By Thomas c. lowry
Special to the Law Weekly
As an experienced attorney in workers’ compensation litigation who also practices social security disability law, I am writing to provide some insight into potential problems and practical solutions in negotiating and implementing workers’ compensation resolutions affecting injured workers’ future medical treatment.
Under Section 449 of the Pennsylvania Workers’ Compensation Act, an employer and an injured worker can agree through a compromise and release to end any and all liability for wage loss, claims and future medical expenses related to the treatment of a work injury. Such a compromise and release agreement must be approved, after a hearing, by a Workers’ Compensation Judge. Better preparation, including the exchange of detailed information and the drafting of additional language, will likely be required in future C&R’s.
Often, a seriously injured worker, who may have other ailments, will apply for social security disability. Workers’ compensation disability differs from the criteria used by Social Security. Social security disability (SSD) is defined as the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or has lasted, or can be expected to last, continuous periods of not less than 12 months. The SSD determination follows a sequential analysis. (See 20 CFR 404.1520 and 20 CFR 416.920.)
Once awarded, an injured worker’s SSD benefits will be reduced so that the combined amount of the SSD benefits that claimants and their families receive plus workers’ compensation benefits or public disability benefits do not exceed 80 percent of their average current earnings (ACE). ACE is calculated either by averaging the disabled workers’ five highest gross earnings a year or, more commonly, by taking the highest earning year and multiplying the result by a factor of 0.80. After calculating 80 percent of ACE, subtract the monthly SSD benefits. The remainder is how much a disabled worker can receive in monthly workers’ compensation benefits before the offset rule is triggered. Any reduction will last until age 65 or the month the workers’ compensation benefits stop, whichever comes first.
The practical consequence of the workers’ compensation settlement is to create a win-win situation for an injured worker and the carrier. The claimant receives a lump sum amount, and the monthly SSD benefit will likely increase, as well. This is accomplished by prorating the lump sum over the number of months the workers’ compensation would have normally been paid had the lump sum not been payable. Therefore, it is recommended that the claimant’s life expectancy be utilized for proration purposes. As a lump sum is prorated, the monthly amount subject to a potential offset is reduced, thereby increasing the monthly SSD benefit.
It is important to note that the net amount paid to the claimant is used for the proration language included for social security disability purposes in the C&R agreement. The amounts allocated to current or future medical, legal fees or related expenses incurred are excluded from the offset calculation. Allocating a sum for the payment of future medical in connection with a lump sum compensation settlement will have the favorable effect of reducing the sum prorated over the claimant’s life expectancy which is subject to the offset of SSD. It would be therefore likely to increase the amount of the monthly SSD benefit to the claimant.
Medicare Issues
A disabled worker who receives SSD benefits for 24 months will be eligible for Medicare. Persons with certain disabilities such as chronic kidney disease requiring regular dialysis or transplant may qualify for Medicare immediately. Medicare is, of course, an “entitlement” program, since eligibility is not based on financial need. The Medicare program is divided into three parts: hospital insurance benefits (Part A), medical insurance benefits (Part B) and Medicare + Choice (Part C). Enrollment in Medicare Part B is automatic for the elderly and the disabled at the same time they become entitled to Medicare Part A, but some individuals may decline such coverage. Because there is a monthly premium to be enrolled in Part B, which is deducted from a disabled person’s SSD benefits, some individuals decline this coverage. Therefore, it is important to verify enrollment in Medicare, not only in negotiations but for drafting the C&R agreement.
In workers’ compensation negotiations, the carrier is interested in cost containment and the claimant and his/her knowledgeable attorney are concerned about maximum recovery. Both parties desire the certainty of the transaction. Where there is a serious injury with the likelihood of ongoing need for future medical treatment, this must be a shared concern by both parties because of the potential liability under federal law which grants Medicare a priority right of recovery and permits the pursuit of subrogation to recover conditional payments against entities responsible for repaying Medicare or against any entity that has received payment (See 42 CFR ? 411.40-411.47). Essentially, cost-shifting of future medical treatment by a claimant to Medicare is not permitted.
