Initially, victims who have attorneys must pay legal fees out of their settlement awards. In most states, attorneys charge a 25 percent contingency fee. Additionally, victims must reimburse their lawyers for most litigation costs, such as deposition fees and witness fees. So, an attorney partnership is a substantial investment, but it pays off big time. Attorney-involved settlements are over 700 percent higher than non lawyer settlements.
What happens next usually depends on the insurance company, the attorney fee agreement, and the state rules. Generally, insurance settlement checks go to lawyers, who then distribute funds accordingly. Sometimes, settlement checks go directly to victims, who must then dole out the money. In most states, insurance companies directly pay medical bills, and the remainder goes to a lawyer for disbursement.
An obscure legal doctrine, the collateral source rule, often comes into play in these cases. If a third party, like a health insurance company, pays some or all of the medical bills, that payment might or might not affect a workers’ compensation settlement.
Assume Jim sustains a catastrophic injury and incurs $100,000 in medical bills, which is the average amount in such cases. Jim’s health insurance company pays all these bills.
In some states, Jim is still entitled to $100k. Jim shouldn’t be punished because he was responsible enough to buy health insurance. Other states reduce or eliminate medical bill reimbursement in these cases. These states don’t allow what they consider double dipping.
Now let’s change the facts a bit. Assume Jim’s lawyer negotiates with the doctor and reduces the medical bill to $50k. Once again, Jim might or might not be entitled to $100k medical bill reimbursement.
The collateral source rule also applies to other injury-related expenses, like physical therapy, prescription drugs, and medical devices.
Typically, prior lost wage replacement goes directly to victims, less attorneys’ fees and other costs. Future lost wages often go into a trust fund or retirement vehicle, like a 401(k).
Usually, lost wage replacement is retroactive to the claim filing date. This rule is complex in occupational disease claims, like toxic exposure or hearing loss. Usually, these victims are sick long before they file claims. In these cases, lost wages may be retroactive to the diagnosis date, especially if the victim has missed substantial amounts of work.
Future lost wages usually go into an interest-bearing account. That’s especially true in wrongful death cases. Frequently, surviving spouses set this money aside for their children.
After a workers’ compensation settlement, the current job injury becomes a pre-existing condition.
The eggshell skull rule, another legal doctrine, is usually the same in all states. Pre-existing medical conditions are usually irrelevant in personal injury or workers compensation claims.
If a victim must file a claim in the future, full benefits are available. An attorney must only prove that the new injury aggravated the pre-existing injury, instead of the other way around. Lawyers usually partner with doctors to secure necessary testimony in this area.
How Do I Track My Workers’ Compensation Check?
Quite understandably, job injury victims are anxious to track their wage replacement checks. Most Americans live from paycheck to paycheck. In 2021, 68 percent of Americans did not have the cash to pay a $400 emergency expense. A few weeks without a paycheck, or even a few days without one, is financially devastating.
The ability to track workers’ compensation checks usually depends on the insurance company that’s issuing them. Some companies have internet or other tracking procedures in place. Others simply make victims wait until their checks come in the mail. In any event, the size of these wage replacement checks means a lot more than their arrival dates.
Medical bill payment works differently in different states. In most states, workers’ compensation insurance companies pay medical bills directly. In some states, insurance companies send this money to victims, who must then pay their providers.
Types of Wage Replacement Benefits
These rules vary significantly in different states. Overall, all lost wage replacement benefits are temporary or permanent disability benefits.
Before we get started, we should explain what a “disability” is. This D-word is not just a medical term. A disability also has vocational, educational, and other implications. In fact, when attorneys take workers’ compensation cases, they usually focus on the victim’s ability to work. The medical aspects of a claim are important, but secondary.
Most falls and other trauma injuries are temporary disabilities. Workers’ compensation usually pays two-thirds of a victim’s average weekly wage (AWW) for the duration of that temporary disability. If victims can work on a part-time or other limited basis as they recover, workers’ compensation usually pays two-thirds of the difference between their old and new AWW.
Most repetitive stress disorder and other occupational disease claims are permanent disabilities. Sometimes, the injury is completely disabling, according to the above definition, and the victim cannot work again. Other times, the injury is partially disabling. In both cases, workers’ compensation usually pays a lump sum, based on the nature and extent of the disability, as well as the victim’s anticipated future AWW.
Overlap is common. Many temporary disabilities don’t completely heal. These victims may or may not be entitled to permanent disability benefits, mostly depending on the state workers’ compensation length and whether the victim has hit MMI (maximum medical improvement).
Calculating the AWW
The benefits checks that victims track usually have different amounts. Typically, the AWW is not a fixed number.
New employee injuries are very common. These victims aren’t completely familiar with the job routine and environment. New employees are usually entitled to raises after a probationary period and/or prorated signing bonuses. The AWW calculation must reflect these future changes.
The AWW is especially difficult to calculate in permanent disability claims. Frequently, attorneys work with vocational experts and other individuals who predict the victim’s future earnings potential.
