Permanent total disability claims in Wisconsin are not
infrequent. Attorneys on both sides of the case
and claims adjusters are required to calculate the
potential value or risk exposure whenever the facts
justify such a claim. The process of placing a
dollar value on the amount which the injured worker is
likely to recover is often cumbersome, time consuming
and fraught with error. While it is not difficult
to state the formula, all of the factors that must be
plugged into the formula are not definite.
Predictions must be made about certain criteria.
If the claim is adjudicated, only the accrued amounts
can be known with certainty. Unaccrued future
benefits must be predicted, and cannot be known for sure
until the passage of time. The best estimate that
can be accomplished is usually the calculation of a
probability range within which the payout will fall.
The purpose of this essay is to establish a framework
for assessing the value of permanent total disability
claims. The methodology should be equally useful
for advocates on either side of the issue.
Permanent total disability indemnity benefits are
payable at the same rate as temporary total disability
benefits, two-thirds of the average weekly wage at the
time of the injury, Wis. Stat. § 102.43(1), subject to
the state’s periodically adjusted maximum wage and
benefit rates. See Maximum Wage and Rate Chart,
form
WKC-9572-P.
A permanent total disability award also entitles the
injured worker to medical expenses related to the
industrial injury. Permanent total disability indemnity
benefits last “for the period that the employee may
live.” Wis. Stat. § 102.44(2). Because the
employer’s duty to pay medical expenses continues “as
may be reasonably required to cure and relieve from the
effects of the injury,” Wis. Stat. § 102.42(1), medical
expenses related to the injury must also be paid for
life.
The calculation of worker’s compensation benefits
becomes more complicated if the worker is also entitled
to or already receiving social security disability
benefits. Federal law requires a social security offset
when, prior to age 65, the combined social security
disability benefits and worker’s compensation benefits
exceed 80% of the average current earnings. 42 U.S.C. §
424a(5). As the United States Supreme Court has
explained, "by limiting total state and federal benefits
to 80% of the employee's average earnings [as defined in
42 U.S.C. § 424a] prior to the disability, [§ 224 of the
Act] reduce[s] the duplication inherent in the programs
and at the same time allow[s] a supplement to workmen's
compensation where the state payments [are] inadequate."
Richardson v. Belcher, 404 U.S. 78, 83 (1971). See also
SSR 97-3; SSA Publication No. 05-10018. The
publication is available online
here.
When the state enacts a law to reduce its worker’s
compensation benefits upon the claimant’s receipt of
social security disability, the federal social security
administration will discontinue the offset of social
security benefits, allowing the state to employ its
offset of worker’s compensation benefits instead.
The state’s offset is referred to as a “reverse offset.”
42 U.S.C. §424a(d); 20 C.F.R. § 404.408.
Wisconsin uses the reverse offset approach. Wis. Stat. §
102.44(5) provides that when social security disability
benefits are paid contemporaneously with worker’s
compensation benefits, the worker’s compensation
benefits may be offset. Here is the language of
the statute:
For each
dollar that the total monthly benefits payable under
this chapter, excluding attorney fees and costs, plus
the monthly benefits payable under the social security
act for disability exceed 80% of the employee’s average
current earnings as determined by the social security
administration, the benefits payable under this chapter
shall be reduced by the same amount so that the total
benefits payable shall not exceed 80% of the employee’s
average current earnings. Emphasis
supplied.
A key provision of the quoted statute is the phrase,
“excluding attorney fees and costs.” The
significance of this phrase is the fact that the portion
of worker’s compensation benefits that is paid or
payable to the applicant’s attorney for attorney fees or
costs is not included in the worker’s compensation
benefits that are subject to offset. Attorney fees and
costs are payable by the employer and insurer in
addition to the worker’s compensation benefits that,
when added to social security benefits, bring the
combined benefits up to a total of no more than 80% of
average current earnings, as adjusted. If the
combination of attorney fees and offset PTD benefits,
when added to the social security benefits exceeds 80%
of the average current earnings, the PTD benefits will
not be offset at all.
