Coordinating Workers Compensation & Social Security: The Inequity Among States Continues

Source: National Academy of Social Insurance

A recently published report by the National Academy of Social Insurance reflects that a "reverse offset" (coordination of benefits) still continues in 15 states. In reverse offset states, the insurance carrier gains the financial benefit of the coordination of benefits and NOT the Federal Social Security system. 

"If a worker becomes eligible for both workers’ compensation and Social Security disability insurance benefits, one or both of the programs will limit benefits to avoid making excessive payments relative to the worker’s past earnings. The Social Security amendments of 1965 require that Social Security disability benefits be reduced

15 (or “offset”) so that the combined totals of workers’ compensation and Social Security disability benefits do not exceed 80 percent of the workers’ prior earnings. 16 Some states, however, had established reverse offset laws prior to the 1965 legislation, whereby workers’ compensation payments are reduced if the worker receives Social Security disability benefits. Legislation in 1981 eliminated the states’ option to adopt reverse offset laws, but the 15 states that already had such laws in place were exempted. 17

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15 The portion of workers’ compensation benefits that offset (reduce) SSDI benefits are subject to federal income tax (IRC section 86(d)(3)).

16 The cap remains at 80 percent of the worker’s average earnings before disability, except that, in the relatively few cases when Social Security disability benefits for the worker and dependents exceed 80 percent of prior earnings, the benefits are not reduced below the Social Security amount. This cap also applies to coordination between Social Security disability insurance and other public disability benefits (PDB) derived from jobs not covered by Social Security, such as state or local government jobs where the governmental employer has chosen not to cover its employees under Social Security.

17 States with reverse offset laws are: Colorado, Florida, Hawaii, Illinois, Louisiana, Minnesota, Montana, Nevada, New Jersey, New York, North Dakota, Ohio, Oregon, Washington, and Wisconsin.

Click here to Read the complete report: Workers’ Compensation: Benefits, Coverage, and Costs, 2010

More Articles About The Offset

Court Rules Social Security Offset Not Barred by Time

Feb 26, 2011

A NJ Court of Appeals has ruled that the reverse-offset permitted under Federal law was allowed to be asserted by an insurance carrier years after an original workers' compensation judgment was entered. Even though the ...

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The Gift That Keeps Giving: The SSA Reverse Offset

Dec 01, 2009

Social Security (SSA) has been subsidizing a select group of States since 1981. The workers' compensation insurance carriers in only those select States are permitted to take a credit against SSA payments. The US Congress ...

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Workers' Compensation: Collecting Both Social Security Disability ...

Mar 23, 2008

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NJ Legislation Seeks To Increase Counsel Fees

Practicing workers' compensation law is difficult work, and not usually economically rewarding. Most lawyers who handle claimant's work have a passion to help people. In most, if not many cases, the time and effort that an attorney puts into the case usually just doesn't offset fee paid in the case.

Gone are the days when scores of cases were adjudicated on a daily basis in most jurisdictions. Many factors have caused the system to shift from high gear to what seems like reverse. The manufacturing workforce has dwindled, conditions have become safer, a good thing, and reforms to the system have thrown in hurtles that appear insurmountable to obtain benefits. The tightening of recovery procedures by collateral sources have changed the flow, from a tidal wave of dispositions, to a dribble through the funnel.

Fewer and fewer attorneys now participate in workers' compensation claims, even though other areas of the legal economy have gone into the tank. Those who are remaining are attempting to be even more selective in what representation they undertake. With limited assets to invest there needs to be a an economic certainty for recovery more than ever.

Legislation has been introduced in NJ to expand the recovery of counsel fees. The Senate Labor Committee will meet on Thursday, December 8, 2011 at 10:00 AM in Committee Room 6, First Floor, State House Annex, Trenton, New Jersey discuss a pending bill to increase the base for benefits. S2446 Concerns attorney fees for workers' compensation awards.

"This bill requires that in cases in which a workers’ compensation  petitioner has received compensation from an insurance company  prior to any judgment or award, the reasonable allowance for attorney fees will be based upon the sum of the amount of compensation already received by the petitioner, and the amount of the judgment or award in excess of the amount of compensation  already received by the petitioner. Currently, in cases in which a  petitioner has received compensation prior to a judgment or award, a reasonable attorney fee is based upon only that part of the judgment or award that is in excess of the amount of compensation already received by the petitioner."

read more...