How Does Workers’ Comp Affect My Tax Return?
The simple answer is not at all. Workers’ compensation benefits aren’t taxable, at the state or federal level. Moreover, these and other government benefits are usually exempt in bankruptcy. Workers’ compensation benefits help families get by. Often, however, the partial wage replacement isn’t enough, especially following a fatal or catastrophic injury.
The rules are different in nonsubscriber claims. If the employer didn’t have workers’ compensation insurance, a defective product caused the injury, or in other such cases, compensatory damages, for economic and noneconomic losses, usually aren’t taxable. Punitive damages usually are taxable. Different taxing authorities have different rules in different situations.
Workers’ Comp Benefits
In most states, lost wage replacement and medical bill payment benefits usually last up to two years. That’s usually the right amount of time for victims to either fully recover or go on disability.
Most temporary disability victims receive two-thirds of their average weekly wage (AWW). Their forefathers gave up the other third in the early twentieth century Grand Bargain. In exchange, management funded a no-fault insurance system. So, injured workers aren’t made whole, from a financial standpoint. But, they don’t have to prove employer negligence. If the system works right, that’s a good deal for workers.
Unfortunately, the system usually doesn’t work right. Almost every year, the bureaucracy gets bigger, insurance companies meddle in it more, and benefits go down.
These same principles apply to medical bill payment. Injury recovery rates vary, but insurance adjusters usually don’t care. Instead, they use boilerplate charts to approve payments and only approve the cheapest available medical solutions.
Discharging Tax Debt in Bankruptcy
The point about workers’ comp benefits and bankruptcy brings up a related question, which is does bankruptcy take care of past-due taxes. So, we might as well address that question as well.
Generally, unsecured debts, like credit card bills, are dischargeable in bankruptcy. Secured debts, like home mortgage payments, aren’t dischargeable, if the debtor wants to keep the secured property.
Past-due taxes are in-between debts. Like student loans and past-due alimony, back taxes are priority unsecured debts. These obligations are only dischargeable in some situations. Usually, the debt must be at least three years old and the returns must have been on file for at least two years. Additionally, the taxing authority must not have assessed (fully calculated) the debt in the last 240 days.
If debtors can’t discharge debt in a Chapter 7, they can usually repay it in a Chapter 13. Only some people qualify for IRS repayment plans, which usually include penalties and interest. In contrast, almost everyone qualifies for Chapter 13. Additionally, it’s usually illegal for the IRS to add penalties and interest to the balance if the debtor files bankruptcy. The protected repayment period in a Chapter 13 lasts up to five years.
Can I Get Disability After a Workers’ Comp Settlement?
This issue is very common for recovering job injury victims who reach MMI but don’t qualify for long-term workers’ compensation disability. Maximum Medical Improvement, basically means the person’s post-injury physical condition is as good as it’s going to get, so there’s no point in continuing physical therapy. Insurance companies quickly pull the financial plug in these situations and argue in court that the victims aren’t “disabled” enough to receive long-term benefits.
SSDI after a Workers’ Comp Settlement
Workers’ compensation is no-fault insurance that covers job-related injuries and illnesses. Likewise, Social Security Disability Insurance pays no-fault benefits to qualifying individuals, regardless of the cause of their injuries or illnesses. These qualifications are:
- Sufficient Work Credits: These rules are quite complex and change every year. Generally, if the applicant has consistently worked at least part-time for about the past ten years, the applicant probably has enough work credits.
- Long-Term Disability: SSDI benefits are available if the applicant’s medical condition is terminal or is expected to last at least a year. Usually, the Social Security Administration requires annual examinations to determine if the applicant’s condition has improved and benefits should be terminated.
- Disabling Condition: Most MMI workers’ comp applications fail on this last point. Essentially, applicants must be unable to work because of their mental, physical, or other conditions. The SSA also considers an applicant’s ability to transition to another career, if any.
A collateral condition changes things. Assume Phil hurts his back at work, reaches MMI, but his back is still messed up. As a result, he becomes sedentary and gains weight. Obesity could be a qualifying SSDI condition.
Almost all states have exclusive remedy laws. Job injury victims cannot sue their employers in court for said injuries, no matter how negligent the employer was. However, job injury victims can sue third parties, like the manufacturer of a defective product, for their injuries, at least in most states.
To obtain disability compensation, these victims must normally prove a product defect, which could be a manufacturing or design defect, caused their injuries. Asbestos exposure is a good example.
Assume Alex’s boss sent him to demolish an old building without proper personal protection. Almost every structure built before 1980 contained asbestos. Alex inhaled a fiber and, several decades later, developed mesothelioma. Alex cannot sue his boss in court, because of the exclusive remedy law. However, Alex might be able to sue the company that manufactured the asbestos-laced materials.
If Alex’s third-party lawsuit is successful, his employer or insurance company is usually entitled to a subrogation lien. In plain English, that means the court must reduce his damages and repay the insurance carrier for the benefits it paid.