Sometimes, a workers’ compensation claim can involve appeals, settlement negotiations, and a lot of time. When you have finally resolved your claim, either by receiving an award of benefits or a settlement, you may have to pay your lawyer, doctors, and government agencies. It is important to understand what amounts will be deducted from your settlement or award—and how much you will get to keep—before resolving your workers’ comp claim.
In most states, workers’ compensation attorneys are paid on a contingent basis. When you receive a workers’ comp award or you settle your claim, the lawyer will receive a percentage of your financial recovery. Every state places a limit on contingency fees in workers’ comp cases. The percentage varies from state to state but is usually between 10 and 25 percent. (To learn more, see our article on how much a lawyer can charge in a workers’ comp case.)
The lawyer’s fee must follow the state’s guidelines. In some states, the lawyer may take a percentage of your total award. If you receive an award of $50,000, for example, lawyer would receive 20 percent of the total award, or $10,000. Other states only allow attorneys’ fees on unpaid benefits that are owed at the time of the award, not on future benefits. For example, if you have $10,000 in unpaid benefits at the time of the award, the lawyer’s 20 percent fee is $2,000—even if you are also awarded lifetime benefits.
The lawyer’s costs must also be reimbursed. Costs typically include the price of copying medical records, hiring expert witnesses (such as doctors), and hiring court reporters to transcribe depositions. In many cases, workers’ comp lawyers will advance these costs and deduct them from your award or settlement. Typically, the lawyer will then deduct these costs before attorneys’ fees are calculated. For example, suppose you settle your claim for $50,000 and the lawyer has $2,000 in costs. The lawyer’s 20% fee will be $9,600 (20 percent of $48,000). However, some lawyers will take 20% of the total award, before costs. Be sure to check your fee agreement with your lawyer.
If your workers’ comp claim was denied and you win on appeal, the judge may order the insurance company to pay your medical bills. This will be an extra item in your workers’ compensation award. If you paid your own medical bills, you will be reimbursed for those payments. If your doctors agreed to postpone payment until you received a workers’ comp award (this is called a “doctor’s lien”), the money will go towards paying your doctors’ bills.
Sometimes, a workers’ comp lawyer will negotiate a settlement that includes payment of specific unpaid bills—which the insurance company will pay directly. However, more often, the insurance company will pay a lump sum and let you and your lawyer sort out your medical bills. Your workers’ comp lawyer will usually withhold a portion of your settlement to resolve these unpaid bills. In some cases, lawyers can negotiate your medical bills down so you can keep a larger portion of your settlement.
If you are eligible for Medicare, you must take its financial interests into account before you settle the medical portion of your workers’ comp claim. First, you must repay any “conditional payments”—payments Medicare made for treatment for your work injury during your appeal. Second, you may need to set aside part of your settlement to protect Medicare’s financial interests. A Medicare Set-Aside Account (MSA) is used to pay for medical treatment for your work injury after you settle the medical portion of your workers’ comp claim. You cannot use MSA funds to pay for treatment that is unrelated to your injury. Once your MSA has been depleted, Medicare will start paying your bills for treatment related to your injury.
Before you settle your workers’ comp case, you will need to get Medicare’s prior approval of your MSA amount if:
If your settlement is under the thresholds listed above, you will still need an MSA, but you don’t need to get Medicare’s prior approval of the amount. If you fail to set up an MSA, Medicare may decide that your entire settlement was for future medical costs and refuse to pay your medical bills until you prove your entire settlement was spent on medical treatment.
The MSA approval process involves a large amount of information. If you need an MSA, it may be in your best interest to work with an experienced workers’ comp lawyer. A lawyer can guide you through the approval process and help you get a fair MSA value.
When you have an MSA, you must put its funds in a separate, interest-bearing account. You also must follow specific rules about recordkeeping and fund administration. If you use MSA funds for anything other than medical bills related to your work injury, Medicare may refuse to cover your work-related medical bills after the MSA is depleted. A workers’ comp lawyer also can educate you about how to properly manage your MSA.
Similarly, if you have Medicaid, you must reimburse it for work-related medical bills it conditionally paid while your workers’ comp claim was on appeal. Before you settle your workers’ compensation claim, you must contact your Medicaid insurer to determine how much it paid for your medical treatment. If you have a workers’ comp lawyer, he or she will do this for you.
In some states, you may receive permanent disability payments before your workers’ claim is settled. For example, in California, the insurance company must start making permanent disability payments within 14 days of the last payment of temporary disability, unless there is reasonable doubt as to whether the worker has a permanent disability. If you receive permanent disability advances, they will be deducted from your ultimate settlement or award.
If you have unpaid child support, the state may be able to take a portion of your workers’ comp award or settlement. Some states limit the amount of child support that can be deducted from your settlement or award, while others do not. (Depending on where you live, your entire settlement or award could be taken to pay past-due child support.) If you are paid ongoing weekly disability benefits, the state can also deduct child support from these payments. (For more information, see our page on child support collection.)
You do not have to pay state or federal taxes on your workers’ compensation settlement or award. However, the IRS may consider your settlement or award as income for purposes of determining tax credit eligibility.
The one exception to this rule is for workers who are also receiving Social Security Disability Insurance (SSDI) payments. A workers’ comp award or settlement can reduce the amount a worker receives in SSDI. The reduction, called an “offset,” is taxable (even though the money is technically coming from the workers’ comp award). For more information, see our article on taxes and workers’ compensation.
If you have questions about a settlement or award, consider speaking with a workers’ comp lawyer. It can be difficult for an unrepresented worker to comply with state and federal laws requirements—particularly the Medicare and Medicaid rules. A lawyer can help you negotiate a fair settlement and ensure that it is distributed properly.