Editor’s comment: Last week, we published an article about self-administered MSA trusts. We were stated:

We caution our readers the injured worker has to be advised Medicare Set-Aside monies cannot be used until the worker is eligible for Medicare benefits. Once the worker is eligible to receive Medicare benefits, the monies supplant the federal benefit–the monies have to be used to pay Medicare-covered medical or other expenses related to the work injury or management of the MSA until they are used up. Most important, the injured worker has to annually report what they do with the money to CMS.

Fran Mohrmann of Travelers Insurance who is one of the top Medicare/CMS/MSA folks in the U.S. claims industry pointed out this statement above may have been accurate five years ago but it isn’t accurate now. She cited language from the CMS 2005 memo which states:

Q3. Use of WC Settlement Funds Prior to Medicare Entitlement – May workers’ compensation settlement funds attributable to future medicals be used prior to Medicare entitlement?

A3. For claimants who are not yet Medicare beneficiaries and for whom CMS has approved a WCMSA, the WCMSA may be used prior to becoming a beneficiary because the amount was priced based on the date of the expected settlement. Use of the WCMSA is limited to services that are related to the workers’ compensation claim or settlement and that would be covered by Medicare if the individual were a Medicare beneficiary. The same requirements that Medicare beneficiaries follow for reporting and administration are to be used in the above cases. The CMS will not pay for any expenses related to the workers’ compensation illness or injury until a self-attestation document or a full accounting of all monies expended from the WCMSA are sent to the lead contractor upon Medicare entitlement. At that time, the lead contractor will adjust the WCMSA record to reflect the expenses paid prior to entitlement.

As always, our goal is to get things right and kidding aside, Fran has an almost encyclopedic recall of such government minutiae. We again salute her. If you ever need to contact Fran, send a reply and we will direct it to her for response.

Editor’s comment: We have to give credit where credit is due. We also note there was some academic question among Illinois workers’ compensation practitioners as to whether the Commission had to provide deference to the ruling of the Arbitrator when they considered affirming or overruling it—the answer is no. The Appellate Court has clarified any concerns in a very detailed ruling. We point out the main issue was manifest weight and it is moderately unusual to see a 22-page ruling that affirms a claim on its facts.

We also caution all practitioners to be wary about filing appeals to the Circuit and Appellate Courts solely on the facts. Many observers now feel such appeals by either side may be viewed as frivolous and result in sanctions under Illinois Supreme Court Rule 745(b) against the appealing law firm. We want to clarify this Court did not award sanctions but we are seeing claim after claim come down with requests for sanctions where there are no true matters in dispute and facts are not supposed to be disputed unless there is substantial evidence to the contrary of the Commission’s ruling.

In Hosteny v. Workers’ Compensation Commission, (No. 1-08-3238WC 1st Dist. Dec. 29, 2009), the Court ruled that although an injured worker’s testimony alone might be sufficient to establish an injury arose out of and in course of employment, such testimony alone is not enough when the total circumstances show manifest weight of evidence is against it.

The Court expressly ruled it is within the Workers’ Compensation Commission’s sole purview to assess credibility and weigh and resolve conflicts in evidence. The Commission’s findings are to be accorded deference. The Appellate Court noted there was a delay in reporting the accident to both the employer and to his medical providers. The Court also noted claimant’s prior experience with workers’ compensation led to a reasonable inference claimant did not suffer compensable accidents on two of the three reported dates.

We point out to President Doug Whitley and the hard-working folks at the Illinois State Chamber of Commerce, this ruling highlights how important it is to get the right Commissioners in place if the defense side of the bar makes inroads in the fall elections. Please consider joining the State Chamber in their fight to make Illinois Workers’ Compensation more palatable for Illinois business.

Please don’t hesitate to reply with thoughts and comments or post them on the blog. If you need the website of this ruling, we are also happy to provide it.

Editor’s comment: From the perspective of Illinois employers, we don’t consider this just a problematic ruling from this Court; we consider it one of the most difficult and anti-business decisions in recent years to ingest as attorneys and counselors for Illinois employers; especially employers that have problematic employees. We are unsure why the Supreme Court chose to take on this case, as it is our impression our colleagues on the other side of the bar previously took no particular exception to termination of the worker and suspension of TTD when their clients engaged in such shenanigans. You may note the Supreme and Appellate Court agreed it was a matter of first impression or the first reported case on the issue—the reason may have been both sides supported the prior concept and didn’t want such issues litigated. We feel this ruling may be one of those “no bad deed goes unrewarded” outcomes.

In Interstate Scaffolding, Inc. v. Illinois Workers’ Compensation Commission, (Docket No. 107852 January 22, 2010), our Supreme Court considered an appeal where claimant had an undisputed back problem and was working on light duty. He spray-painted graffiti on the employer’s shelving or equipment and was fired for it. He then made a claim for TTD after being fired. The Arbitrator denied it, the Commission awarded it and the Appellate Court issued a solid ruling confirming claimant wasn’t entitled to workers’ comp benefits after being fired for spraying graffiti and not due to his disability or medical care or anything related to the injury.

