Workers Compensation Settlements

Injured worker counting a workers compensation settlementWorkers compensation insurance provides a safety net for medical expenses and lost wages of those who get hurt on the job.

But that doesn’t mean such workers have to accept whatever the insurance company offers.

A workers compensation settlement is a way you can negotiate the immediate payment of injury benefits that may be owed to you in the future. Sometimes a lump sum payment is more beneficial and gives you more flexibility than receiving a small workers comp check over time.

Or, if the insurer is denying your claim, you may reach a more favorable outcome by settling than by risking a trial to determine your benefits. There are advantages and disadvantages to settling your workers compensation claim through a lump-sum settlement or some type of structured settlement. A workers compensation judge or hearing officer will need to approve your settlement.

If your claim is disputed, a trial or workers comp hearing is time-consuming and risky. The judge or hearing officer may award you less money than the insurance company offered to settle your workers comp claim. 

Note: Workers comp settlements are entirely voluntary. You don’t have to agree to a settlement offer proposed by your employer or its insurance company, nor do you have the ability to force the employer or insurer to settle your claim.

How Is a Settlement Calculated for Workers Compensation?

The formula for calculating a workers compensation settlement package involves four major factors:

  • Future loss of income
  • Cost for future medical treatments
  • Costs for future prescription medications
  • Transportation needs

The four factors are determined by a permanent impairment rating and added together to calculate the final total of the settlement. The adjuster for the insurance company and either the injured employee or employee and his attorney negotiate a settlement.

If the injured worker did not receive temporary benefits for medical expenses and lost wages prior to the settlement, those variables will be included in a final agreement. Typically, however, settlement negotiations only involve workers who were permanently disabled.

Average Workers Compensation Settlement

The average workers comp settlement is $21,800. One national study by Martindale-Nolo indicates that almost three-fourths of workers receive some payout on their claims. Most workers received between $2,000 and $20,000.

You need to go into this realizing that workers compensation isn’t like winning the lottery. This is a different system than personal injury, whose attorneys advertise huge judgments their clients have won.

The reason is that there is no payment for pain and suffering. On the other hand, you don’t have to prove the employer was at fault, but that limits the payout. Typically, you’ll receive less than your normal wage.

How Long Do Settlements Take?

Short answer: It varies greatly. The Martindale-Nolo survey of readers turned up an average of 15.7 months to resolve a case, and less than 20% of cases are resolved in less than six months. Obviously, those who try to negotiate a better workers comp settlement may hire legal assistance to negotiate the best terms for a settlement or to bring a hearing if there is a disputed issued. This can be time consuming. However, a shorter time frame is not always better. Those actions that lengthen the process can also bring higher settlements.

Once an agreement is reached, it can take four-to-eight weeks for money to arrive while settlement contracts are drafted, signed and approved.

Lump Sum vs Structured Settlement

Structured settlements provide pre-determined payments for a period of time or, in some cases, life. Unlike lump-sum payments, this method eliminates the risk of spending the money too quickly. There also are tax advantages. Workers compensation settlements are not taxed, but if a lump sum is invested, any earnings on that money are taxed.

The disadvantage is that once you agree to structured settlements, it can’t be changed to a lump sum without incurring penalties.

Lump-sum settlements simplify the process and can be helpful if you have a specific need for the money. Another advantage of settling the medical portion of your claim is that you are in control of your medical needs and can schedule doctor appointments or procedures when you see fit. If you settle the claim, you can choose or change your physicians. However, if you have severe and complicated work-related injuries, you may not want to settle the medical portion of the claim because you can be entitled to medical benefits for your accident for the rest of your life. Some injuries are too complicated to take the risk that you will not have enough money through a settlement to meet your medical needs.

What is a Workers Compensation Medicare Set Aside Arrangement (WCMSA)?

If you have a Medicare card or reasonably expect to be on Medicare within the next 30 months and with a settlement value of $250,000, you must protect Medicare’s future interests. Medicare is a secondary payor, which means that Medicare should not pay for medical expenses if they are the responsibility of someone else, such as your employer or insurer.

You can settle your medical expenses if you have a Medicare set-aside to cover future Medicare-covered medical expenses. A life-care plan is prepared and presented to the Center for Medicare and Medicaid Services (CMS) for approval. If coordinated properly, Medicare will pay for future work-related medical treatment if your WCMSA account is ever depleted.

Large WCMSAs are usually funded with an annuity. Medicare will pay for work-related medical treatment once the MSA account is exhausted until the next annuity payment is made.

Medicare beneficiaries who are considering a settlement should have the CMS review the settlement before the case is closed to ensure the settlement accounts for Medicare-covered expenses. Such a review will make sure your settlement complies with the law and ensures that Medicare will cover your expenses if your medical condition changes and you lack sufficient WCMSA funds.

Workers Comp Settlement and Social Security Disability

In many states, workers compensation payments may reduce the monthly amount of your Social Security disability benefits. This occurs when the combined monthly amounts of Social Security disability benefits and workers compensation are more than 80% of an individual’s average earnings pre-disability. In some states, it’s the workers compensation benefits that are reduced.

There are ways to minimize this offset. Before calculating your settlement amount, Social Security deducts legal fees, dependent payments, rehabilitation costs and past or future medical expenses. Special language can be placed in the settlement documents that prorate the settlement over your life expectancy, which can reduce or eliminate the Social Security disability offset.

Obviously, workers compensation issues are complicated, and unless the amount of money involved is trivial, getting legal advice is a very good idea.

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About the author

George Morris’ 40-year writing career includes stories on Super Bowls, evangelists, World War II veterans and ordinary people with extraordinary tales. He has been honored with awards from the Society of Professional Journalists and the Louisiana Press Association. His recent focus has been personal finance advice and now, workers compensation. George can be reached at [email protected].