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7 Problems Facing Work Comp in a Credit Default

White House Photo, Pete Souza, 7/25/11

Workers' Compensation payments are so intertwined with the national system of workers' compensation that a potential US credit fault will impact the system significantly. Workers' Compensation is social remedial legislation and as the US government leaders struggle to find a political solution to the nation's financial crisis concern becomes focussed on how a shutdown will impact the national workers' compensation system.


The consequences of a US credit default will be significant. President Obama stated, "If that happens, and we default, we would not have enough money to pay all of our bills -– bills that include monthly Social Security checks, veterans’ benefits, and the government contracts we’ve signed with thousands of businesses. "


1. Centers for Medicare and Medicaid Services (CMS) and their contractor will be unable to provide conditional payment information under the Medicare Secondary Payer Act. Negotiations in workers compensation matters will come to halt.


2. CMS will be unable to approve compromises and releases in advance of workers' compensation disposition thereby halting the State systems.


3. CMS and their agents will be unable to review Medicare Set-Aside Agreements thereby stopping workers' compensation dispositions by compromise.


4. Chaos will erupt in those States where Social Security takes a reverse offset on permanency payments. Workers' compensation insurance companies and employers will become responsible for the entire amount to be paid.


5. The Veterans' Administration will be unable to provide information concerning medical treatment. Records will he held-up and will delay evaluations in adjudications in workers' compensation cases.


6. Tricare and other federal insurance providers will be unable to provide benefit information. The lack of reimbursement data will stymie evaluation of medica reimbursement issues slowing the disposition and settlements of workers' compensation claims.


7. The US Military will be unable to provide Personnel Records and prior medical treatment and claim information.


The potential fiscal impact of a US debt crisis is enormous.  Hopefully, the politicians in Washington will reach a compromise and the this crisis will be resolved and everyone can creatively focus on making the compensation system less complicated and more efficient.

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Workers Compensation Taxable Rules US Tax Court

Image via WikipediaThe US Tax Court has ruled that workers' compensation payments are not excluded from US income tax under Section 104(a)(1) if they are paid as a Social Security Setoff Section 86(d)(3).

The majority of the states permit Social Security to take the setoff. A minority of states allow a reverse setoff where the insurance carrier takes the setoff, and the workers' compensation benefits are reduced.

“Nevertheless, … we are duty-bound to apply the law as written by Congress to the facts as they occurred and not as they might have occurred. Because [the taxpayer's] Social Security benefits were reduced by the amount of workers’ compensation benefits received, that offset amount is treated as a Social Security benefit and is, therefore, taxable,” the court said.

Source: Dolan Media Newswires

For over 3 decades the Law Offices of Jon L. Gelman  1.973.696.7900  jon@gelmans.com have been representing injured workers and their families who have suffered work related accidents and injuries.

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Court Rules Social Security Offset Not Barred by Time

A NJ Court of Appeals has ruled that the reverse-offset permitted under Federal law was allowed to be asserted by an insurance carrier years after an original workers' compensation judgment was entered. Even though the employee pleaded that the insurance company had sat on its rights for years, and done nothing to assert the offset, the Court maintained that the insurance company was entitled to reclaim the benefits it had overpaid.

Since the information provided by parties to define the numerical offset was lacking, and the decision below lacked "specific reasons and analysis," the matter was remanded for further proceedings.

NJ is one of the states that elected to have the insurance company / employer take the offset under the options available in 1980. Most states allow Social Security to take the offset.

Gonzalez v Bristol-Meyers Squibb, 2011WL611722, Docket No. A-2187-09T3 (NJ App Div 2011)

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Congress Told Workers Compensation is a Deteriorating System

The former chair of the 1972 National Commission on Workers' Compensation told Congress that the present system is deteriorating and a new course of action is warranted. Profession Emeritis John F. Burton, Jr., last Wednesday testified before The Subcommittee on Workforce Protections of the Congressional Committee on Education and Labor.

Professor Burton told Congress that during the last 20 years he has observed the "...deterioration in adequacy and equity of state workers' compensation programs..." He reported that "the decline in workers' compensation cash benefits in the states during the 1990's is explained by ....changes in workers' compensation provisions and practice than  is explained by the drop in workplace injuries and disease during the decade."

