Permanently Disabled Workers
In other places on this site, and particularly in my book, The Nine Biggest Myths About North Carolina Workers Compensation, which is available free for download on this site, we have touched on the subject of what goes into looking at the potential value of your case in terms of settlement, and the factors that help establish that value of your potential claim.
In those places we’ve discussed that settlements, (or “clinchers” as they are known), of North Carolina Workers Compensation cases generally break down into three different kinds:
1. Partial Disability Claims – cases where the employee has returned to work because of their injury, but their doctor has given them a disability “rating” on the part or parts of their body they injured.
2. Combination of Partial Disability and Temporary Total Disability Claims – cases where there is a partial disability of one or more body parts, and the employee is able to return to some work, but may be unable to currently find work within their restrictions;
3. Permanent and Total Disability Claims – cases where either the clear opinions of the doctors are that the claimant is permanently and totally disabled, or, because of a combination of the work injuries, age, skills, etc, the injured worker will be very unlikely to ever return to suitable employment.
In this article, I want to focus on #3, the instance where the employee becomes permanently and totally disabled because of their on-the-job injuries.
In determining the potential settlement value of a case where the employee is permanently disabled, we look generally at two main items:
1- The weekly and yearly compensation rate of every future year of workers compensation, over the entire course of the remainder of the employee’s life, added up into one lump sum, reduced to its present value;
2- The potential future medical expenses that will have to be incurred by the comp carrier/employer over the remainder of the employee’s life due to the employee’s injuries.
a. Those future medical expenses that would eventually be covered by Medicare;
b. Those future medical expenses that are not covered by Medicare.
Obviously, these amounts are going to be affected mostly by the age of the employee, and the degree of treatment and care the employee needs on a daily basis.
When would it make sense for the Insurance Company to Settle?
Insurance company’s choice to participate is voluntary. Because workers compensation is a “pay-as-you-go” system, any lump sum settlement is completely voluntary on the part of the insurance company.
Because the settlement is voluntary, that means that there is really nothing you or any attorney can really do to force the insurance company to enter into a full and final settlement with you on your case. All they are obligated to do is to pay is your weekly compensation check, and your medical care related to your injury.
Why then, would an insurance company want to enter into a settlement with you — meaning, pay a large sum of money to you to settle your case, if all they have to do is pay a few hundred dollars every week?
Young Disabled Workers – less likely to settle. The answer is that if the insurance company believes that the chances are that in the long run, it works out better economically for them, for a variety of reasons, to continue to pay the employee their checks and medical benefits on a weekly basis, then that is what they will do-they will not settle the claim.
For instance, let’s take the case of someone in their 20’s or 30’s, and permanently disabled, but essentially stable in their medical condition. That means it is unlikely this person will need any type of expensive surgery in the near future. In that instance, more likely than not, the insurance company will simply continue to pay the weekly sums, rather than offer a large lump sum settlement. Why? Because with a young, disabled, medically stable employee, the amount of future benefits, for the remainder of their life, which is somewhere between 40 and 50 years, would be enormous, probably well in excess of $1 Million, and generally, workers comp insurance companies simply do not pay those amounts of money in settlement of a claim.
Another reason the insurance company would be unlikely to pay out such a large sum to a young, disabled, person is difficult to hear, but true-there are any number of reasons that the employee could die over the course of the rest of the employee’s life. If that happened, it would obviously stop the medical treatment, and severely limit the remaining recovery for the worker’s dependents, depending on the cause of death. (see information on death benefits, this website)
That sounds very “cold” and dispassionate, and it is. Remember, the folks with the authority to settle your case are not your employers whom you may have known for years. They are employees of an insurance company, and they do not have any “warm and fuzzy” feelings about you.
The insurance companies have actuaries whose job it is to figure out the likelihood of these things happening, i.e, the likelihood of the disabled worker dying vs. paying out a large sum to you now, as well as many other factors. They then crunch the numbers, and help the insurance company make a decision as to whether or not to offer a settlement at any given point during the injured worker’s life. In circumstances where the disabled employee is young, the insurance companies will usually bide their time, and not consider offering a lump sum settlement until the employee is much older.
