Workers Compensation Funding Loans Are High Risk Lending

A small but growing trend in personal injury liability cases is beginning to make an appearance in workers compensation claims, “lawsuit funding loans.” In a lawsuit funding loan, also known as “worker compensation funding”, a third party “lender” advances to the injured employee a non-recourse loan against their future settlement proceeds. 
 
 
Workers compensation funding loans are designed to provide the injured employee who is short on cash a quick lump-sum in exchange for the employee giving up a portion of their future settlement. The loan structure varies depending on the company providing the funding. With some funding companies, they loan 10% or 15% of the projected settlement, and charge interest at a high rate until they are repaid. Others provide the loan in exchange for a set percentage of the future settlement. (WCxKit)
 
 
The workers compensation funding companies look for claims where:
 

1.     the employee has received a disability rating, or the nature of the injury is such that the employee will definitely received a disability rating

2.      the entire settlement proceeds are paid to the employees attorney

3.      the state allows liens to be placed on the workers compensation settlement

 

 
Many people will wonder “why would the employee give up a substantial part of their future settlement for a relatively small loan, comparatively speaking?”   It goes back to human nature. In most states, the temporary total indemnity benefits are paid at 2/3 of the employees average weekly wage. For lower earning employees, two-thirds of their average weekly wage is less than they normally take home. If the employee does not alter their lifestyle and spending habits, they soon find themselves short of money, especially if they were living paycheck to paycheck before they got hurt.
 
 
Workers compensation funding companies, like payday lenders, prey on the employee who needs cash now. They will claim they are providing valuable assistance to the injured employee. Some of the workers compensation funding companies will not even call the money they are giving the employee a loan, they will refer to it as a “cash advance” or “pre-settlement funding." 
 
The workers compensation funding companies are in high risk lending, so they usually have some stringent guidelines to control who they will loan money to. Their guidelines will include:
 

1.      the injured employee must be represented by an attorney (so that the attorney will have control of the settlement funds and will honor their contact with the employee)

2.      they will only make loans in the states where the employee has the right to demand a cash settlement for their permanent partial disability or permanent total disability

3.      they will tell the employee that he/she does not have to pay the loan back if they do not receive a settlement (but they will absolutely not loan money on any claim of questionable compensability)

4.      reviewing all first report of injury, doctor reports, MRIs. CAT scans, surgical reports, x-ray reports, emergency room records and any other medical documentation available

 
 
The states where workers compensation funding companies are making loans include Alabama, Arizona, Arkansas, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Mexico, North Dakota, Rhode Island, South Carolina, South Dakota, Tennessee, Vermont and West Virginia. The workers compensation funding companies do not make loans in the states where the employee and the employee's attorney receive separate checks. Therefore, the workers compensation funding companies will make loans in Michigan and Oklahoma if the retainer agreement between the employee and the attorney specifies the entire settlement will be sent to the attorney, who will then in turn write the injured employee a check.
 
 
In most cases, the workers compensation funding company is unknown to the employer or the insurance company. It is a secret between the employee, the employees attorney and the loan company. The workers compensation funding companies will tell the employee that by taking advantage of their service, the employee is not financially pressured to settle their claim for less than it is worth.   However, like with the payday loan companies, the employee eventually will spend the entire loan amount, and will be back at the workers compensation funding company asking for another loan……ugh, cash advance. 
 
 
There are a couple of problems that can develop when an employee utilizes a workers compensation funding company. They are:
 

1.      The settlement value turns out to be lower than the funding company had originally anticipated. The attorneys fee plus the funding company loan and fees leave nothing or a small amount for the injured employee. This results in the injured employee refusing what would otherwise be a fair settlement from the insurance company.

2.      The employee's medical care takes longer than anticipated and the cash advance was in exchange for a percentage of the settlement. The funding company recognizes their return on their investment is being reduced and they began to pressure both the employee and the employees attorney to settle the claim.(WCxKit)

 

 
There is little employers can do about workers compensation funding loans. As the workers compensation funding company will tell the employee that the “cash advance” is none of the employers business, the employer will usually never know the employee has been taken advantage of by the funding company. When the employer does learn of the workers compensation funding loan, it is normally because the employee is in a position where he/she can no longer afford to settle the work comp claim for the claim's true value and the claim begins to vanquish.
 
 
Author Rebecca Shafer, JD, President of Amaxx Risks Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and website publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. See www.LowerWC.com for more information. Contact:RShafer@ReduceYourWorkersComp.com.
 
 
 
Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers comp issues.
 
©2011 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact Info@ReduceYourWorkersComp.com

Three Ways Indemnity Payments Are Delivered, or Not

The employee has presented the workers compensation claim and the medical provider has confirmed the employee cannot work. The work comp adjuster has properly investigated the claim and there is no known reason the employee is not entitled to temporary total disability benefits while he remains unable to return to work. In most states this means a weekly payment of indemnity benefits (a few states allow biweekly payment of benefits).