Difficult message we keep seeing sent from the highest court to the lower court that usually and capably handles WC appeals—don’t do anything that isn’t pro-labor.

Well, the Supreme Court took the case and reversed the Appellate Court, Workers’ Compensation Division and awarded claimant about $5,000 in TTD. The first aspect of this ruling that we consider poorly reasoned and anti-business is the message sent back to the Appellate Court, Workers’ Compensation Division. There has been one defense ruling in about a decade from the Appellate Court, Workers’ Compensation Division; Airborne Express which took out non-mandatory overtime from the average weekly wage. Every other moderate or slightly pro-business ruling by our Appellate Court, Workers’ Comp Division has been accepted for appeal and then reversed by our Illinois Supreme to supplant reasonable or moderate rulings with concepts that wildly favor Illinois labor. In this continuing rotten economy with double-digit unemployment, we would prefer to see greater consideration for the interests of Illinois business to both lure new employers and jobs to our state along with keeping existing employers within our borders. This ruling sends the wrong message.

Don’t the members of our highest court understand Illinois employers don’t want to have to pay benefits when claimants commit crimes?

The second aspect of this ruling we consider unfavorable to business is our highest court looked at a situation where an individual had clearly and unequivocally broken the law—it is our understanding from the record this claimant spray-painted graffiti on his employer’s shelving or equipment. We caution our readers we are unaware of the worker actually being charged with a crime but we also have no concern that, if the employer decided to have him charged, he would have been convicted based upon the undisputed evidence in the record. We ask all the attorneys on both sides, along with risk, safety and health managers and claims adjusters who read this—if your worker spray-painted graffiti in your work-place, would that be a crime? Should the Commission and courts reward such behavior with additional statutory benefits?

So we can all read their ruling and understand our Illinois Supreme Court has arguably awarded over $5,000 to someone who violated Illinois law. This is the second such ruling from the Illinois reviewing courts this past year where benefits were awarded when crimes were committed. You may recall the Bassgar ruling from October 2009 where the employee was convicted of battery in a fight with his supervisor and still got full benefits for his “accidental injuries” from fighting with the supervisor. Being convicted of a crime doesn’t appear to bother some members of the Illinois workers’ compensation community—as lawyers and officers of the courts of this state, it truly bothers us.

We are confused–should all employers/carriers/TPA’s pay only TTD when workers are on light duty?

Is temporary partial disability or TPD ended as a legal concept as fast as labor got it enacted in 2006?

This decision has what appears to be an inherent contradiction or paradoxical inference when applied to the basic principles of workers’ compensation law and benefits. The court appears to seemingly skip the troublesome word “total” in temporary total disability. The claimant in Interstate Scaffolding returned to work—he wasn’t temporary totally disabled. Both sides agree he was partially disabled but there is no question he had recovered sufficiently to return to some sort of work before getting out his spray-can and getting “canned” himself. No one questions the fact he wasn’t getting TTD while working light duty prior to getting fired he received regular pay. We note he didn’t ask for TTD prior to being fired. After this ruling, should all claimant attorneys start to ask for TTD even though their clients are working; albeit at light work?

The Commission and courts got tied up in defining “maximum medical improvement” as their sole legal basis to terminate the right and duties involving temporary total disability. However, with respect to the Court, we do not feel this should be the measure for TTD entitlement, as it completely fails to consider light duty status as a basis to end TTD and pay regular pay. Therefore, if you apply the literal meaning of Interstate Scaffolding ruling; you would continue to owe any claimant temporary total disability after they were back to light duty work!

Who just discovered MMI and why/where/how did we recently uncover it in the same Act that has been around 100 years?

How does that happen? Well, our highest court has set down what we consider a new rule that TTD is always owed until claimant is at “maximum medical improvement” or MMI. As a preliminary matter, we want our readers to understand those three words do not appear in the Workers’ Compensation Act or Rules Governing Practice and appear to be another “new discovery” in an Act that is about 100 years old. It is our view these three words are being brought into Illinois workers’ comp law via judicial legislation without hearings or anyone in the legislature signing off on them after testimony in the Illinois House and Senate or after other investigation.

We point out there is no particular or reliable legal definition of MMI you can work off from Illinois legislative language, history or other resources. We ask the rhetorical question—what if a treating doctor says the worker is generally recovered and okay to work with some accommodation but come back in a year for a final check-up? When would MMI be reached? Do you owe another year of TTD?

We next point out every claimant on light work is arguably not at MMI—they are on medically modified duty as part of the recovery process. Anyone who understands basic principles of workers’ compensation understands workers can work at light or modified work long before they are fully recovered and continue to need medical care. In fact, part of most injured workers’ recovery is the period of light work where they are able to slowly and smoothly pick up their old tools and take their time but get back to a functional existence at their former job. No one in such a setting is at “maximum medical improvement” by definition—they are still under the active care and supervision of a doctor, physical or occupational therapist.