Older disabled workers- more likely to settle. If, on the other hand, the permanently disabled employee is older, say in their late 50s, or 60s, there is a much lower life expectancy, and therefore the present value of the amount remaining to pay that employee over their remaining lifetime is greatly reduced. Although no one can predict how long someone will live, most insurance companies rely on tables of statistics that are available both on the federal level and on a state level that are actually in the statute books. These tables give us a general idea, based on all available data, as to how long a human being in this country can be expected to live, given their current age.
In addition, in these older, disabled workers, because of their age, it is usually more likely that the injuries related to the employee’s work accident will require higher, and more expensive levels of care, which may include surgeries and/or home nursing or attendant care.
By offering a full and final lump sum settlement, the insurance companies reduce their risk of exposure to paying these high amounts of money for these surgeries or home nursing or attendant care, which can be very expensive. When you combine that with a much lower potential payout for the future compensation, you have a case that may be ripe for settlement.
Therefore, if you and your attorney both decide that settlement would be the best option for you, and there is a decent chance that the insurance company is interested in resolving your claim, it becomes the attorney’s job to convince the insurance company that given your situation, it is in their best interests to settle your case, obviously, for as much money as possible. Obviously, the higher the figure, the better for you.
So, if you had an attorney, how would a potential settlement of your case shape up?
Well, assuming there was some interest on the part of the insurance company to resolve your claim, the first step would be to make sure they was sufficient information in place to make an estimate as to what you are looking at in the future, in terms of your medical care.
Often times, but not always, this estimate of the cost of future care is accomplished with the hiring of someone called a Lifecare Planner, whose job it is to look at your medical records, interview you, perhaps interview your doctors, and give an estimate as to the cost of your future care.
Consideration of Medicare. In addition, as to the cost of your future care, it is very important to make a distinction as between what Medicare would cover, and what they will not cover. Why is this? Because today, federal laws and guidelines require that in entering a workers compensation settlement, insurance companies, and your attorneys, must take into consideration Medicare’s interests. In other articles on this site, we get into more detail and describe the requirement of a Medicare Set-Aside (MSA) , as well as future non-Medicare covered medical costs, and how they may play into your settlement.
A settlement example. For the moment, let’s just take the following hypothetical example:
Let’s assume that you have a 59-year-old man who is permanently disabled because of his work-related injuries. His weekly compensation rate is $450.00 per week. His doctor has said that his injuries are permanent, and it will worsen over time, and he has also said, in response to a letter from the worker’s attorney, that he will require some assistance with his daily activities of living, on a permanent basis, due to his injuries.
So, we know that we have three components that we have to look at-
Future Compensation, Future Medicare-Covered Care, and Future Non-Medicare-Covered Care.
Let’s take them one at a time:
1. Future Compensation for the Employee’s lifetime. The present value of all of the compensation the worker will receive over the entire course of the remainder of the employee’s life. In this scenario, if we look to the statute books, in North Carolina a 59-year-old man has a life expectancy of 21.9 years. So that’s step one of figuring the value of the future compensation-get a life expectancy.
Step two is figuring out the compensation at a yearly rate. At $450.00 per week, times 52 weeks, this man is receiving $23,400.00 per year in workers compensation.
Step three, multiply the figures. Now if you multiply that amount times 21.9 years, that comes to $512,460.00 of comp over the employee’s life; however, remember we spoke about present value. Let’s get into that basic concept. Which brings us to step four.
Step Four-Figure the Present value. What does that mean? Present value is a universally-recognized concept that simply reveals the following simple truth: For the worker to receive the entire amount of his future payments in one lump sum now is worth much more than simply receiving payments each week.
Why is that? Because the worker could take that lump sum of money and invest it in something very safe and easily earn at least 5% per year on that money, eventually yielding much more than $512,460.00. If the worker were only receiving that $450.00 per week, they could never accomplish that type of return on investment.
