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Workers’ Compensation and Medicare

The rule in New York is that an injured employee cannot sue his employer for negligence but is relegated to obtain workers’ compensation benefits for job related injuries. Historically, Workers’ Compensation was available to give injured workers medical and wage coverage in lieu of filing a lawsuit. What was meant as progressive legislation has turned into a nightmare for injured workers. Nevertheless, workers’ compensation must be kept in mind as it affects an inured worker’s lawsuit against a third-party. Let’s look at a typical case.

Peter Employee is injured when a defective machine used at his job crushes his hand. He works for XYZ Company which has workers’ compensation insurance for its employees. Peter applies for and begins to receive workers’ compensation benefits. His weekly salary was $1000.00 per week, but the workers compensation coverage only pays a maximum of $400.00 per week. His medical expenses are paid for by the workers compensation carrier as well.

Peter Employee cannot sue XYZ Company, because he is their employee, however, he does start a suit against Big Bad Manufacturing Corp. They manufactured the defective machine that caused his injury. Over the years the workers’ compensation insurance company paid to Peter wages of $93,000.00 and medical expenses of $150,000.00 totaling $243,000.00. In addition, Peter applies for and receives Social Security Disability payments from the Federal Government

Peter’s lawsuit against Big Bad Manufacturing Corp results in a settlement offer of $1,135,000.00. However, before the offer can be accepted, Peter’s lawyer must obtain permission from the workers’ compensation insurance carrier because they will want to be paid back out of Peter’s portion of the proceeds of the settlement.

Under New York State law, Peter’s settlement will be reduced by the attorney’s out of pocket expenses during the litigation, let’s say $15,000.00. That results in a net settlement of $1,120,000.00. Counsel fees are 1/3 of the net settlement or $373,333.00. Peter’s portion of the proposed settlement is $746,666.00. Peter’s portion must then be reduced by the workers’ compensation lien.

New York State law allows the lawyer for Peter to negotiate with the workers’ compensation insurance company to compromise or reduce the lien. Usually by 1/3 (here 1/3 of $243,000.00 is $81,000.) Therefore, Peter must pay back $162,000.00 to the workers’ compensation insurance company. Thus, Peter ends up with $584,666.00.

New York State law further provides that the workers’ compensation insurance company does not have to pay any further wages or medical bills until the entire sum that Peter nets from the settlement is used up to pay for wages and medical expenses. Peter must keep accurate records giving himself credit for lost wages at the worker’s compensation rate of $400.00 per week and for all medical expenses. Once these funds are used up he can go back to workers’ compensation and their payment will begin again. It is as if workers’ compensation is on a holiday during this period of time.

Now, here is where it get really complicated. Under New York State law, the workers’ compensation insurance company can offer to pay Peter an amount for all of its potential future exposure and completely remove itself from the case. This is called a “Section 32” (of the Workers’ Compensation Law of the State of NY) buy out. The insurance company keeps careful statistics on life expectancy and can make a good guess as to how much to pay Peter to avoid having to be on tap for the remainder of his life. They are not in business to pay out money that they don’t have to, so Peter can be assured that any payment that they offer him will be substantially less then he would be entitled to if they stayed on the case until he dies.

If Peter accepts the payout, then all workers’ compensation benefits are terminated. Now, if you remember, early on we learned that Peter was eligible for Social Security Disability (SSD) benefits. A component of SSD is Medicare. Recently Medicare has set up a program where by they insist that if there is a settlement of a third-party suit and if workers’ compensation has been terminated (not simply on holiday) then Peter will be required to spend down a certain portion of his settlement before Medicare pays one dollar towards medical benefits as a result of the injuries that the settlement is based upon. Under these circumstances, Peter is required to set up a Medicare Set Aside Trust (MSA). This trust will be funded by part of the proceeds of the settlement and Peter will be required to spend for his medical costs related to the injury out of this trust before Medicare kicks in and picks up the medical bills.

MSA trusts are prepared by special law firms that your attorney has access to. They are able to assess the past medical benefits paid out of worker’s compensation and then project, based upon computer projections, the future medical expenses likely to be needed. The trust must then be approved by CMS the company that Medicare uses to administer their program.

Let’s assume that Peter’s MSA trust is properly funded and the annual medical costs related to his accident are anticipated to be $5,000.00. If in any year those costs exceed $5,000.00 then, if the MSA trust has the prior approval of CMS, Medicare will pick up the balance of the medical costs for that year. Please remember that this Trust is only for injuries related to the accident which formed the basis of the lawsuit which was settled. Any other medical expenses not related to the lawsuit will be paid for by Medicare.

As you can see, the complications to a settlement from workers’ compensation and Medicare are extremely complex and are getting harder every day. You cannot do this on your own and need competent legal help to get through the maze of regulations, contracts and agreements.

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