Burton proposed that Congress consider new legislation to prohibit costs shifting from workers' compensation to Social Security Disability Insurance (SSDI). He advised the Subcommittee that cost shifting was continuing because 15 states were permitted to continue "reverse offset" provisions, the Social Security Administration (SSA) was paying benefits to workers who were not totally disabled under workers compensation acts, and a larger number injured workers were not qualifying for workers' compensation benefits.


As Professor points out, the aging workforce further complicates the burden placed upon the nation's Medicare system. With the erosion of the doctrine that workers' compensation takes the worker as it finds him or her, medical treatment for pre-existing conditions will be a growing cost for Medicare and a cost-shift from the workers' compensation system. The NY Times reported that, "Nearly one-fourth of Medicare beneficiaries have five or more chronic conditions. They account for two-thirds of the program’s spending."

A "reaffirmation" of "Federal standards" as enunciated in the 1972 National Commission report were recommended by Burton.  Additionally, he called upon Congress to enact legislation requiring employers and/or their insurance carriers reimburse Social Security for permanent disability cash benefits paid by Social Security for disability flowing from a work related event or disability.

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NJ Workers' Compensation Revenue Bills to be Shelved

Bolstered by a united chorus of favorable comments at recent NJ Legislative hearings, the transition team of NJ Governor Christie has urged opposition to any new benefit increases for workers' compensation. The hearings were in response to a series on investigative articles that appeared in The Star Ledger alleging problems existed in the present system.

The transition team has made the following recommendations:

Oppose A-5181 (Egan, Evans) / S-639 (Sarlo, Gill): Increases workers' compensation for loss of hand or foot.
Impact: $20 - $25 million in increased costs to the system.

Oppose A-2846 (Greenstein, DeAngelo) / S-785 (Sweeney, Madden): Extends supplemental disability and dependent benefits for post-1979 claims.
Impact: These added benefits would be paid entirely by employers through an increased surcharge in their Workers' Compensation policy. An analysis by the Office of Special Compensation Funds within the Department of Labor and Workforce Development projects the annual cost to New Jersey employers at $125 million with the potential to be significantly higher if this law change caused New Jersey to lose its "reverse offset" benefit from the Social Security Administration.

Oppose S-1982 (Sweeney): Establishes an ombudsman for injured workers in, but not of, the Department of Labor and Workforce Development.
Impact: This would create an entirely new department within the State government with its incumbent salary and administrative costs. This would also duplicate many of the responsibilities now handled effectively by the Division of Workers' Compensation.

Click here to read more about workers' compensation reform efforts.

The Gift That Keeps Giving: The SSA Reverse Offset

Social Security (SSA) has been subsidizing a select group of States since 1981. The workers' compensation insurance carriers in only those select States are permitted to take a credit against SSA payments. 


The  US Congress legislated that if a State had a recognized Social Security Offset Plan in effect on February 18, 1981, then the SSA would not offset workers' compensation benefits to those injured workers. In those jurisdictions, the offset is taken by the workers' compensation insurance carrier, who gains the advantage.


It was recently estimated that that over 583,923 individuals were receiving Social Security Disability Benefits. Of those, 156,096 were eligible for an offset to be taken by SSA. But, of those, 44,748 or 28.7%, were eligible for a reverse offset to be taken instead by the workers' compensation insurance companies.


To read more about Social Security and workers' compensation click here.


Those States that have been designated as "reverse offset"States, and are permitted have  the workers' compensation carrier to take the credit are: California, Colorado, Florida, Louisiana, Minnesota, Montana, Nevada, New Jersey, New York, North Dakota, Ohio, Oregon, Washington and Wisconsin.

       

Proposed North Carolina Legislation Caps Benefits for Seniors

Proposed legislation in North Carolina seeks to cap workers compensation benefits for those over the age of 65 years old. HR1022. The legislation specifically states: " Temporary total disability compensation shall continue for a period lasting until the longer of (i) when the injured employee is eligible by age for full benefits under the Social Security Act, 42 U.S.C. § 401, et seq., or (ii) a period of 300 weeks from the date of injury."

If passed, the legislation would be more limiting than "reverse offset" language enacted pre-1980 by several states and would follow a recently enacted legislation in Utah to limit benefits for the aged which was declared unconstitutional.

