Workers’ Compensation Settlements

A settlement in workers’ compensation is based on two main components:

(1) the permanent disability percentage and

(2) an estimate of what future medical care will cost for the industrial injury.


The permanent disability aspect of the claim is calculated by first making a determination of the worker’s whole person impairment (WPI).  This calculation is determined, at first, by the worker’s primary treating doctor (PTP).  Once the PTP has finished providing active care, he/she will write a permanent and stationary report (P&S) report describing the impact the injury has on the worker’s activities of daily living (ADL).

From 2004 to 2013, the WPI figure was adjusted by a variable diminished future earning capacity (DFEC) factor.  This factor would multiply the WPI number by a factor from 1.1 to 1.4 depending on the body part.  For example, if the State thought people with a shoulder injury normally suffered a greater diminished earning capacity compared to a knee injury, the shoulder injury would be multiplied by a bigger factor than the knee injury.  This was an effort by the State of California to even out what injured workers would get by way of a permanent disability award.

After 2013, the State decided to give all body parts the same factor of 1.4.  After the WPI is multiplied by the 1.4, the disability rater would factor in age and occupation.  Generally, the older the worker and the more arduous the work, the greater the disability.


The second component of a workers’ compensation settlement is the value the parties place on future medical care.  Certainly, a worker who may be looking at future surgery will need more money to settle his/her claim than a worker who only needs over-the-counter medication to alleviate his/her condition.

If the worker is on social security, the workers’ compensation insurance must account for MEDICARE’s interest in the settlement.  MEDICARE does not want the injured worker knocking on their door for medical care related to the industrial injury.  For this reason, the Federal Government has passed legislation which prohibits the settlement of a workers’ compensation claim without taking MEDICARE’s interest into consideration.

In order to comply with the Federal Statute, the workers’ compensation carrier must make a legitimate determination of what the workers’ lifelong medical care will be.  Usually the carrier will contract with a MEDICARE specialist who will take into account the worker’s last two years of medical care and come up with an amount.

Sometimes, if the MEDICARE amount is too high, the parties will consider a structured settlement.  With a structured settlement, the carrier deposits a lump sum amount into a back which will grow each year by accruing interest.  For example, if the MEDICARE set-aside is $750,000.00 over the next 30 years, the carrier may only need to put $500,000.00 into the bank account in order to pay the $750,000.00 required by the MEDICARE set-aside.

The carrier does not have to close the case and pay out a large sum of money if they don’t want to.  This type of settlement can only be reached if both parties are in agreement.  If the parties cannot agree on an amount, or the amount is too high, the case will be settled by way of Stipulation.  With a Stipulation, only the permanent disability aspect of the case is paid out to the worker.  Medical care for the industrial injury remains open for the rest of the worker’s life.

The worker can request an advance from the settlement.  If the carrier refuses to pay the advance, the carrier can Petition the Workers’ Compensation Appeals Board (WCAB) for a commutation of funds.  Whether or not the Judge will order the carrier to pay a lump sum is totally discretionary.  The Judge will have to determine what is in the worker’s best interest.

For additional information on workers’ compensation settlements, contact our office TODAY!

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