Cannibal Negotiation

Cannibal negotiation refers to a deal where parties figure out how to get money from an entity not at the table.

The term originates from an arrangement where OldCo paid NewCo to keep NewCo’s cheaper, competing product off the market. NewCo is paid for not selling anything. The buyers who need that product have to pay OldCo’s high price. The buyers are being cannibalized.

Honest disagreement can thwart parties’ good intentions to reach a workers compensation settlement. Cannibal negotiations can ethically resolve disputes over the value of future medical benefits.

The first place a true cannibal negotiator should turn is Medi-Cal. Medi-Cal can fill the gap between parties’ valuations and provide a safety net to pay for the injured worker’s health care at no cost to any party. A special needs trust or structured settlement may be needed to keep an applicant eligible for traditional Medi-Cal. Under expanded Medi-Cal, the applicant can receive a settlement of any size without losing eligibility so long as Modified Adjusted Gross Income is under the limit. Caution: home health care and non-emergency medical transportation are not included in expanded Medi-Cal. 

Medicare is the next source a cannibal should think of for a funding entity not at the negotiating table. Medicare is different from Medi-Cal in that the injured worker had to contribute the required number of quarters to achieve eligibility. Also, a Medicare Set-Aside must be depleted before additional funds can be tapped to pay for a claim-related Medicare-eligible expense.

Lastly, the parties may be able to use part of the settlement to fund health insurance premiums for the injured worker. A health insurance agent can provide a quote for Affordable Care Act coverage regardless of the injured worker’s pre-existing condition. A (cannibalized) subsidy may indeed keep the premium cost affordable.

Cannibal negotiators can “prey” on more than one source. Some applicants are “Medi-Medi”, enrolled in both Medicare and Medi-Cal. MSAs should not be tapped until the applicant is eligible for Medicare; for the period up to 30 months before then, Affordable Care Act insurance can provide coverage.

HOW POLITICS DRIVES UP THE COST OF YOUR MSA

For President George W. Bush and Congress to get Medicare Part D drug coverage passed in 2003, they had to make significant concessions to big business, including the drug industry. One of the law’s provisions forbids the government from setting rules for negotiating better drug prices. The “noninterference” section says:

In order to promote competition . . . the Secretary [of Health and Human Services]:
(1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP [Prescription Drug Plan] sponsors; and
(2) may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.
42 USC 1395w-111(i)

The result according to a new policy brief from the Carlton University School of Public Policy and Administration is that Medicare Part D plans pay on average 73% more than Medicaid and 80% more than the Veterans Health Administration for brand-name drugs. If Part D plans could negotiate drug costs the way Medicaid and the VA do, savings could reach $16 billion a year.

The study shows that the average per capita expenditure by Americans for pharmaceuticals is more than double the average of 32 other industrialized nations. Contrary to their publicity, American drug companies do not devotend the wealth gained from Part D on new research initiatives.Half of new medical research initiatives come from non-profit entities such as universities. Rather, drug companies have spent their millions in recent years on increased lobbying. If drugs costs decreased, Medicare beneficiaries could expect Part D premiums to also decrease.

Although private insurers pay Part D medical expenses, workers compensation professionals are painfully aware that anticipated Part D-covered expenses must be included in a Medicare Set-Aside. The increased use and rising cost of pharmaceuticals has torpedoed many a proposed workers compensation buy-out. If the purpose of an MSA is to protect Medicare, why are Part D expenses which are paid by private insurers included in the allocation anyway?

Casualty insurance companies and the American Association for Justice are big political players. With the 2016 election cycle coming up, now would seem to be the time for their lobbyists to twist some arms to modify the noninterference provision for the benefit of all Americans.

Do You Speak MSA?

“MSA” stands for Medicare Set-Aside.  Settling a Workers Compensation claim often calls for consideration of Medicare’s interests.  MSA-speak has its own language.  The problem is that the term “MSA” is used to mean different things.  Understanding the 4 different items which may be referred to as “MSA” is critical to success in this area:

MSA Report

MSA Allocation

MSA Approval

MSA Account

The MSA Report is prepared by an MSA allocation company.  It is an analysis of medical reports and paid medical benefits resulting in a recommendation for an MSA allocation.  The report typically provides both lump sum and annuitized funding options.   The report is not “the MSA”.  Multiple versions of a report may be prepared during evaluation and negotiation.  Nothing has been “set aside” just because there is a report.

The MSA Allocation must be in good faith.  The parties can agree on an allocation without a report, though this is usually limited to cases brought by Medicare beneficiaries which settle for less than $25,000 and denied cases where the settlement is unrelated to medical expenses.  An allocation in a settlement document can be as simple as “The parties have taken Medicare’s interests into account and set aside $800 for future Medicare-eligible claim-related expenses.”

Parties can choose to seek from the Centers for Medicare and Medicaid Services (“CMS”) Approval of an MSA allocation.  Seeking approval is optional.  Only the two classes of cases which meet CMS “review thresholds” can be submitted.   Class One includes all cases brought by Medicare beneficiaries settling for at least $25,000.  Class Two includes cases where the settlement is at least $250,000 and the worker is likely to be eligible for Medicare within 30 months.  If CMS approves the allocation, it cannot seek more than the approved amount later.

Upon conclusion of the settlement, the worker will open an MSA Account.  This must be a separate account solely for MSA funds.   It is supposed to be interest bearing, though it may be difficult to find an institution that would pay interest on smaller accounts.  If any of these concepts can be called simply “the MSA”, it is the account.  Money has in fact been set aside, separate from the rest of the settlement and separate from the worker’s other assets.  Note that the correct term is “account”, not trust.  MSA Accounts can be custodial or non-custodial.

“Do we need an MSA?” may be appropriate in referring to the entire process.  And there are plenty of times you want to use a verbal shortcut.  But vague references as to whether the subject is a report, allocation, approval or account can sometimes lead to misunderstandings.

Understanding Public Income and Medical Benefits after the Affordable Care Act

acaThere’s a lot more to the Affordable Care Act than buying private health insurance through an exchange marketplace like www.CoveredCA.com.

Four kinds of public benefits can help people get the medical care they need:

  1. Subsidized premiums and co-pays for private health insurance purchased through an exchange.  Commercial insurers issue these policies, not the government.
  2. Medicare, for people who have contributed the necessary number of quarters during their years of employment. Medicare Set-Asides are required when a Medicare beneficiary settles a claim for future medical care.
  3. Expanded Medi-Cal for people with low income; there is no asset limit, no requirement for a set-aside
  4. Traditional Medi-Cal for the indigent; there are income and asset limits, no requirement for a set-aside

These types of benefits are frequently confused, especially because the names are so similar.  For optimal settlement of a Workers Compensation case, you need to know the injured worker’s eligibility for these plans.