The question you have to ask after this unusual ruling—are all injured workers entitled to TTD only? By that we mean, if a worker returns to light or medically modified duty prior to MMI, it appears our highest court has now ruled they can only receive TTD. If so, what in tarnation is temporary partial disability or TPD and why did the legislature bother with it? Has our highest court stripped out or rendered useless that relatively new portion of the Act just four years after its enactment?

Please also remember Illinois municipal workers are allowed a year of regular pay while recovering from a work injury—what do they now get while off work; regular pay or TTD? Are they now entitled to both TTD and regular pay? If they don’t get both, do they get TTD as this court suggests when back to work on light duty?

We certainly don’t think our Commission and reviewing courts intended this bizarre and confusing outcome. We have never seen anyone working and being paid a regular wage at light duty that was also entitled to full TTD—we feel this ruling may either imply or require such an outcome. However, we do not recommend paying both TTD and wages at this time.

The Big Picture—Illinois courts keep inventing new stuff to trap and trip risk, safety and claims managers

The big picture on this mess is everyone on both sides was happy for about 100 years to see workers on light duty getting regular pay. If the worker on light duty did something egregious, illegal or inappropriate, our advice was to let them go and not pay any further benefits. There is now a very defined risk to doing so in this nutty state—we are confident folks who aren’t as informed as you are going to get caught in this new snare because it simply makes good common sense to fire and not pay someone who is illegally spray-painting their employer’s workplace. Our advice to everyone is contact us about firing anyone who has or might make a workers’ compensation or occupational disease claim.

If you are wondering how well-settled Illinois law has again wildly changed after about 100 years of implementation of our Act and Rules, we have to admit we are as confused as you. Please forward your thoughts and comments on this new ruling or post them on our award-winning blog.

Please note

1. The mileage rate for IME’s has been lowered to $.50 per mile. This number is effective until June 30, 2010. FYI, we don’t recommend anyone pay mileage for normal medical care or to get to a light duty job—the Illinois Act and Rules don’t provide it and we don’t feel it is owed.
2. The Commission is holding open houses for anyone interested on February 11 and April 6 from 9-12am. We applaud the Chairman and her staff for opening this administrative process to the public.
3. We recently learned that the Commission PPD/TTD maximum rates have remained the same, despite a drop in the State Average Weekly Wage. We could have guessed that the powers that be at the Commission would never allow a reduction in rates, even though such a decrease is entirely appropriate where the statewide average was depressed due to hard economic times.
4. The Commission had a wonderful worker leave the Collinsville hearing site at the end of last year. Her job is now open and the Commission’s news on their website indicates they are trying to fill the job. Your editor will personally donate $100 to Haiti earthquake relief in the name of anyone who can find that job listed on the Central Management Services website. We remain chagrined about how state WC jobs are seemingly hidden from the public to allow someone’s cousin’s brother’s uncle to quietly learn which rock to look under when they want to take applications only from a chosen few.

We have been asked by a number of readers whether we can support bringing older workers back into our work force in this state. As the stock market has waffled and the economy continues to struggle, lots of folks are looking for ways to make ends meet, particularly among the elderly.

We are sad to advise all of you it is a very problematic—so please don’t shoot the messenger on this one. We truly feel this has to be taken up in the legislature if the Illinois legislature is lucky enough to get some folks willing to tackle the issue after the November elections. Right now, we hate to tell HR and risk managers hiring the elderly is asking for financial disaster in this state.

Why do we make that claim? Well, we looked at a study from the stat-rats, NCCI titled Age as a Driver of Frequency and Severity that examined how frequency and severity vary by age of worker, focusing on workers between ages 20 and 64. Events since that study was published, especially the plunge in the stock market and the decline in home prices have sparked interest in the implications for workers compensation claims of persons working beyond age 64.

The study indicates for many persons in their late 50s and early 60’s whose life savings have been depleted and whose homes are now worth far less than anticipated, the idea of a “normal” retirement is now more in the realm of wishful thinking than an achievable reality. Workers aged 65 and older comprise a small share of employment and injury and illness cases, which is why the previous study limited its analysis to persons aged 64 and younger, however, the labor force participation rate of older workers (those aged 65 and older) has increased by nearly 50% since the late 1980s, and the rate for workers aged 55 to 64 has also increased from 55% to 65%. Further increases are expected in coming years in light of recent financial and economic disruptions.

This NCCI study examines how workers aged 65 and older differ from all workers in terms of their share of claims; indemnity and medical payments; frequency; and indemnity and medical severity (i.e., cost per claim). It also explores the implications for workers compensation claims management and loss costs. Their key conclusions are:

• Falls/slips/trips are by far the greatest cause of injury among older workers.
• Indemnity severity is less for older workers, largely because of the lower average weekly wage of such workers. There is a distinct (downward) break in indemnity severity between ages 60–64 and 65 and older.
• Medical severity is higher for older workers, although the differential between workers aged 65 and older and nearby age cohorts is small.
• Shares of indemnity and medical payments of older workers have a close relationship to their share of claims.
• Frequency is less for older workers, especially in the more hazardous manufacturing and construction-related industries and occupations.
• In contrast, claim frequency is higher for older workers in the leisure and hospitality industry and food preparation and service occupations as well as in sales and related occupations.

