It’s common for workers’ compensation insurance carriers to offer to settle the entire case for a single “lump sum” payment that ends the insurer’s obligation completely. That takes a lot of uncertainty out of the insurer’s life. It may also appeal to the injured worker, especially if there is a chance that the worker will lose the claim. It has the advantage of avoiding the worry that the insurer might, somewhere down the line, try to reduce or terminate periodic benefits.
In many cases, the settlement offer is made to an injured worker who is not represented by a lawyer. But evaluating a lump sum settlement offer gets very technical and very complex. It helps to have an experienced hand at your side, someone who has handled many of these cases and knows what the pitfalls are, to help make the decision.
Adequacy of the Lump Sum Amount
By far the most important factor is how much the insurer would pay over time if you don’t take the offer. That requires a careful analysis of the kinds of benefits you would be eligible for and any time limits on how long they would be paid.
The adequacy of the amount the insurer is offering also has to be viewed in light of the possibilities that:
- Medical costs get more expensive in the future
- The medical condition worsens
- The worker will not have the foresight and self control to properly manage the lump sum payment
- Interest rates/investment opportunities will vary in the future, reducing (or enhancing) the value of the settlement
What About Medicare?
Before deciding whether to take a lump sum and, if you do, what the lump sum should be, you need to think about how the lump sum affects your Medicare rights. If you accept a settlement that relieves the insurance company of any future obligation to pay medical expenses, your settlement should take into account the interests of the Medicare program. In simple terms, Medicare will decline to pay any future medical expenses on the basis of “but for.” If the expenses you want Medicare to cover would have been covered by the compensation insurer “but for” the settlement, Medicare won’t pay.
Federal law sets up a complex system for deciding whether Medicare must approve the settlement and, if so, whether a set-aside is required for future medical expenses. Medicare approval is only required if the settlement is for $250,000 or more, and certain other conditions are met. Even if Medicare approval isn’t required, it may be prudent to get it so Medicare doesn’t later question the amount set aside for medical care.
Essentially, you’ll have to have an expert analyze what portion of the settlement is intended to compensate for future medical expenses, and have Medicare sign off on that figure. The Medicare Set aside Arrangement (MSAA) rules require placing that portion of the settlement in a separate account that funds only future medical treatments. In order for Medicare to pay medical expenses after that, you will have to establish that you have already spent more than that set-aside amount for medical treatments.
What About Social Security Disability?
The Social Security Disability program wants to avoid paying the injured worker amounts that would have been paid by the workers’ comp carrier. The lump sum settlement amount will be considered in determining how much Social Security Disability you get. If you’re on that program when the settlement is made, your Disability benefits may go down because they will be offset to some degree by the settlement amount. Computing the offset, however, can be a very technical and complex process. Again, the advice of an experienced Workers’ Compensation lawyer can be crucial.
Get Help First
Accepting a lump sum payment is not a decision that you should make on your own. Call the Surrano Law Offices in Phoenix, Arizona, and get the help you need with a decision that can impact the rest of your life.