Reducing costs in your workers’ compensation program includes understanding the concept of offsets against workers’ compensation benefits. This is something that often does not occur. When it does, however, the result is program paying benefits that otherwise should not be paid. A review of your workers’ compensation program to identify and implement applicable offsets can result in immediate savings to your program.
Understanding the Concept of Benefit Offsets
The ability to offset workers’ compensation benefits against collateral sources has its origins in the belief that someone suffering a personal injury should not reap a windfall. In many jurisdictions, these same offsets are available under a workers’ compensation act for indemnity benefits an employee may be receiving from a government program. These benefits include:
- Social Security Disability (SSDI) benefits;
- Social Security Disability (SSDI)Reverse Offsets
- Prior Injury offsets;
- Retirement annuities from public employee organizations; and
- Various pension benefits received from a labor union health and welfare funds.
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Application of the Offset Process
Statute or case law often define allowable offsets. In some jurisdictions, the law explicitly prohibits these offsets. It is important to understand the law in your state before you seek to reduce the amount being paid in workers’ compensation indemnity benefits.
Social Security Disability Benefit Offsets
A seriously injured employee can collect both workers’ compensation benefits and Social Security Disability benefits (SSD) if the Social Security Disability requirements are met. To prevent employees from collecting excessive workers’ compensation benefits and SSD benefits, state laws define the maximum benefit wage the employee can receive. In most states, the amount of Social Security Disability is offset by the workers’ compensation indemnity paid.
Example: An injured employee is collecting permanent partial disability (PPD) at the rate of $300 per week, or $1,300 per month (four and one-third weeks). The employee applies for Social Security Disability (SSD) and is approved. Based on prior earnings, the employee is eligible to collect $1,500 per month from the Social Security Administration (SSA).
With the workers’ compensation offset, SSA pays the employee $200 per month ($1,500 SSD minus $1,300 PPD). When the employee’s PPD is exhausted, the SSD will revert back to $1,500/month.
Social Security Reverse Offsets
A few states have a reverse offset, allowing the workers’ compensation carrier to take a credit for the amount paid in SSD benefits. Be sure your adjuster knows if the state allows a reverse offset for workers’ compensation indemnity benefits paid to an employee who is also collecting SSD.
In the previous example, with a reverse offset, the carrier would pay no PPD, as the SSD is greater than the PPD.
Example – A reverse offset: An employee collects $1,300 a month in PPD and is approved for $1,000 per month in SSD. The employee is paid $300 per month ($1,300 minus $1,000) by the workers’ compensation carrier. When PPD is exhausted, the employee then collects a $1,000 in SSD per month.
Prior Injury Offsets
Another deduction sometimes overlooked is the pre-existing permanent partial disability rating the employee has from a prior injury, often at a different employer.
Example: The employee suffered a back injury fifteen years ago while working for another company. The back claim was settled with the prior workers’ compensation carrier, based on a 10% permanency rating.
A year ago, the same worker suffers a back injury while working for your company. The treating physician and the IME doctor both give the employee a 25% permanency rating, which includes the pre-existing condition.
Most states allow you to deduct the prior permanency. This allows the adjuster to settle the claim for the value of a 15% rating (25% minus the prior 10% rating).
Other Factors to Consider
There are various issues to consider when applying an offset against applicable benefits. It is important to consider the rules and requirements when seeking to take advantage of this compensation structure. Important considerations include:
- Offsets are often only allowed to be taken for the actual amounts an employee or their dependents receive and not the amounts they may be entitled to receive. This situation is common when an employee voluntarily decides to receive a reduced collateral benefit.
- Employers and insurers can often offset the amount the employee was receiving prior to the work injury. The rationale for this is rooted in the understanding an employee’s earning capacity changes following an injury. This change in income impacts their collateral benefits.
- Benefits can be recategorized in order to achieve the offset threshold amount. This often occurs when temporary total disability benefits are recategorized to permanent total disability benefits. Most jurisdictions that allow this find it permissible to do this on a retroactive basis.
Conclusions
It is common for workers’ compensation programs to overlook collateral source offsets. This is a costly error that can easily be corrected and result in immediate savings to many programs.
Author Michael Stack, CEO Amaxx LLC. He is an expert in workers compensation cost containment systems and helps employers reduce their work comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is founder & lead trainer of Amaxx Workers’ Comp Training Center. .
Contact: mstack@reduceyourworkerscomp.com.
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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.