How does all of this affect Illinois WC claims? Well, the current theories of compensability do nothing to motivate employers to hire older workers. First, Illinois continues to adhere to the theory the work only has to be “a” cause and not “the” cause of the injury. Therefore if Uncle Dave or Aunt Sally get a sore [insert body part] at work, it can be very simple to demonstrate the work was a cause of their age-related problem. So, for one simple example, if Uncle Dave is a part-time sales person and is on his feet some of the day but now needs total hip replacement, you can be on the hook for the surgery and 60% LOU of the leg, regardless of the fact Uncle Dave has had documented hip problems for three decades—you may be determined to have aggravated it.

Next, remember the rates have all jumped, making it much more difficult to save costs if an elderly worker is brought back on a part-time basis. For a part-time worker who suffers an injury, their TTD and PPD rates will typically equal their average weekly wage. Most galling, if you are paying a part-time elderly worker $100 a week and they die from an arguably work-related event, the minimum weekly death benefit is $466.13.

The legal issue of accidents being “a” cause versus “the” cause isn’t in the legislation and could be changed by administrators willing to make things better for hiring the elderly. High rates isn’t truly an issue our administrators can change. We suggest all of it should be considered by a new administration, if one should land this fall.

We appreciate your thoughts and comments or post them on our blog.

Illinois employers should review and take note of this important Commission decision which indicates simply because a heart attack or other cardiac event occurs while a claimant is working does not necessarily mean the accidental injury is compensable under the Act. Claimant and their counsel still must meet their burden of proof in demonstrating a compensable event through expert testimony and a preponderance of the evidence. As we indicated when Twice Over Clean was issued, we were greatly concerned any and all cardiac events or dysfunction might be covered in Illinois because claimant in that ruling was found to have arteries that were 95% occluded and his own doctor said he could have had a heart attack while brushing his teeth. It would appear our Commission is still using strong common sense in deciding when and if to provide Illinois’ high death benefit.

In Dragovan v. Western Utility Contractors Inc., 06 IL.W.C. 31304, No. 09 I.W.C.C. 0969 the Commission reversed an arbitration decision which found Decedent to have sustained fatal cardiac arrhythmia. It was undisputed Decedent in Dragovan had a labor intensive job. On the date of claimed loss, he had in fact been digging and performing strenuous physical labor. However this work was performed several hours prior to his death. Decedent was not performing heavy physical labor of any kind when the fatal cardiac event began.

Although Petitioner’s expert opined Decedent’s physical activity “led” to the fatal event, both experts agreed Decedent had a globoid-shaped heart with a longstanding occlusion of the descending coronary artery that left only a pinhole-sized opening, a condition that greatly increased the likelihood Decedent would experience cardiac arrhythmias, thus increasing the risk of sudden death. More important, both expert physicians also agreed Decedent’s heart was in such a diseased state little or no physical activity was needed for cardiac arrhythmia to occur. Nevertheless, the Arbitrator found this case to be analogous to Twice Over Clean and Petitioner’s expert to be more credible and awarded full death benefits. As we have indicated death benefits in Illinois are start at over $600,000 and now cap at $1,615,900!! We consider Illinois to be the third highest state for death benefits in the entire country.

On review the Commission disagreed and clearly distinguished this case from Twice Over Clean in that Decedent in this claim was neither performing physical labor at the time of the incident nor was he working at or near the level of physical activity as claimant in Twice Over Clean. To be clear, in Twice Over Clean the claimant was actually performing physically demanding labor outside in the cold in Minnesota when symptoms related to a non-fatal heart attack were experienced. In this case Respondent’s expert testified the physical activities performed earlier in the day by Decedent were too far away from a temporal perspective to be relevant in causation. Thus even with medical testimony that physical activity could precipitate cardiac arrhythmia and later death, the Commission viewed the facts and testimony in their entirety and issued a well-reasoned thoughtful decision which provides significant insight into how such claims should be handled.

This case is of extreme importance to anyone who might find themselves handling and/or defending a fatal or non-fatal cardiac or stroke claim. Please note this ruling might not apply to firefighters with five years or more of seniority—in Illinois, cardiac problems for such workers are presumed to be related to work.

Although it may seem at times as though the Act provides all-encompassing coverage to any employee who happens to be working at the time of a heart attack, stroke or other cardiac problems, thorough investigation and reliable expert testimony may speak to the contrary. With that in mind, we never recommend blind acceptance of cardiac claims simply because the incident occurs at work, it is the employer’s duty and right to fully investigate and make their decision after reviewing the facts in their entirety. Please don’t hesitate to contact us about handling, reserving or defending such claims.

This article was drafted by law student and KC&A paralegal Michael F. Sullivan. Please do not hesitate to reply with thoughts and comments or post them on our blog.

