A Workers’ Compensation Settlement is an agreement between an employer/insurance carrier and an injured worker for a set amount of money, either a lump sum or an annuity that will cover the injured workers’ lost wages, future earnings, and medical expenses for the rest of his life. Settling is a major life decision and it should not be taken lightly. You should consider what you are giving up by settling and weighing that against what you will be securing in return. Some of what you give up and of what you receive are intangible. For example, some injured workers think there is real value in not having to seek prior approval for certain medical treatment, including Utilization Review (UR), something that occurs regularly pre-settlement. After a case settles, medical decisions do not have to be pre-approved. You can treat consistently with your health care provider and make your own decisions. In the case of a Medicare Set Aside, there are a few rules and regulations that must be followed to properly manage your medical funds. These payments must be made in accordance with The Center for Medicare & Medicaid’s (CMS) guidelines. You can learn more about these guidelines here. Settlement means you will have control of your indemnity (lost wages) settlement proceeds. You will no longer receive a weekly check from your employer or the company insurance carrier. Some people enjoy the security of regular payments. Managing settlement proceeds on your own can be challenging. Many settling parties elect to reduce this challenge by settling with a structured settlement, an arrangement that provides security and pays on a periodic schedule. If considering settling, be sure to consider the pluses and minuses of doing so.
All but a few states allow for a full and final settlement. What this means is a case is fully resolved with the employer paying the injured worker a sum of money in a lump sum or through a structured settlement arrangement. Once you settle, the employer or carrier will no longer pay for any ongoing medical treatment, and you will need to use your medical settlement funds for these expenses.
There are two benefits whose value is part of the settlement calculation. They are past and future indemnity benefits (wage replacement benefits) and future medical benefits (Some states provide injured workers other benefits that are typically not valued at settlement because their value is intangible, for example the right to be transferred to suitable work or vocational rehabilitation).
Performing the calculations estimating a settlement value is not difficult in some cases and when the future medical treatment is expected to be extensive could be complex. Future indemnity considers the present value of your indemnity payments. Your life expectancy or rated age is a factor. If benefits have a durational limit, that is considered. Does your state provide periodic cost of living adjustments (COLAs)? If so, they are a consideration in the value of the settlement.
Future medical costs are then valued. Some employers and carriers retain the services of expert medical personnel to perform this calculation. Others perform the calculation themselves using prior medical treatment and health care provider opinions on what future care can be anticipated. After these foundational numbers are established, it is a common practice to reduce the indemnity to present value and inflate the medical based on when treatment will likely be rendered. Once the employer or carrier is comfortable with a value, the parties usually negotiate the settlement.
After a settlement agreement has been reached by the parties, the state Workers’ Compensation agency needs to review and approve it. This usually involves filing documents with the agency. In some jurisdictions a hearing is scheduled where an Administrative Law Judge, Commissioner or Hearing Officer hears testimony, reviews medical records and other documents. That person will then issue an order approving or denying the settlement. In most jurisdictions, the standard or test is whether the settlement is in the best interest of the parties, specifically the injured worker.