Attorney fees are capped by statute at no greater than
20% of the award, Wis. Stat. § 102.26. In the case of
permanent disability, attorney fees are not allowed on
compensation awards due beyond 500 weeks. Wis. Adm.
Code, ch. DWD § 80.43(3).
The 500
week limitation on attorney fees begins running on the
date of the healing plateau.
Because fees and costs are not considered when the
offset is calculated, and because fees and costs stop
after 500 weeks, additional steps in the calculation
process are required before the total value of the claim
can be determined.
When the possibility of a reverse offset exists, either
the worker’s representative or the employer’s
representative may write to the social security
administration for the completion of a Social Security
Information Request worksheet. See form WKC-6156,
available
here.
The form
shows the information below:
(a) The status of the disability claim;
(b) 80% of the monthly average current earnings;
(c) The disability monthly benefit amount at
entitlement;
(d) The month and year of entitlement; and
(e) The month and year of last disability check if
terminate.
Upon completion of the social security benefit
worksheet, either side may request that the Department
of Workforce Development, Worker’s Compensation
Division, complete a Reverse Offset Worksheet. See form
WKC-6119, which is available online
here.
The form
shows the information below:
(a)
The initial 80% of average current earnings;
(b)
The triennial redetermination index;
(c)
The re-determined 80% of average current earnings;
(d)
The weekly worker’s compensation benefit before offset;
(e)
A line for the higher of item (c) or (d);
(f)
The initial monthly benefit amount times 12/52;
(g)
The weekly balance to the employee, which is item (e)
minus (f); and
(h)
The entitlement date.
In order to
arrive at an accurate total of accrued worker’s
compensation benefits, the social security reverse
offset calculation must be made from the date of the
onset of social security disability benefit payments,
during each time period of the worker’s receipt of
worker’s compensation benefits. A separate
calculation must be made to compare and offset, if
necessary, the two types of benefits during each time
period when both are paid or payable.
As a protection against inflation, Congress enacted a
provision that allowed, on a triennial basis,
redetermination of the average current earnings for
those workers that had a workers' compensation offset.
42 U.S.C. § 424a(f). Fortunately for workers, the
triennial social security cost of living increases
eventually raise the average current earnings rate
against which the 80% cap is compared, so that
eventually there is no reverse offset. However, in
order to calculate accurately the unaccrued worker’s
compensation benefits that are due, the reverse offset
comparison must be brought forward indefinitely, until
the reverse offset no longer applies. The
Triennial Re-determination Ratio chart is
here.
For each three-year time period into the past, a set
redetermination ratio applies. The redetermination
figure, or index figure is set forth in the table, and
the social security figure is calculable. For time
periods into the future, a guess must be made of the
redetermination ratio, if future worker’s compensation
benefits are sought to be calculated.
For persons seeking to calculate the exact amount of
benefits due in the past or in the future, the
calculation requires a consideration of various time
periods between the date of injury and the date of the
calculation. In the typical worker’s compensation
case, there are several different time periods to take
into account:
TIME PERIOD
I – PRIOR TO THE HEALING PLATEAU
For periods of time during which temporary total
disability benefits are payable prior to the time when
the worker reaches the healing plateau, the rate is
two-thirds of the average weekly wage, unless there is a
renewed period of disability commencing more than two
years after the date of injury, and the employee had
returned to work for at least ten days before the new
period started, pursuant to Wis. Stat. § 102.43(7)(a).
TIME PERIOD
II – PPD PRIOR TO PTD
For periods of time during which permanent partial
disability benefits are payable or were paid after the
date of the healing plateau, the lower permanent partial
disability rate applies. There may have to be a
credit against permanent total disability benefits due
if permanent partial disability benefits were paid.
