There are two main categories of settlements under Iowa workers’ compensation law. The first type are called open file settlements.
In an open file settlement the injured worker and the defendants agree that the injury arose out of and in the course of employment; and the parties also agree to the extent of damages the worker is entitled to receive. As part of an open file settlement the injured worker receives the right to lifetime medical benefits for the work injury, and the worker also has the right to bring what is called a review-reopening action to obtain more money if his injury worsens within three years of the open file settlement.
The other main category of settlements are called closed file settlements. In a closed file settlement the two sides agree that the injured worker will be paid a stipulated amount of money. The crucial difference between a closed file settlement and an open file settlement is that in the closed file settlement the worker gives up both his right to any future medical care for the work injury and his right to bring a review-reopening action if the injury gets worse.
Iowa law also allows for a hybrid of an open file settlement and a closed file settlement. The parties can agree that the injured worker will receive cash up front and retain his future medical care rights; but give up his right to a future review-reopening.
An important element of Iowa work comp law is that even though the two sides may be able to agree on settlement terms, the settlement is not binding until it is approved by the Iowa Workers’ Compensation Commissioner. The parties are required to submit documentation to the Commissioner that shows that the proposed settlement is reasonable.Partial Commutations
A partial commutation is a type of open file settlement that pays the injured worker a single large lump sum of money rather than a stream of smaller weekly payments. At the same time a partial commutation also allows the worker to receive lifetime medical care for his work injury.
Partial commutations are usually used after a worker has settled his claim or won a large award at trial. For example, a worker who is entitled to receive 400 weekly checks for $1,000.00, could use the partial commutation procedure to receive the present value of those payments in a single lump sum. Under the discount rate used by the Workers’ Compensation Commissioner on September 22, 2014 those 400 future weekly payments of $1,000.00 could be converted to allow the worker to receive an immediate lump sum payment of $369,156.72.
The present value discount rate is constantly shifting and has to be reviewed in every case.
In some situations the parties can agree to a partial commutation. However, in other cases the worker may desire to receive a partial commutation, but the insurance carrier and employer do not want to pay out a lump sum.
In a contested partial commutation the Workers’ Compensation Commissioner has to decide whether it is in the best interest of the worker to receive his money in a lump sum or through weekly payments. The preference of the defendants is not considered unless they can show that paying a lump sum would be a financial hardship.
The factors that the Workers’ Compensation Commissioner looks at in deciding whether or not to approve a contested partial commutation are:
- The worker’s age, education, mental and physical condition, and actual life expectancy.
- The worker’s family circumstances, living arrangements, and responsibilities to dependents.
- The worker’s financial condition, including all sources of income, debts, and living expenses.
- The reasonableness of the worker’s plan for investing the lump sum proceeds and the worker’s ability to manage invested funds or arrange for management by others.
The Workers’ Compensation Commissioner will frequently not approve a proposed partial commutation if the evidence shows that the injured worker is likely to squander a lump sum payment. However, lump sum payment will usually be approved for injured workers who have shown themselves to be good money managers in the past.
The reason that some injured workers request a partial commutation is that they are older or ill, and are worried that they might not live long enough to receive all of their weekly benefits. This becomes important because if a worker dies before all of the weekly benefits of an award or settlement are paid out, the weekly payments are not given to the survivors, but simply stop. Therefore, a partial commutation can allow an older worker or ill worker to make sure that they and their family receive the complete value of the work comp settlement or award.Increasing Iowa Work Comp Settlements if the Injury Gets Worse
One of the differences between an open file settlement and a closed file settlement discussed above is whether or not the worker retains his right to bring what is called a review-reopening action to obtain additional compensation if their work injury gets worse. Under Iowa law if a worker’s injury gets worse within three years of the last payment of benefits, the worker can bring a review-reopening action to obtain additional money from the work comp insurance company. This right to pursue a review-reopening action occurs when a worker has settled his case on an open file basis, or when the worker has received an award following trial.
The worker can show that his condition has worsened in several different ways. For a scheduled injury the worker needs to show that the physical impairment has actually increased.
For an unscheduled or “loss of earning capacity” type of injury the worker has the option of either showing that the physical impairment has increased, or that the injured worker’s ability to earn money has been further damaged because of the increasing severity of the injury.
A review-reopening action is not an opportunity to refight the adequacy of the previous settlement or award. Whatever benefits were originally obtained will be treated as the starting point, and the issue is whether the injured worker’s condition has gotten worse compared to the original settlement or award.Settlements Involving Social Security Disability
Workers with very severe work comp injuries sometimes also qualify for Social Security Disability.