Once a claimant seeks enrollment in Medicare (either through retirement or SSD), a Medicare questionnaire is sent to the claimant to complete. The Health Care Financing Administration (HCFA now known as CMS) through the Medicare program has established a coordination of benefits contractor (Mutual of Omaha Insurance Company) who is responsible for pursuing leads on all subrogation cases in which accident-related conditional Medicare payments may have been made. Therefore, it is best to be forewarned and take the necessary steps to safeguard the parties’ respective interests in negotiating any workers’ compensation settlement by compromise and release affecting medical coverage.
HCFA on July 23 of last year circulated an advisory question and answer memorandum which has been widely distributed in Pennsylvania. It provides helpful guidance. The underlying theme through this Q&A memorandum is that HCFA/CMS scrutiny will “follow the money” in any workers’ compensation settlement to safeguard against impermissible cost-shifting of future medical treatment to Medicare.
Because of the limited resources of the HCFA/CMS regional office, prospective approval of a C&R by Medicare is available based upon the arbitrary criteria of the total amount of settlement of wage loss and medical if greater than $250,000 and there is a reasonable expectation of Medicare enrollment within 30 months of settlement. This may exclude many proposed C&R’s from obtaining Medicare’s preapproval.
Because it may not be in the best interest of the claimant to delay the filing of the SSD application, it may sometimes prove difficult to integrate Medicare concerns into a workers’ compensation negotiation. If an SSD application is pending (with a good chance for approval), then there is an option of delaying the settlement altogether until the SSD determination is made or delaying, in part, the workers’ compensation settlement of the medical coverage involving the work injury. In other words, a second C&R discharging a workers’ compensation carrier’s medical obligation with the appropriate set-aside language may become a viable alternative. Also, it is possible to designate a defensible amount to be set aside in an allocation of future medical treatment without securing Medicare’s preapproval since the payout amount may fall below the above-mentioned arbitrary criteria.
If SSD has been awarded and the claimant has become enrolled in Medicare before any C&R hearing, it is prudent to require claimant’s counsel to write to the HCFA/CMS Regional Office seeking preapproval of the proposed C&R with specific allocation of funds “adequately considering Medicare’s interests”. This would require cooperation between both claimant’s attorney and the defense attorney in exchanging information to address this issue. The record of past medical payments and medical records describing the ongoing course of treatment may be helpful tools in projecting future costs.
Claimant’s counsel would then provide a detailed analysis in writing highlighting relevant factors with supporting documentation to explain the rationale for the proposed set-aside amount. This would require the submission of a copy of the proposed C&R agreement, a possible estimation of life expectancy, a projection of future medical costs and, perhaps, documentation from doctors/providers explaining the need for medical care, the potential risk of an unfavorable decision in any current litigation and a discount to present value. Perhaps, even the creation of a life-care plan may be required in the event of catastrophic injuries.
If the proposed allocation of settlement funds for future medical care is approved by HCFA/CMS, then the C&R can proceed with careful questioning of the claimant to establish his knowledge and intent regarding future medical treatment. A knowledgeable claimant’s counsel may also consider a “poor man’s trust;” i.e., the establishment of an interest-earning checking account to pay for only work-related injury care. Medicare will not make any payment for the injured workers’ medical expenses until all the funds (including interest) have been exhausted.
It is important to realize that it is in the claimant’s best interest to secure approval of the set-aside arrangement since it would put a safety net in place should the future medical bills exceed expectations. Such a set-aside arrangement would provide the “peace of mind” desired by a carrier and its attorney since often, once a C&R is approved by a Workers’ Compensation Judge discharging all liabilities including future medical treatment, any subsequent decision by the claimant and his/her medical providers to submit a future medical bill to Medicare for processing and payment is an event which neither the insurance carrier nor the employer has control.
The goal of cost containment on an injury claim can be achieved by careful negotiation and drafting of a compromise and release agreement to provide for the certainty of the transaction in serious injury cases.
