How to settle a workers compensation claim
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MMI and Impairment Rating
While a workers' comp case is open, an injured worker gets medical treatment, prescription medications and, in some cases, physical therapy, while the insurance carrier covers the bills. At some point, the worker reaches maximum medical improvement, or MMI, meaning his treating physician expects that his condition will not improve further. It's typical for an injured worker to seek a settlement of the case at MMI, when the doctor also assigns a disability or impairment rating on a scale of 0 to 100.
Basic Calculation of a Workers' Comp Settlement
In a workers' comp settlement, the insurance company agrees to pay the injured worker a lump sum, or a monthly benefit, in exchange for a waiver of future claims for treatment. The settlement amount is calculated using a mathematical formula, taking into account the worker's average weekly wage, her age and her impairment rating. A simple example would be to multiply a weekly wage of $400 by a life expectancy of 20 years, discounted by
an impairment rating of 10 percent. The result would be $416,000 times 10 percent or $41,600.
Multipliers and Discounts
State law may set guidelines for workers' comp settlements. These may include multipliers for injuries that prevent the worker from engaging in his customary work or for especially serious conditions such as blindness or the loss of a limb. In addition, workers' comp settlements include a discount for lump-sum payments. A discount takes into account that money paid up front is worth more than money paid over time. This "present-value" discount means that after they are calculated by formula, lump-sum settlement amounts are reduced by a slight percentage, usually less than 10 percent. Some states set the present-value discount by law. In the first quarter of 2015, for example, Texas set its present-value discount at 3.73 percent.
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