TIME PERIOD
III – RETRAINING BENEFITS
For periods of time during which retraining benefits are
payable, the rate is the same as the rate used during
temporary total disability, unless retraining commences
more than two years following the date of injury, in
which case the rate is enhanced as if the date of injury
were the date that retraining commences, pursuant to
Wis. Stat. § 102.43(7)(b).
TIME PERIOD
IV – PTD PRIOR TO SSD
For
periods of time during which permanent total disability
benefits are payable, prior to the effective date of any
social security reverse offset, the full TTD/PPD rate
applies.
TIME PERIOD
V – PTD DURING FIRST SSD OFFSET PERIOD
For periods of time during which permanent total
disability benefits are payable, after the effective
date of a social security reverse offset, one must
perform the calculations separately:
(a) if no attorney fees or
costs are applicable; or
(b) if attorney fees or
costs (to be excluded from worker’s compensation
benefits) are applicable.
TIME
PERIODS VI AND FOLLOWING – PTD DURING SUBSEQUENT SSD
REVERSE OFFSET PERIODS
For periods of time during which permanent total
disability benefits are payable after each successive
triennial redetermination ration change, one must
perform the calculations separately:
(a)
if no attorney fees or costs are applicable; or
(b) if attorney fees or costs (to
be excluded from worker’s compensation benefits) are
applicable, but only for 500 weeks following the healing
plateau.
LAST TIME
PERIOD – PTD SUBSEQUENT TO LAST SSD REVERSE OFFSET
PERIOD
For periods of permanent total disability subsequent to
the last social security reverse offset period,
permanent total disability benefits are payable at the
full rate.
There is a significant amount of data entry required to
make all the necessary calculations. For each of
the potential time period shown above, data must be
inserted for:
·
the amount of the weekly worker’s compensation payment;
·
the number of weeks during which that rate applies;
·
the annual discount rate to be employed (a constant rate
for each time period);
·
the corresponding weekly interest rate (annual rate
divided by 52); and
·
the present value of the benefit for each separate
period.
The final complicating twist in the process is the
calculation of the present value of future worker’s
compensation benefits, for each successive time period
during which the amount of benefits is different from a
prior period. The present value of an annuity,
payable over time, cannot easily be calculated
arithmetically, as can the present value of a future
sum. Rather, the present value of a stream of payments
must be calculated by dividing each payment by 1 plus
the discount rate, raised to the power of the number of
periods involved. The general form
of the formula is:
PV0
|
|
=
[PMT/(1+r)1] + [PMT/(1+r)2] + ...+ [PMT(1+r)n]
|
|
|
=
PMT[1/(1+r)1 + 1/(1+r)2 +...+ 1/(1+r)n]
|
Simply put,
PV0 = PMT/(1+r)n
The denominator [(1+r)n] is called the present value
interest factor for the annuity. Because of the
complexity of this calculation, it is generally done on
a financial calculator or computer. If the
discount rate and periods match, the calculation can be
found in a present value table.
Because future permanent total disability benefit rates
change potentially every three years when a social
security offset applies, due to the triennial
redetermination ratio changes, one cannot accurately
calculate the present value of the benefits that do not
start in year one by using the above present value
formula. Instead, one must first calculate the future
value of the income stream that begins at a future date,
and then reduce that sum to present value.
The present value of a periodic payment of a certain sum
beginning at a future date (say three years from now)
and ending at a future date (say six years from now) is
not representative of its value today. That
present value is actually the value of the particular
stream of payments at that particular moment in the
future (three years from now). To determine what
it is worth today, one must draw that present value back
to now. This requires the analyst to
recharacterize that present value figure as a “future
value”, and then calculate what is the net present value
of that “future value” using the same discount rate
(i.e., the actual present value, in today’s terms, of
the figure just determined to be the value of the future
payment stream, as of three years from now).
The formula
for future value is as follows:
FVn
=
PV0(1+r)n
The formula
for present value of a lump sum in the future is as
follows:
PV0
=
FVn/(1+r)n
The
calculations should be done a financial calculator or
computer in Excel.
An Excel
spreadsheet is supplied with this paper
here.