Think about it—if the injured worker left the money alone, 5% of $512,460.00 is $25,623.00 per year, even more than the comp rate, which they could make each year and never touch the principle amount!
Therefore, we must discount the lump sum to present value, which is a figure which is a true representation of receiving the ENTIRE LUMP SUM of $512,460.00 now.
The calculations are too complex to get into here, and are usually performed by an economist, (some calculators also have a PV function) but if you work it out, the present value of the $512,460.00 lump sum payment appears to be approximately $308,014.20.
So, we have the first component of the potential settlement for this hypothetical, disabled 59-year old worker-the present value of their future comp payments.
2. Future cost of medical care: Medicare-covered items. Remember we said that the next component was the future cost of medical care, and I mentioned that we must break that down as between items that would be covered by Medicare, and items that would not be covered by Medicare.
As to those items that will be covered by Medicare, that is really a separate matter, and although it is a very important part of your settlement, because it is something that must be paid by the insurance carrier in order to resolve your claim, and usually, by the time your attorney reaches negotiations, it is a foregone conclusion that the workers compensation carrier will pay or somehow fully fund the Medicare Set-Aside (MSA), in whatever amount they are required to fund it. (Please see our article on Medicare Set-Asides (MSA’s) on this website for more detailed information on that). There are numerous details that must be worked out in advance, which are beyond the scope of this article.
The more important question for our purposes here is:
Are there other significant future medical expenses that are not covered by Medicare, and would therefore not be part of any Medicare Set-Aside arrangement?
3. Non-Medicare Covered Future Expenses. Remember we said that in our example above, the claimant’s doctor has stated that due to his injuries, the claimant will require assistance with activities of daily living. Remember we also said previously, that in certain circumstances, it may be appropriate to hire a Lifecare Planner. This is a very skilled professional, usually someone with special nursing training whose job it is to determine, in as much detail as possible, utilizing all their skills, speaking to your doctors, assessing your level of disability, reviewing the entirety of your medical records, and interviewing you in your home— precisely what level of medical care you are likely to need on a weekly basis for the rest of your life.
You may ask, isn’t that going to be included in the MSA report? And the answer is, if it is something that you need at home, or even in a facility, if it is long-term, i.e. not just for a month or two, but for the rest of your life, according to the Medicare rules, Medicare generally does not cover long-term home healthcare services or really any long- term care at all. Therefore, it would not be included in the MSA report, because it is a non-covered expense.
If the MSA won’t cover it, guess who has to pay for it? Your workers compensation carrier has to, unless you completely settle your claim.
So if that’s true, you see that the Lifecare Planner also serves the dual purpose of not only helping you with potential settlement, but providing detailed evidence as to what you require on a day-to-day basis at any potential Workers Compensation Commission hearing, to help you obtain the care that you need right now, if the Insurance Company is resistant to settlement, and will also not willingly pay for your attendant care.
But note—Once you settle the case– the expense for long-term care is all on you.
Therefore, it is imperative, before settling your case, to quantify the amount of long-term future care you will likely need, to the greatest extent that you possibly can.
Types of Long-Term Care. As far as this kind of care of care is concerned, it really breaks down into two types. First, there is really the unskilled type of care, the kind which could be provided by a family member or spouse, commonly referred to as attendant care. This might include assistance with cooking, cleaning, dressing, and bathing.
Then, there is another level of care, which really is more appropriately provided by someone who is a qualified, skilled nurse, such as a Certified Nursing Assistant (CNA) that would be available through a service or agency. This is usually referred to as skilled nursing care. They may provide care such as providing injections, wound dressings, vacuum evacuation of the bowels, or other skills that are more appropriate to be performed by a professional.
The North Carolina Industrial Commission has approved fees for family members performing attendant care recently in the neighborhood of $12 and $13 per hour. See, for example, Arce v. Mountain Wood Forestry, NC 571046, (Nov, 2008), upheld by COA in unpublished opinion, Jan, 2010, No COA09-490 ($12/hr); Yuckel v. Childress Racing, IC No. 538163 (March, 2010) ($13.00/hr).