What is happening out there in the real world is lots and lots of workers’ comp claims are being settled with WCMSA’s where the injured worker or their family are being given a sometimes large MSA trust account that has been approved by CMS for use to pay work-related medical expenses. Some claimant attorneys were advising their clients these funds are “part” of the settlement—that advice is sort of right and sort of misleading. It is misleading if the worker thinks they can take the money and casually use it for anything they want. Nothing can be farther from the truth. All monies in the WCMSA have to be used carefully and has to be reported annually to the Feds. Failure to do so may result in a claimant being audited and sued by them—and once John Q. Injured Worker gets into a problem with the Feds, they are certain to turn around and want to sue the attorney or insurance carrier/TPA if they can point liability at them. We recommend caution be used at every step of this path.

We have also heard of claimant attorneys who have sought to take a fee on the amount of the WCMSA—such a practice is specifically barred by U.S. law. For example, if the settling parties submit a WCMSA proposal to CMS which indicates claimant will need $100,000 worth of work-related medical expenses that would otherwise be reimbursable under Medicare and the settling parties assert it will cost $20,000 in administrative and attorney fees to establish and administer the Medicare set-aside arrangement proposal, CMS will only review the reasonableness of the $100,000 figure. CMS will not review whether or not the $20,000 in administrative and attorney fees are reasonable nor will CMS permit the settling parties to add $20,000 amount to the $100,000 WCMSA amount. Therefore, if CMS approves the proposal for a $100,000 WCMSA, the settling parties administrative and attorney fees cannot be charged to/against the WCMSA. We have also not heard of any rulings where an Arbitrator or the Illinois Commission has approved a settlement where the claimant attorney is seeking a fee on the future medical bills that have not yet been paid.

We caution our readers the injured worker has to be advised Medicare Set-Aside monies cannot be used until the worker is eligible for Medicare benefits. Once the worker is eligible to receive Medicare benefits, the monies supplant the federal benefit–the monies have to be used to pay Medicare-covered medical or other expenses related to the work injury or management of the MSA until they are used up. Most important, the injured worker has to annually report what they do with the money to CMS.

CMS recommends non-professional administrators look to Medicare’s publications, such as “Medicare and You,” for general guidance about Medicare issues. This document is available from their offices and on the web at http://www.medicare.gov/Publications/Pubs/pdf/10050.pdf. You may note this lengthy document does not directly address the issue that is the subject of this article. This document and any of Medicare’s other publications, are available from local Social Security office; or from Medicare, by calling 1-800-633-4227 or by visiting Medicare’s web site on the Internet at www.medicare.gov.

We are advised the folks who set up the WCMSA generally provide pamphlets and forms for the injured worker or their families to understand the rights and responsibilities they face in this process. In pro se settlements, we recommend the WC claims person discuss the issues with claimant and document those discussions to protect yourself from future liability. For lawyers on both sides who are involved in a settlement with a self-administered MSA, we suggest you insure claimant has been fully advised about the requirements.

For the statutory outline of what is going on, Medicare regulations found in Title 42 of the Code of Federal Regulations §411.46 state Medicare will not pay for covered medical services related to the work-related injury until the WCMSA funds have been exhausted. All WCMSA funds must be used to pay for all Medicare-covered services and supplies related to the work injury. Examples of some items that Medicare does not pay for are: acupuncture, routine dental care, eyeglasses or hearing aids. Therefore, these items can not be paid from the WCMSA account. If payments from the WCMSA account are used to pay for services other than Medicare-allowable medical expenses related to medically necessary services or supplies, Medicare will not pay injury related claims until these funds are restored to the WCMSA account and then properly exhausted.

A CMS Medicare contractor will monitor all expenditures from the WCMSA account upon receipt of the annual self-attestation letter the injured worker is required to submit. Once the lead contractor has confirmed WCMSA funds have been exhausted appropriately, Medicare then begins paying for Medicare covered-services related to the work-related injury.

Establishing and Using a Medicare Set-Aside Account

As part of the workers’ comp settlement, WCMSA funds are placed in an interest-bearing account, separate from the worker’s personal savings or checking account. This is typically done by the Medicare Set-Aside provider who prices the trust and sets it up with funds or an annuity paid for by the insurance carrier/TPA. That provider should also outline what the injured worker is to do with the monies, along with when and how to spend them and how to report all of it to CMS on an annual basis.

Record Keeping

As an administrator of the self-administered WCMSA account, the injured worker is responsible for keeping accurate records of payments made from the account. These records may be requested by CMS’ lead Medicare contractor as proof of appropriate payments from the WCMSA account.

The injured worker may use the WCMSA account to pay for the following costs directly related to the account:

• Photocopy charges
• Mailing fees/postage
• Any banking fees related to the account

Annually, the worker must sign and forward a copy of the form providing self-attestation that payment from the WCMSA account was made appropriately for word-related injuries that would otherwise be reimbursable by Medicare. The annual accounting has to be submitted no later than 30 days after the end of each year, beginning one year from the establishment of the WCMSA account. Annual self-attestation should continue through depletion of the WCMSA account to the CMS lead Medicare contractor.