 

There are basically three ways for indemnity payments to be delivered from the work comp claims office to the employee. The most prevalent way is the computer issuance of a check each week that is sent by the U.S. Mail to the employee. With the advent of direct deposit for payroll and the electronic transfer of money from one account to another, direct deposit of the indemnity benefit has become common. The third method is the issuance of the check and the employee comes by either the employer’s location or the claim office where the check is handed to the employee. (WCxKit)

 

 

While there is a lot of debate about which of the three methods of delivering the indemnity payment is best, each of the three methods have their pros and cons. Let’s look further at each method.

 

 

The first and most prevalent method involves the computer generating a check each week that is stuffed into an envelope and mailed to the employee. The pros and cons are:

 

 

  1. In some computer systems, the adjuster has to approve the release of the indemnity check before the computer will generate it. This is a good thing as it makes the adjuster consider the status of the claim and why the employee is still off work.
  2. In other computer systems, the computer generates the check each week without any adjuster approval. This is not a good thing as the adjuster can easily lose track of the indemnity status of the claim when the adjuster has no weekly input or control over the issuance of the indemnity payment.
  3. A negative of mailing the check is the uncertainty of the delivery date, with postal holidays, inclement weather and human error causing delays in the employee receiving the indemnity payment.
  4. A positive to paying by U.S. Postal Service is that receiving checks that one is not entitled to is sometimes considered mail fraud and prosecutable. Employees who play this game regularly know that fact and are weery.

 

 

The second method, direct deposit of the indemnity payment each week into the employee’s checking account has:

 

  1. A major advantage in the reduction in the amount of money spent on printing, envelopes and postage.
  2. When there is no human involvement, the claims office saves time.
  3. A major disadvantage of no human involvement – it is a good way to lose connection with the employee.
  4. The employee receives the weekly check like clockwork, on the same day every week.

 

A MAJOR drawback of direct depost is the employee does not sign the Fraud Statement on the check endorsement line on the back of the check. In some states, there is a statement the employee must sign indicating they are aware that working while collecting workers compensation is fraud and is a criminal act. If you knew this, you are in the minority, as few people even know the fraud endorsement exists, yet is some states it is mandatory, others permitted. Last time I looked, RI was mandatory and NY was optional, and I haven’t reasearched others, but YOU should! If you don’t research this, you are missing a big opportunity to state your position and communicate that to the employees.

 

 

A third method of indemnity payment delivery that was common several decades ago and then went out of style is beginning to make a comeback. That is having the employees that are physically able to do so to come to either the claims office or the employer’s location and pick up the check. The pros and cons of this method are:

 

 

  1. The employer or adjuster gets to see the employee movement and physical appearance.
  2. The employer or adjuster has the opportunity on a weekly basis to converse with the employee, and discuss with the employee the progress the employee is making toward recovery. Druing this meeting, they can SHOW the employee potential transitional duty positions.
  3. If the employer has an aggressive return to work program with light duty or modified duty, it is often easier to get the employee back to work when they have to come to the employer’s location to pick up their indemnity check.
  4. For the employees who are physically unable to come in and pick up their check, the checks either have to be hand delivered or mailed. (WCxKit)
  5. This approach to delivering the indemnity check each month to each employee can be very time consuming when the claims office or employer has numerous employees out of work at the same time.

 

 

Employers often think the best approach to delivery of the indemnity disability check is to have the employee come in and pick it up, as it gives them the opportunity to gauge the ability of the employee to return to work.   Third party administrators and insurance claim offices tend to prefer either mailing the check or having the money direct deposited to the employee’s checking account as these two approaches saves them time. Employers, especially self-insured employers, should discuss the feasibility of hand delivery of the disability check with their claims office and make a determination as the method of disability check delivery that works best for them.


Author Rebecca Shafer
, JD, President of Amaxx Risks Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker and website publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing.  See www.LowerWC.com for more information. Contact:  RShafer@ReduceYourWorkersComp.com or 860-553-6604.

 

WC IQ TEST:  http://www.workerscompkit.com/intro/

WORK COMP CALCULATOR:   http://www.LowerWC.com/calculator.php

MODIFIED DUTY CALCULATOR:   http://www.LowerWC.com/transitional-duty-cost-calculator.php

 

WC GROUP:  http://www.linkedin.com/groups?homeNewMember=&gid=1922050/
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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers comp issues.


©2011 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact 
Info@ReduceYourWorkersComp.com

 

Understanding Indemnity Benefits (Lost Wages) in Workers Compensation

Approximately half of all the dollars spent on workers compensation claims are used to pay indemnity benefits. These are the benefits paid to an injured worker to replace part of the worker’s lost income. The indemnity benefits vary in name among the various workers compensation jurisdictions, but can be separated into two basic types — temporary benefits and permanent benefits
 
Temporary Benefits
Temporary benefits are further divided into two types — temporary total disability (TTD) and temporary partial disability (TPD) [with different names for the temporary indemnity benefits in different states]. TTD is paid to the injured employee when the employee is unable to return to work of any type while recovering from the injury. WCxKit When the employee is partially recovered from an injury, but not fully recovered, the medical provider may allow the employee to return to work part time. The employee is paid regular wages for the hours does worked and TPD is paid to the employee to cover the hours each day the employee is unable to work. 
 
