How Medical Cost Projections Drive Value For Clients in Workers’ Compensation Settlements

In a recent span of 30 days, attorneys at our firm resolved several workers’ compensation claims for more than $500,000 each, including, in a single week, one settlement worth $1 million and another worth $1.7 million. In the personal injury world, results like this are common. But in the workers’ compensation world, they most definitely are not.

A driving force behind these settlements was gaining a thorough understanding of our clients’ future medical costs and using that figure as the starting point for settlement negotiations concerning the medical portion of their workers’ compensation claim.

The most effective way to do so is through a medical cost projection.

The core components of a workers’ compensation settlement

Every workers’ compensation settlement starts with two components: wage loss and future medical costs. Wage loss turns on a worker’s average weekly wage and compensation rate, and on the harder question of whether they will ever return to work. Medical costs refer to the current and future medical expenses an injured worker will incur because of their injuries.

In workers’ compensation cases involving catastrophic injuries, there are sometimes two more components. The first is the specific loss of a body part, for which there are statutory benefits based on the body part lost. For example, in Pennsylvania, losing a hand is worth 335 weeks of benefits, per the Pennsylvania Workers’ Compensation Act. A specific loss is rarely the entirety of an injury. A traumatic amputation usually brings additional injuries, such as nerve damage and a painful neuroma extending past the amputation site, and frequently, a psychological injury. Each of these injuries is compensable in its own right.

The second additional component that can come into play on catastrophic injuries is disfigurement, which is a compensable permanent scar to the head, neck, or face, common after a traumatic brain injury, a fall from height, or a head striking a windshield in a motor vehicle accident. In Pennsylvania, disfigurement is worth up to 275 weeks of benefits per its Workers’ Compensation Act.

When litigating and attempting to settle workers’ compensation claims involving severe injuries that will require ongoing medical treatment, future medical costs are almost always the largest and most fiercely contested component of the claim.

A primer on medical cost projections in workers’ compensation cases

Medical cost projections are a cousin of life care plans, which are more frequently used in personal injury cases than in workers’ compensation cases. Unlike life care plans, medical cost projections are prepared for settlement purposes only and not in anticipation of litigation, and the preparer is not expected to testify to them. They are commonly authored by projectionists who understand workers’ compensation law, including various states’ fee schedules. A projectionist who understands a state’s fee schedule can credibly and accurately estimate future medical expenses.

The road to a credible and accurate estimate begins early in a client’s case and requires a holistic investigation into the future medical care they will need. This includes future surgeries, durable medical equipment, prosthetics, spinal cord stimulators and other implanted devices, home care, and inpatient care. It also includes the client’s living situation and physical limitations. Will they need ramps in and around their home? A chairlift for the stairs? Bathroom modifications? Vehicle modifications, such as hand controls or wheelchair access in a van? When clients have received implanted hardware or prosthetics, the annual costs of maintaining and replacing those devices over the client’s remaining life expectancy must also be considered.

Once a client’s care is underway and their treatment has settled into a stable routine, their counsel should request medical records and billing ledgers and coordinate a medical cost projection. A certified medical cost projectionist will interview the client and, based on those records, build cost estimates for medications, anticipated surgeries, equipment, and home and vehicle needs. However, like all experts, there’s a range in the quality of projectionists and their credibility. I prefer working with those who employ licensed nurse practitioners certified in life care planning. Credentials like that instantly burnish the projectionist’s credibility and that of their work product.

The value of a medical cost projection

If a medical cost projection isn’t the single most effective negotiating instrument claimants’ counsel has for settling future medical expenses, it’s in the top three. That’s because it provides the anchoring dollar amount for settlement negotiations based on credible assumptions and analysis prepared by a licensed professional. Rarely have I seen an insurer rebut a projection with information as credible and fact-based as what’s in a medical cost projection. That’s why, in my experience, insurers are unlikely to try to dismantle a well-supported projection wholesale. Instead, they contest assumptions and a line item or two.