CMS policies further restrict the use of MSA funds. Payment of fees for attorneys, trustees, custodians and administrators, as well as those of any other professionals engaged to assist in administration of the MSA, including any medical claims administrator or third party administrator, may not be made from the funds in the MSA. Separate arrangements must made for payment of those fees as part of the WC settlement.  Also, the funds in the MSA may not be used to pay premiums for Medicare supplemental (“Medigap”) insurance for the beneficiary.

In the case of non-professionals administering WCMSA’s, CMS will accept a completed annual self-attestation form in which the WCMSA administrator verifies all expenditures were for work-related medical expenses of the type normally covered by Medicare. CMS does reserve the right to demand and receive a complete accounting at its discretion. CMS policy requires the set-aside amount approved by CMS to fund a WCMSA must be placed in a separate interest bearing account.

State Law Requirements

CMS takes the position non-professionals administering WCMSA’s are subject to the same standards and duties as professional fiduciaries. Therefore, it is safe to say that anyone administering any type of MSA must comply with all applicable state trust and fiduciary laws.

Typical fiduciary powers include, but are not limited to:

• The power to invest/reinvest in securities such as stocks, bonds, or other property, including purchase/sale of annuities, life estates, remainder interests, options on securities, insured money market funds;
• The power to hold investments in the name of a nominee;
• The power to make distributions of the assets of the trust or custodial arrangement in money or in kind, or partly in money and partly in kind;
• The power to retain any property (whether or not income producing) that may be transferred to the trust or custodial arrangement;
• The power to borrow money for any purpose connected with protection, preservation or improvement of the trust or custodial arrangement, or enhancement of the benefits to beneficiaries; and the power to create one or more mortgages on, or pledges of, any part or all of the property held in the trust or custodial arrangement;
• The power to pay, compromise or adjust any claims by or against the trust or custodial arrangement;
• The power to pay tax obligations of the trust, custodial arrangement or beneficiary from assets held by the trust or custodial arrangement;
• The power to execute, acknowledge and deliver any and all instruments in writing that may be advisable or necessary to carry out any of the trustee’s or custodian’s powers and duties; and
• Other powers that may be allowed or granted under state law or in the governing trust or custodial agreement itself.

In making investment decisions, an MSA fiduciary must consider that the funds in the MSA must be highly liquid; and that there is little, if any, risk tolerance. The set aside funds in the MSA must be available for predicted future injury-related medical expenses of the type normally covered by Medicare. In addition, unexpected and significant medical expenses can, and often do arise.

CMS only requires MSA assets be placed in an “interest bearing account.” However, state fiduciary and trust laws require administrators to exercise due diligence in deciding on any investment of MSA assets. This requires a careful investigation and comparison of available investments, including analysis of each investment’s individual characteristics and performance history. Non-professional administrators are strongly advised to seek the help of a professional, certified investment advisor in choosing an appropriate investment portfolio for MSA assets. CMS does not require that MSA’s be administered according to any formal written instrument, such as a trust or custodial agreement.  As a result, many non-professional SMSA administrators act with only CMS’ self-administration guidelines as a reference.

Tax Requirements

IRC §104(a)(2) provides damages received on account of a physical injury or illness, including WC settlement proceeds, are excluded from the taxpayer’s income. Placement of the award into an MSA should not alter that exclusion. Therefore, the receipt of WC settlement proceeds will not result in income tax liability to the claimant or the claimant’s MSA. If the settlement is structured to provide payments over a period of time through a qualified annuity under IRC §130, even the interest portion of the annuity payment is excluded from taxation under IRC §104(a)(2). However, if the settlement is paid in a lump sum, only the lump-sum portion is excluded from the taxpayer’s gross income; the claimant is taxed on any interest earned. If the claimant accepts a lump sum in settlement of a WC claim and subsequently purchases an annuity to fund the MSA, the interest portion of the annuity payments will likewise be taxable to the claimant.

Because the claimant is treated as the owner of the MSA for income tax purposes, and is taxed on the net earnings of the MSA, regardless of whether any of the income was actually distributed, the payment of the claimant’s income tax by the MSA should not constitute additional income to the beneficiary. Further, CMS does not currently prohibit the payment of taxes from WCMSA’s.

We appreciate your thoughts and comments or please feel free to post them on our award-winning blog.

The world wasn’t safe while the legislature was in session. Our “liberal” Democratic House, Senate and Governor drop lots more regulations on us. Though 2009 was dominated by a state budget crisis that continues to have multi-billion dollar deficits, and they have not really addressed ethics reform in government, lawmakers approved hundreds of other new laws for Illinois’ citizens to adapt to. Most of them take effect at the midnight on Thursday when the New Year starts. Some legislative changes will hit drivers and others directly, but others are more obscure.

Lawmakers’ bent on keeping people from texting while driving enacted a law this year and it takes hold Thursday at midnight. Drivers caught emailing, “tweeting” or texting behind the wheel can be pulled over and ticketed for the offense. Please assume if an Illinois police officer now wants to stop anyone, they will be able to claim they thought you were texting or emailing.

