Employees injured in the workplace might be entitled to workers' compensation payments. These payments will help employees cover all their expenses, including medical treatment and wage replacement, while they are unable to work.
When employees experience injuries or illnesses due to their job, they may be entitled to compensation for medical care and wage replacement through insurance from their employer. This state-regulated insurance program is known as Workers’ Compensation (WC).
WC insurance provides medical care, indemnity (lost wages), and retraining and rehabilitation necessary to return to work. Family members of workers killed on the job may be eligible for benefits.
Structured settlements are often used to resolve workers’ compensation cases where an employee is permanently and totally disabled or disabled to the point that the employee cannot return to meaningful employment.
Congress has encouraged the use of these settlements though federal tax code since 1983. Internal Revenue Code (IRC) section 104 specifies the amount of each payment and the earning on payments are excluded from the settlement recipient’s income. The Taxpayer Relief Act of 1997 extended their use to handle physical injuries from the workplace.
These are also used to fund a WC Medicare Set-Aside (MSA), where a culpable party (the employer) is responsible for the cost of the primary medical treatment for a claimant and Medicare is the secondary payer. This can reduce the employer’s cost of settlement. The defendant can directly purchase these from insurance companies and this money can be used for an MSA.
The defendant can also provide money for the plaintiff, who can then purchase an immediate annuity, also known as an income or single premium immediate annuity (SPIA). This won’t have the same tax advantages, but will allow the plaintiff more freedom than other contracts.
No. Some plaintiffs will choose other options such as lump-sum cash settlements or trust funds to resolve their cases. If a structured settlement annuity is chosen, a settlement broker will help analyze the plaintiff’s needs to determine how the payments will be made.
Around one-third of injured persons choose this option over a cash lump sum, according to the National Structured Settlements Trade Association.
Those who do select workers’ compensation structured settlement plans and are Medicare beneficiaries should also have the Centers for Medicare and Medicaid Services (CMMS) review the settlement. A CMMS review will ensure your settlement accounts for Medicare-covered expenses. This is typically achieved by opening a Medicare Set Aside account.
Not only will a CMMS review and MSA make you compliant with Medicare laws, but it also ensures Medicare will cover your expenses if your medical condition changes unexpectedly and you no longer have enough funds in your MSA.
They are helpful for workers’ compensation cases as they can provide long-term needs for the plaintiff, expedite the court process so the defendant can close the claim, and protect the state from covering costs the employer owes.
By setting up a plan with periodic payments, the plaintiff is able to handle expenses if they are unable to work, costs of maintaining medical treatment, future surgeries and replacement of durable medical equipment. The plan can be structured around the plaintiff’s age and life expectancy.
The responsibility of future payments to the plaintiff falls on an independent third party. While the case is open, the details, including how much a claimant will be paid and how often the claimant will receive payments, are set out, then made permanent. The defendant can pay the third party up front, expediting the payment process and closing the case.
Finally, the state benefits because the plaintiff will less likely spend the entirety of an award from a WC claim, and then turn to Medicare or public assistance to cover treatment.
You may be able to sell some or all of the payments for your case. Some survivor benefits are also eligible for sale, as long as there is a period certain or guaranteed number of payments written into the settlement.
The laws regarding selling payments for workers compensation cases are complicated. Also, even if a state allows it, provisions in federal laws may prohibit it, depending on the nature of the settlement.
Determining whether or not you qualify will depend on the stipulations of your settlement, as well as the laws in your states. The federal Structured Settlement Protection Act of 2002 (SSPA) outlines strict rules for selling payments meant to protect the rights of settlement claimants. There are also state-specific laws that prevent selling certain payments.
It’s important you consider all financial implications of choosing to sell your payments, including any future financial needs you may have and how the sale could affect your taxes and eligibility for social security, government medical assistance and other benefits.
For cases where the law does not prohibit settlement claimants from selling their payments, a judge’s approval will still be required to proceed with the transfer. The judge must deem that selling payments are in a client’s best interest, and the client can afford treatment for medical problems resulting from the WC case. Other factors a judge may consider when hearing your case include living expenses, such as a mortgage, family milestones, such as funding a college education for children, and life expectancy.
The workers’ compensation board in individual states will often object to sales of structured settlements, and judges often rule in their favor.
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Factors that will determine the eligibility for your case:
Cases often are more eligible under these conditions:
These annuities offer tax advantages for plaintiff and defendant. The plaintiff benefits from federal and state income tax exemption for workers’ compensation payments, while the defendant is able to take advantage of full current deductibility of the lump sum and close the claim.