues facing the structured settlement profession. Written by long time industry expert Senior Editor Warren S. Hirsch, the article looks into several key issues and quotes Settlement Channel commentator and structured settlement industry expert, Mark Wahlstrom, President of Wahlstrom & Associates. 

Photo Credit: Think Stock and ThinkAdvisor

Photo Credit: Think Stock and ThinkAdvisor

The article, Titled "Suit puts structured settlements in spot light" initially focuses on the recent lawsuit filed against casualty giant AIG, alleging among other things that commission's were not disclosed properly and that certain members of the structured settlement profession had worked in unison with AIG to with hold information from plaintiffs about their choices in annuity companies, design of the program and compensation agreements for defense brokers. 

However, the article takes a deeper dive into the issue that is starting to really raise it's head in the structured settlement profession, that being whether the Fiduciary Standard that is being increasingly forced upon other annuity product sales, such as Fixed Index Annuities, will begin to be applied to structured settlement transactions as well. 

Wahlstrom commented that he feels it is inevitable that the structured settlement profession would be brought into the new world of open disclosure of commissions, business relationships and clear conflict of interest avoidance when a structured settlement is being proposed to a client. Regardless of the outcome of the litigation in the AIG class action, the momentum, in his opinion, has swung in the direction of disclosure and a fiduciary standard. This of course would upset the long standing fixed commission of 4% that is paid on all structured settlements, as well as other sales support provided by life and annuity markets to the agents working to place annuity contracts that fund structured settlements. 

Clearly change is coming to structured settlements and no matter how hard the industry pushes back, a new standard is going to be imposed at some point by outside forces looking to bring the sale of structured settlements on an equal footing with the sale of other financial products.  Check out the full article at the link above and share your thoughts with us here. 

 

Elder Law Attorney Julian Gray Discusses Medicare Set-Aside Agreements in Liability Cases

Lawyers who handle workers’ compensation cases are probably familiar with Medicare set-aside (MSA) agreements. However, the use of set-asides is expanding to involve liability cases as well. In this report, elder law attorney Julian Gray of Julian Gray Associates discusses the use of set-aside agreements and how the use of set-asides is expanding. [Note: this 2015 Legal Broadcast Network report also discusses Medicare set-asides in liability cases.]

Gray explains that the use of Medicare set-asides is a response to the Medicare secondary payer act of 1980. The act was aimed at workers’ compensation claims where Medicare would at some point become a person’s primary health insurer. The idea was to shift costs from Medicare to other payment sources. Initially, at least, things were fairly clear cut. Workers’ compensation cases were the ones where set-aside agreements would be required.

Julian Gray

Julian Gray

Now, says Gray, Medicare is suggesting that it will look past the workers’ compensation field to other areas. Cases involving motor vehicle accidents and medical malpractice are probably the likeliest targets for Medicare, Gray says. The Centers for Medicare & Medicaid Services (CMS) are looking at liability cases, and insurance companies who will be paying for substantial verdicts or settlements “are getting a little nervous” about the possibility of monetary penalties and possible liability of people involved in a case, including counsel on both sides. The possibility that Medicare would deny coverage for future care is also in the background. The result is that parties are now beginning to think of what Medicare’s interest would be in the future. Gray says that no one presently knows what new rules from CMS might look like when they are issued, probably later in 2017. As a result, people involved in liability settlements are looking at the rules in workers’ compensation cases as a guide.

The big questions to be answered are how much money should be set aside and how to fund the account. Gray explains that there are resources available to plaintiffs’ attorneys whose expertise is in determining future medical costs. These experts can analyze the injuries in a particular case with an eye to future care that will be required, including medication costs, and suggest an amount of money that might be required given a particular plaintiff’s life expectancy. These numbers provide a basis for deciding how much set-aside funding will be needed.

Funding the Medicare set-aside requires some attention from plaintiffs’ attorneys, Gray says. In worker’s compensation cases, set-asides were typically funded by cash from the settlement or by a structured settlement annuity. However, there are presently no guidelines as to how to fund a liability MSA. Gray suggests that anyone trying to decide how to fund an MSA consider a variety of possibilities beyond the two traditional approaches. It makes sense for the lawyer for an injured party to involve an attorney knowledgeable in the MSA funding field at an early point so as to make sure that all the possible issues that might arise down the line are dealt with before the settlement plan is finalized.

Gray also suggests that people involved in liability cases should consider possible alternatives to Medicare as an insurance source for an injured party. Private insurance can be purchased, including through the Affordable Care Act or its successor, whenever such a law is enacted. Medicaid benefits might also be an option. There are ways to opt out of Medicare, and that is an option that should be kept in mind.

Julian is the founder of Julian Gray Associates in greater Pittsburgh, Pennsylvania.  He is a board member of the Special Needs Alliance (SNA), a national nonprofit committed to assisting individuals with disabilities, their families and the professionals who serve them. He is one of only a few attorneys in all of western Pennsylvania to be Certified as an Elder Law Attorney by the National Elder Law Foundation. He has provided assistance to a variety of clients and their families for over twenty years in the areas of Medicaid planning, veterans' benefits, and related estate planning and tax issues. He is a lifelong resident of Pennsylvania. He received his bachelor's degree from Penn State University and his law degree from Duquesne University School of Law. The Settlement Channel is a featured network of Sequence Media Group.

Posted on April 24, 2017 .