“Bluetooth” or hands-free devices may be much more popular in Illinois. In addition to not texting, drivers can now be ticketed for talking on the phone without a hands-free device in a school or construction zone starting Jan. 1. The best way to avoid this is to find a way to talk without putting the phone to your ear.

A separate law increases the fine of speeding in a school zone by $5 and sends the extra money to help schools. The fine for not yielding to a pedestrian in a school zone goes up $50.

Trucking companies traveling in or through Illinois will be happy to hear semi-tractor-trailer trucks will now be able to go 65 mph on rural interstates Jan. 1 because of a change in law. However, it will take time for the state to take down the signs that continue to hold truckers to 55 mph.

As part of the state’s plans to help out Illinois’ road builders and the struggling construction industry and build more roads and bridges, the cost of registering a car goes up $20 in 2010. Therefore, a new license plate sticker will cost $99 instead of $79. We have already gotten January renewal bills with the higher cost.

For you outdoorsy types, the cost of hunting and fishing will go up to in an effort to help the state’s cash-strapped outdoors programs. On Jan. 1, the cost of a fishing license goes from $12.50 to $14.50. A deer permit goes from $15 to $25 and hunting license fees rise from $7 to $12.

New laws that we didn’t truly need include naming Feb. 5 Adlai Stevenson Day in Illinois. Adlai Stevenson was Governor of Illinois in the 1950s, unsuccessfully ran for President against Ike and later served as a United Nations Ambassador. The day honoring him won’t get people off of work but official state calendars will note the day.

And last but not least, starting on Friday morning, American flags flying on public property in Illinois, such as outside government buildings, will have to be made in America. No more “Made in China” U.S. flags. A company in Rock Island, Regalia Manufacturing Co. makes American flags. You can buy an unlimited number of Illinois-made U.S. flags, banners or other “regalia” by contacting them online at http://regaliamfg.com/. U.S. flags don’t have to be replaced immediately but after the old ones wear out, new ones have to be made in the U.S.

Now, let’s hope they can make sense of that budget thing. Please send your thoughts and comments.

One concept that routinely falls through the cracks of training and handling of legal issues for all lawyers is what you need to do when you are asked by a friend, family member or acquaintance about a matter that you don’t traditionally handle. For example, if you are house counsel for a major software company and handle IT and patent issues but your cousin calls about a real estate closing that isn’t going well and asks for “informal” advice. In such settings, we feel you are going to have to do one of two things;

• First, if you are not going to handle or comment on the matter in any way, tell the friend, relative or colleague you will not handle it and they should consider seeking other counsel;
• In the alternative, if you are going to affirmatively discuss, comment or provide any sort of direction or advice of any kind, open a file and let them know you are doing so.

In the first instance, you may want to keep a personal record of the inquiry and your response to it. In personal injury claims, you may actually want to advise the person both of the fact you aren’t handling the matter and also advise them of the applicable statute of limitations, as appropriate.

In the second instance, you have not one but two problems to consider. The preliminary issue in “odd jobs” for the lawyer working in-house or being asked to do tasks outside those you were hired by a law firm to provide, you need to consider is what to do in relation to your employer and job. We recommend all law firms and companies that hire attorneys address the concept with a clear written policy. At a minimum, the lawyer should advise the company or firm about all legal inquiries and how they are handling them. Second, the lawyer needs to create a file available for review by your employer and manage/maintain it to avoid either malpractice or ethical problems. Please note in-house counsels can buy “odd-job” legal malpractice insurance to avoid liability if side work goes sour.

We caution the lawyers, general counsels and law firm managers who read this KC&A Update to understand, if you don’t have a policy on “odd jobs,” your lawyers will still get inquiries but potentially fly under the radar on managing the matters—you don’t want that. We truly feel you need full disclosure so you don’t have corporate or partnership liability for claims you don’t even know about. If the attorneys receive any monies or gifts or other income for such work, it should also be disclosed to the main employer, whether you seek some or all of the compensation being provided to the attorney. Again, we recommend you anticipate this potential and address it first and not at a later time.

As to maintaining legal work for “odd jobs,” our recommendation is all legal files be updated no less than once a quarter with diary dates for the next action required. Failure to do so will always cause concerns about one of the three most important sources of ethical failures—failure to maintain and update files.

We are starting to see more and more assignments come in with a truly anomalous claims issue—claims that have been

• “Held” by the adjuster for weeks, months and years prior to being sent to defense counsel;
• Substantial TTD and medical bills have been paid; and

• No true accident investigation has been performed with interviews conducted or forms completed;
• The initial treating medical records have not been received and reviewed.

Please note Illinois is not a state that allows a great deal of pre-trial discovery in a meaningful fashion. The idea is the employer in Illinois gets to investigate what happened following the report of injury and medical records are out there for both sides to review—you don’t have to pay medical bills blindly in Illinois, the statute says you get to look at the records, coding and other documentation also.