Payment for skilled nursing services through an agency or service is a different matter. The Commission will approve the prevailing market rate in the community for such services. See, e.g. Yuckel, above. (approved rates of $18.72 per hour and $19.08 per hour for CNA attendant care, separate from rates for wife’s care). Sometimes, these rates can be as high as $25 per hour, depending on the level of disability and care required.
Let’s assume, in our example above, that the Lifecare Planner has finished with her report, and states that in her estimation, the claimant will require three hours per day utilizing unskilled nursing care, for the next 10 years; however, after that, in addition to the three hours per day, the claimant will require an additional two hours per day of skilled nursing care.
Remember we said above, that the life expectancy tables show that the claimant has a life expectancy of 21.9 years.
So, according to the Lifecare Planner, looking at the first 10 years, if we use the rate of $12 per hour, at three hours per day, that comes to $252 per week, or $13,104 per year, meaning $131,040.00 for the next 10 years, to provide the claimant with attendant care.
For the remaining 11.9 years after that, that comes to $155,937.60; however, recall that the Lifecare Planner also said the claimant would require an additional two hours per day of skilled nursing care. Using a rate of $19 per hour, that comes to $266 per week, or $13,832.00 per year, which means an additional $164,600.80 in skilled nursing care.
If you add those figures together, namely, $131,040.00, $155,937.60, and $164,600.80, that comes to $451,578.40, representing a total lifetime cost of future attendant care and skilled nursing for the claimant for his work-related injuries!
Do you now see why it is important to consider this component of your potential settlement?
Note that the medical care figure is not reduced to present value, nor is it appropriate to do so, because of the likely increasing cost of health care over the next 20 years, which more than offsets any benefit to the claimant of receiving a lump sum.
The Final Talley in our example—
Add it all up. Now add that figure of $451,578.40 to the previously- mentioned present workers comp wages figure of $308,014.20 in our example of the 59-year-old disabled man, and that yields:
$759,592.60 total estimate of the value of the claim.
So, the figure of $759,592.60 is fairly close to the amount that your attorney wants to shoot for in terms of settlement of your case.
Does that mean the insurance company MUST pay that sum, or you cannot settle your case? No, of course not, but it does provide a competent, supportable, and reasonable basis to look toward resolving your case.
Of course, every case is different, everyone’s potential needs are different, and everybody’s comfort level in terms of what they might be willing to accept in settlement is also different.
There are some cases I would feel comfortable as an attorney recommending settlement for less than the amount of these numbers, however they come out in your case, and other instances that I would advise my client NEVER to take a settlement, but to leave the medicals “open. ”
I would advise a client not to accept where their condition is simply too unstable, and it is simply too risky to accept anything less than an amount that will provide a large enough “cushion” against potential, and even likely situations, that would, for instance, force the client into 24–hour, long term, skilled nursing care—- a very, very expensive proposition, again, not covered by Medicare.
As I often tell my clients, I cannot “sit in your skin.” When you say “it hurts,” I do not know what that means to you.
The one decent thing about workers comp is that, assuming that you have an accepted claim, the worst that can happen if you and/or the insurance company choose not to settle is usually only that you continue to be paid your workers comp each week, and receive your medical care through workers comp.
It also does not preclude that sometime in the future, if circumstances change, you cannot again return to the negotiating table and explore settlement with your attorney and the comp carrier.
Potential Additional Non-Medicare Covered Expenses. On certain items, Medicare Part B requires a 20% co-pay, so that has to be thought through as well. For instance, you must pay a 20% co-pay on ambulatory surgical care, durable medical equipment such as walkers, or hospital beds, physical therapy, or prosthetics or other orthotic items.
Joseph A. Miller, Esq. has been representing injured workers throughout the Southeast for over 23 years. He is admitted to practice in North Carolina and Virginia. Please call us toll free at 877-622-8656, or email Mr. Miller directly at email@example.com for more information, or to receive a free initial evaluation of your claim.
Note: Medicare information derived from Official US Gov’t Handbook Medicare and You, 2010 Edition. Copies are available by visiting www.medicare.gov