Projections also reframe settlement negotiations around a carrier’s ongoing exposure. If wage loss runs $40,000 a year and medical adds another $40,000 or $50,000, claimants’ counsel can show the adjuster they will spend roughly $80,000 to $90,000 every year until they come to the settlement table—and that they will continue doing so across a multiple-decade life expectancy. That is the “win” claimants’ counsel can offer them: settle now so they need not continue paying later.

Even with a medical cost projection in hand, the timing of a settlement is a strategic concern

Many claimants’-side workers’ compensation attorneys fail to understand how the passage of time undermines their leverage when negotiating a settlement of future medical expenses. If a projection calls for a piece of hardware to be removed in a year at a cost of $50,000, that $50,000 is deducted from the settlement value the moment the surgery occurs. If a prosthetic has to be replaced every five years at roughly $96,000, that is about $20,000 of value moving off the table for every year before a settlement is secured, out of the lump sum a client could control as part of their settlement proceeds, and into bills an insurer should pay as they come due anyway.

That value doesn’t simply vanish; it transfers to the insurer. When projecting future medical costs, they must be reduced to present value. A carrier holding reserves for, say, $2 million in future care over the next 42 years can invest those reserves and earn a market return in the meantime. Claimants’ attorneys will need to help their clients choose between keeping their medical costs open for the purposes of a settlement and letting the insurer pay the bills as they come (through which the insurer will capture that investment return) or settling for a present-value lump sum so that they (the client) can control and invest that money.

As for the concern that settling future medical expenses will leave a client exposed if their future care ends up costing more than the lump sum, that’s a risk that experienced claimants’ counsel manages and accounts for. Tactically, counsel’s goal should be to have another health insurer take over the client’s routine bills after settlement, and to make sure the client preserves a nest egg for anything that isn’t covered. While claimants’ counsel should not advise clients on where to invest their settlement proceeds, they should clarify that the money’s job is to be working for them, as it is earmarked for future medical expenses. The longer an injured worker waits to settle a claim, the more settlement proceeds that are spoken for by bills already incurred.

Where Medicare has an interest, because a client is already on Medicare or reasonably expects to enroll in it, counsel should account for that as well by structuring the settlement with any required Medicare Set-Aside in mind so that resolving the medical expenses will not create a Medicare problem for the client down the road.

Defending medical cost projections against a typical defense attack

As I noted above, insurers tend to contest assumptions and line items in medical cost projections rather than the projections as a whole. When they do, they often attack projected treatment costs when an injured worker’s treatment record suggests those costs will never be incurred because they will not continue treatment. For example, if a projection budgets $20,000 a year for psychiatric care across dozens of visits, but the records show the client refused psychiatric medication or hasn’t seen a provider in months, the carrier will argue that that line item should not be included in a settlement, reducing its total value.

To preempt this attack, claimants’ attorneys should ensure their clients understand that the care budgeted in the report is the care they need to be receiving, with no gaps, so they should continue to pursue that treatment until they’re healed. And to rebut an attack like this, if counsel learns that a client has fallen off a course of treatment, they should ensure the client returns to regular treatment as soon as possible and explain to the client the many reasons skipping future treatment would be problematic.

Investing in medical cost projections is investing in making our clients’ lives better

Medical cost projections are not cheap. They typically cost between about $2,000 and $5,000. For many claimants’ firms, that expense is one they’d rather not incur, as they feel it unnecessarily increases their case costs without guaranteeing a return on their investment. In doing so, they will let the carrier dictate the value of future medical bills by anchoring settlement discussions to the carrier’s dollar figures, which will, of course, be lowballed.

I am fortunate to work at a claimant’s firm that does not see the world that way. Instead, in cases that warrant it, we invest in medical cost projections (and, when appropriate, life care plans) because the projections transform a claim for future medical bills based on a gut feeling into a documented, defensible number that can secure a settlement amount a client deserves.

An investment in a medical cost projection is an investment in increasing the value that claimants’ counsel can secure for our clients when resolving their future medical bill claims. The more value claimants’ counsel can secure for our clients, the better their post-injury lives will be.