So we all have some tools at our disposal to see if the claim is either questionable or bona fide. As we have told our clients, readers, Arbitrators/Commissioners and law students for years, the matrix every workers’ compensation hearing officer, attorney, claims handler, participant or risk manager has to review is to compare the initial report(s) of accident with the first medical history or histories to see if they “match” in a meaningful way. If the accident investigation and medical records don’t align, benefits shouldn’t be paid until the questions that arise get answered.

The problem we see across the country is claims adjusters are under the gun. They are handling lots and lots of files, many are at record-high levels to justify their jobs and pay in this demanding economy. The problem they face is it takes a little or a lot of time to get accident investigation protocols completed and medical records in their files. It is tough to match all of it up and make sense out of what they are doing on a file by file basis. Most veteran claims adjusters know the easiest way to quiet down a demanding file is to just take the initial report and just start paying benefits—by doing so, claimants and potentially their attorneys will stop calling/crabbing and sending penalty/fee petitions and making threats of one sort or the other. The problem this causes is files some times get accepted and lots of benefits paid with very minimal accident information and late or lacking medical documentation.

The problem for the defense attorney who later gets the file is multi-layered. In our experience, claims handlers don’t like to be “questioned.” They know if the defense attorney starts to ask pointed questions about the initial determination to simply start paying benefits without a minimal accident investigation; it may put the adjuster in a bad light. The defense attorney knows the claims adjuster usually handles the spigot that sends files—if you tell the adjuster the matter needs to be more fully investigated, they can go to a less aggressive attorney who won’t roil the waters, no matter how poorly the file has been initially set up. The problem for the corporate risk manager or insurance broker with a demanding account is you may be paying a lot of money on a claim when your claims staff and attorneys don’t have the very basic defense tools in the file—you aren’t sure an accident happened or if the medical care your adjuster is paying for relates to the claimed event!!

So what are the three Keefe, Campbell Claim-Acceptance Rules? We recommend the Illinois and possibly U.S. claims industry demand three simple things on every litigated claim or defense assignment. First, each file has to have some definitive accident report in it. The best of all worlds is a hand-written accident investigation report filled out by claimant in their own words and language and signed. If they can’t fill it out due to an inability to write, audiotape or videotape it. If union rules or other administrative issues block a statement from the injured worker, our first rule requires a handwritten accident investigation report completed by the supervisor to whom the event was initially reported. For insurance/risk managers and insurance brokers who watch claims handlers, you shouldn’t allow any adjuster to pay benefits without something other than a call from the account saying “claimant hurt at work.”

If the claim goes litigated early, what do you do about getting an accident investigation report filled out when claimant is represented by counsel? Tell the claimant attorney you have to have the accident investigation report and you are willing to interview their client on the phone with counsel on the line. Tell them your handling rules require it and you can’t pay benefits without a completed accident investigation report. While we don’t mean to talk for Illinois Arbitrators, we assure you most of them support the concept that an injured worker has to preliminarily cooperate with claims adjuster before you start paying lots of benefits. They will not require you to pay blindly.

Next, the claims handler has to have the initial medical treatment records; whatever they might be. As part of this process, we recommend having every injured worker sign a HIPAA-compliant medical release. After you have the signed release, if you don’t know where claimant went for care, ask them! If you know where claimant went for care, call and fax the HIPAA-compliant release and ask for the initial treating records. Please always remember the medical course starts on the date of loss—if they don’t get care for some time after the event, it is always a red flag—it doesn’t mean you can always deny the claim but it is always something to further review and consider. Please also remember to CYA—if you don’t have initial treating records and you aren’t paying benefits, write either claimant or counsel early and often to tell them where you are at in trying to get them. Make clear in all correspondence to tell them you follow the KCCA Rules and you can’t and won’t pay benefits until you have them.

Third and last, when you have an accident investigation report and the initial medical records with a clear medical history—read and compare them! It sounds simple but we get lots and lots of claims which indicate the claims or risk manager did not take these three simple steps. If the accident investigation report and initial medical history match, you can and should pay benefits. If they don’t match, you don’t and shouldn’t pay benefits. Sounds simple, doesn’t it?

We point out to everyone in the WC claims industry, if you send a file to defense and they aren’t asking these questions and confirming analysis of this matrix, they aren’t doing their job. If these three steps aren’t followed, you are almost certainly paying benefits totally in the dark—you and your defense counsel won’t be able to do most of the important claims steps such as fighting a phony accident, targeting MMI or return to work. When we audit claims files for our clients and potential clients, this is the first thing we look for—we are amazed at how many times it is missing. If it isn’t in the file early, you need to try to “rebuild” it later at usually a major disadvantage due to the passage of time. We recommend everyone look at your major litigated claim files to see if this matrix is present or let us do it for you in an audit.

If you need an accident investigation form, send a reply. If you need/want our recommended questions to interview an injured worker, send a reply. If you want a copy of our HIPAA-compliant release, send a reply. All of these documents are offered at no charge. And don’t hesitate to post your thoughts on comments on our award-winning blog—details are below.