Set-asides go skyward: Medicare's drug benefit creates sticker shock in WC settlements.

Those extra zeros you notice on the next Medicare set-aside agreement you see probably aren't typos. The prescription drug plan that took effect this year for Medicare recipients is sending workers' comp settlement amounts through the roof, according to an attorney who specializes in the agreements.

As of January I when prescription drug coverage became available for everyone with Medicare, regardless of income or health status--prescription drugs must be factored into Medicare set-aside arrangements for workers' comp settlements that include future medical costs, according to a Dec. 30, 2005, guidance issued by the Centers for Medicare and Medicaid Services, the agency that administers Medicare.

The inclusion of prescription drugs in the set-asides makes the medical portion by far the most costly part of the lump-sum settlement, said James E. Pocius, an attorney and expert on the subject. It can easily add hundreds of thousands of dollars to workers' comp settlements.

The estimated drug cost, like the future medical expenses, is calculated once the injured worker has reached maximum medical improvement-typically, several years after the injury. "We' re making our best prediction based on the past medical treatment," Pocius said.

As an example, Pocius cited the case of a 60-year-old injured worker with a life expectancy of 20 years who's been taking two pain killers per day, at a cost of $2.50 per pill. At $5 per day times 20 years, the cost is $36,500. But the actual costs may be much higher than that.

"In an average case, it'll be between $100,000 and $300,000 extra, unless there's a short life expectancy," Pocius said of the 20-plus set-asides he's done since January 1. One reason for the high cost is the age of claimants seeking settlements.

"Most injured workers are between 35 and 55 years old when they're trying to have them (workers' comp cases) settled."

Pocius said the inclusion of pharmaceuticals should be a wakeup call to those developing workers' comp settlements.

"I think we have to realize that if we're going to settle a case, the first question we must ask is, 'Does the person qualify for a Medicare card?' Because if he does, it's reasonable to assume that the largest dollar amount of the settlement will be the Medicare set-aside, unless the person is taking no drugs," he said.

For settlements involving Medicare set-asides, Pocius suggested the following steps before beginning negotiations on the settlement:

* If the settlement is more than $10,000, obtain a Medicare set-aside estimate for medical visits and prescription drugs.

* See if you can lower the drug amount (e.g., if the state in question has a pharmaceutical fee schedule that may be a lower cost for the drug in question).

* Once the medical costs are known, contact a structured settlement company to see if the upfront costs can be lowered.

Pocius said you can then negotiate with the other side from a position of knowing what your costs will be.

"We can determine if we still want to settle it, or just settle the indemnity and retain medical exposure," he said. "But at least now you have all the factors at your fingertips that you'll need to know."