However, there are Social Security Disability rules which generally limit the maximum combined amount that a worker can receive of both Social Security Disability benefits and workers’ compensation benefits. The rule is that if the total amount of the Social Security benefits and workers’ compensation benefits exceed 80% of the injured worker’s “average current earnings,” then the Social Security disability benefits will be reduced to bring the total pay outs down to this 80% level.
An injured worker’s “average current earnings” is the highest of his average monthly earnings during the highest five years in a row, or the average monthly earnings based on the single year of highest earnings within five years of the disability.
Following is an example of how this Social Security Disability offset can hurt a worker, and how the problem can be addressed through a “Work Comp—SSD” settlement. Let’s assume that an injured worker had a good job and his “average current earnings” worked out to be $5,000.00 per month.
The first step is to calculate that 80% of $5,000.00 equals $4,000.00. Therefore, the injured worker can only receive a total of $4,000.00 of work comp benefits and Social Security disability benefits without a reduction of his Social Security disability benefits. If the combined total ends up being greater than $4,000.00 per month, then the Social Security disability benefits will be reduced to bring the total of the work comp and Social Security disability payments to $4,000.00.
By way of further example, the injured worker has a work comp rate of $800.00 per week which works out to $3,466.66 of work comp benefits on a monthly basis.
Meanwhile, the injured worker’s monthly Social Security disability payment is $2,000.00 per month. Therefore, the total of the monthly Social Security disability and the monthly workers’ compensation benefits is $5,466.66.
Because the total of the workers’ compensation payments and Social Security Disability payments are $5,466.66 per month, the Social Security Disability will be reduced so that the total of the two types of payments is only $4,000.00. This means that the Social Security Disability payment will be reduced from $2,000.00 per month to $533.34 per month.
It is possible in Iowa work comp cases to work out a settlement that will allow the injured worker to receive a lump sum payment representing the present value their future workers’ compensation benefits, and at the same time receive the maximum amount of their Social Security Disability benefits with no offset or reduction.
Continuing with our example, we will assume that the injured worker was 55 years old and had received a permanent total disability award which entitled him to receive weekly benefits for the rest of his life. Under the Iowa Workers’ Compensation Life Expectancy Table a 55 year old worker would be expected to live another 1,357 weeks or 26.1 years.
The worker’s life expectancy of 1,357 weeks at his worker’s compensation rate of $800.00 would result in total payments of $1,085,600. However, those payments would be made weekly over the course of 26.1 years. By using the “Work Comp-SSD” settlement option and the partial commutation formula discussed above, the injured worker could convert his 1,357 weeks of future payments into an immediate lump sum payment of $834,658.56.
The “Work Comp-SSD” settlement also then allows the worker to receive his full Social Security Disability payment of $2,000.00 per month.
Negotiating and drafting settlements in these types of cases is very detailed and very fact specific, and needs to be handled very carefully.Using Medicare Set Asides in Settlements
Another issue that can come up in serious work injury cases is that the injured worker either qualifies for Medicare before the case is resolved, or will likely qualify for Medicare in the future. In such situations the injured worker and employer can sometimes agree to close out the future medical benefits, but they are required by Medicare to set aside money (this is where the term “Medicare Set Aside” comes from) to make sure that the worker’s future medical expenses relating to the work injury are paid for by the Defendants and not by the Medicare system. A Medicare Set Aside basically requires the work comp insurance company to pay the injured worker a sum of money to be used to pay for all future medical care rather than paying for each medical expense as it arises.
There are two main situations in which an injured worker settling his work comp case and giving up his right to future medical care definitely needs to have a Medicare Set Aside as part of the settlement:
- If an injured worker is already Medicare eligible, and the total settlement value is greater than $25,000.00.
- If there is a reasonable expectation that the injured worker will be eligible for Medicare within 30 months of date of settlement; and the total settlement value exceeds $250,000.00.
The rules for setting up Medicare Set Aside are extremely complex. However, if the Medicare Set Aside is done properly then the injured worker does not have to worry about future medical expenses. As long as Medicare approves the Medicare Set Aside, if it turns out later that there is not enough money in the Medicare Set Aside, then Medicare will cover the future medical care expenses.Getting the Best Possible Settlement
The key to getting the best possible settlement in Iowa workers’ compensation cases is to prepare the case to go to trial and win. Our lawyers take this approach in every case. In the Benefits of Hiring our Lawyers section of our website there is a summary of what our lawyers do in order to obtain the best possible results for our clients through either a settlement or trial.
Call or email us now with any questions you have about work comp settlements or other issues involving Iowa workers’ compensation law.