Permanent Benefits
Permanent benefits are also divided into two types — permanent total disability (PTD) and permanent partial disability (PPD) [with different names for the permanent indemnity benefits in different states]. When the employee reaches maximum medical improvement, the medical provider evaluates the employee's ability to return to work. If the medical providers (the treating physician and an independent medical evaluator) both agree that the employee is unable to return to any type of employment, the employee is consider PTD and paid PTD benefits per the limitations in the state workers comp statutes. If the medical providers agree the employee has recovered enough to return to some type of employment but will always be partially disabled, the employee is classified as PPD and is paid PPD benefits per the state statutes.
 
Indemnity Benefits Calculation
The amount of the employee's indemnity benefit is based on the employee's prior pay history and the average weekly wage (AWW) earned by the employee. Most jurisdictions use two-thirds (66.67%) of the gross AWW as the amount to pay in indemnity benefits, but a few jurisdictions use 70% of the gross AWW. Also, a few jurisdictions use 75% or 80% of the employee's net wages after taxes to calculate indemnity benefits. WCxKit
 
The jurisdictions vary in the time frame used to calculate the AWW. Most jurisdictions use the previous 52 weeks as a time frame, but some states use the prior 13 weeks or the prior 26 weeks as the time frame. 
 
An example using the AWW to calculate the TTD: The employee made $52,000 in the 52 weeks prior to the injury causing the disability. The AWW would be $1,000 with the TTD rate being $666.67 (two-thirds X $1,000).
 
An employee's AWW in most jurisdictions includes all compensation, not just the wage or salary. The adjuster includes overtime pay, bonuses, commissions or any other form of compensation in determining the AWW.   Also, some jurisdictions include the value of benefits if the employer suspends paying for those benefits during the time the employee is off work.
 
The amount of TTD has an upper limit cap and a minimum amount. The jurisdictions vary in the dollar amount for the upper limit and the lower limit. A jurisdiction might by statute state the maximum amount of TTD is $800.00 per week and the minimum amount of TTD is  $100. 00 per week. An executive making $2,000.00 per week would not receive two thirds of his AWW of $2,000.00, or $1,333.34. The executive's TTD would be capped at $800.00 per week. A part-time fast food worker making $120.00 would not be limited two-thirds of his AWW, or $80.00. His TTD rate would be the state minimum rate of $100.00. WCxKit
 
When Paid
The states vary in their requirements as to when indemnity benefits are paid. Some states require the payment of weekly indemnity benefits while other states require the indemnity benefits to be paid every two weeks. Some states require the first indemnity check to be issued on the 15th day after the injury (if the compensability of the claim is not being disputed) and subsequent checks to be issued on the same day of each of the following weeks as long as the employee is unable to work. Other states allow the insurer to determine what day the initial indemnity benefit check will be issued, with subsequent checks following weekly or every other week.
 
Issuance of the Indemnity Check
At most insurance companies and third party administrators, after the adjuster determines the amount of the weekly or bi-weekly indemnity check, the actual issuance of the check becomes a clerical function. The clerical person enters the information into the company computer for the first indemnity check to be issued. Most claim management systems are now automated to the point that the computer system takes over issuing and printing the subsequent indemnity checks until the computer is told to stop.
 
Delivery of the Indemnity Check
The two primary ways the indemnity checks reach the employee is the U.S. Mail or through direct deposit into the employee's checking account.   Some insurance companies have started the practice of putting a fraud notice on the back of indemnity check which states the check is for the payment of disability benefits and anyone cashing the check who is not disable is committing an act of fraud. This is of value only if the indemnity benefits check is mailed to the employee, requiring their endorsement. It is of no value if the check is being direct deposited into the employee's checking account. WCxKit
 
In a recent audit of a large self-insured Midwestern university, a third way of delivering the indemnity check to the employee was used. Unless the employee was hospitalized, the employee was required to come to the claims office each week to pick up the check. This allowed the workers comp adjuster to make personal contact with the employee weekly and allowed the claims department to visually evaluate the employee's physical condition.  
 
Account Instructions
The client instructions for most self-insured programs are silent on the requirements for the TPA when it comes to issuing indemnity payments. If the employer has had any issues with the TPA over the payment of indemnity benefits, the client instructions should be amended to include directions on when and how indemnity benefits will be paid. (WCxKit)
 
For More Information
This brief synopsis does not cover all the information you may need to know about indemnity benefits. The websites of most state bureaus of workers compensation or industrial commissions will often have a discussion of indemnity benefits for their state. Another excellent source of information is the annual Analysis of Workers Compensation Laws guide published by the U.S. Chamber of Commerce. Of course, we are always glad to answer your questions about workers compensation. Please contact us for more information.
  \
Author Rebecca Shafer,
J.D. President, Amaxx Risks Solutions, Inc. has worked successfully for 20 years with many industries to reduce Workers’ Compensation costs, including airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing.  Contact: Info@ReduceYourWorkersComp.com 
  
 
WC Calculator:  http://www.LowerWC.com/calculator.php
TD Calculator:  http://www.LowerWC.com/transitional-duty-cost-calculator.php 

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers' comp issues.
  
©2010 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact
 Info@ReduceYourWorkersComp.com 

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