Collecting Both Social Security Disability Insurance And Workers’ Compensation Benefits Generates Inequality of Benefits

A recent study by the federal government reports that some disabled workers who receive workers' compensation or public disability benefits may receive less money than their counterparts. The reason why this phenomenon occurs is because the Social Security benefit computation is designed to replace more of the lower earner’s pre-retirement or predisability earnings than a higher earner’s.

“The Social Security benefit computation is designed to replace more of a lower earner's preretirement or predisability earnings (average indexed monthly earnings) than a higher earner's. This is done by "bend points" in the primary insurance amount formula, which create three earnings brackets. Earnings up to the first bend point are replaced at 90 percent; earnings between the first and second bend point, at 32 percent; and earnings above the second bend point, at 15 percent, up to the taxable maximum. The three brackets are a convenient way to group workers by income (represented here by AIME). This grouping also helps distinguish differences in replacement rates, which are largely determined by the earnings bracket in which the worker belongs.”

The Social Security disability system was established in 1956 to pay cash benefits to those workers who sustained long-term disabilities and were insured for coverage. On the other hand, state workers compensation systems had been in place since 1911 and may be combined with other public disability benefits in addition to Social Security benefits.

The Social Security system, unlike state workers compensation programs, provides a nationally distributed benefit to over 8 million disabled-worker beneficiaries. State public disability benefits are paid under numerous laws including federal, state or local government were plans that provide compensation for medical conditions that are not work related. Some of them may be short-term such as state temporary disability benefits.

As of December 2005, the date that the study utilized for collection of data, there were 8,305,702 disabled-worker beneficiaries in the Social Security program. Of those beneficiaries, 1,440,772 had some past or present connection to workers compensation or public disability benefits and 798,476 at a current connection to workers' compensation or public disability benefits.

In 1984 Congress amended The Social Security Amendments of 1956 and required that workers’ compensation benefits were to be offset against the federal Social Security disability insurance benefit. In 1985 the offset was eliminated and it was again reinstituted in 1989 by Congress. Further amendments in 1996 to The Omnibus Budget Reconciliation Act Of 1981 extended the offset provision to public disability benefit programs. However, Congress excluded the offsets of workers’ compensation and public disability beneficiaries who are receiving Social Security disability benefits in those states where the State took the offset. These have been named reverse offset states. The state law needed to be in effect as of February 18, 1981. Presently there are 16 states and Puerto Rico that are reverse offset states.

The recent study involving 18 month period from January 2003 through June 2004, identifies that a proximately 11% of all Social Security disability beneficiaries were also entitled to receive state workers compensation for public disability payments. It reported that those who receive combined benefits were most likely to be male, high earners, older it retirement and from the Western states.

The report concludes that the earnings replacement rate for disability insurance beneficiaries under the Social Security system, as measured by the ratio of the monthly disability insurance benefits to the average indexed monthly earnings, demonstrates that disabled workers without workers’ compensation or public disability benefits had higher replacement rates. Therefore, collecting multiple benefits may create an economic disparity.

NJ Beneficiaries Wait for Supplemental Increase in Workers’ Compensation Benefits

For almost 2 years New Jersey’s most severely injured and their families have been waiting for the legislature to act upon a law to provide for a cost of living increase of their benefits. The legislation, S-1005, would increase benefits of those injured after December 31, 1979. The bill was stalled in the legislature as the parties ironed out technical issues concerning the Social Security reverse offset. NJ is one of the few States remaining that allow workers’ compensation insurance carriers to benefit from Social Security offset rules.

Additionally NJ has side stepped the triennial increase that is provided for under the Social Security Regulations causing NJ’s injured workers not to be allowed to obtain any additional increases in benefits afforded by application of that provision of the Federal law.

………………………..
The Senate Labor Committee reports favorably Senate Bill No. 1005.
This bill provides, from July 1, 2006 forward, an annual cost of living adjustment in the weekly workers' compensation benefit rate for any worker who has become totally and permanently disabled from a workplace injury at any time after December 31, 1979 and for the surviving dependents of workers who have died from a workplace injury at any time after December 31, 1979.
The cost of living adjustment would be an amount such that, when added to the workers' compensation weekly benefit rate initially awarded, the sum would bear the same percentage relationship to the maximum benefit rate at the time of the adjustment that the initial rate bore to the maximum rate at the time of the initial award, except that the amount of the adjustment shall be reduced as much as necessary to ensure that the sum of the adjustment and the amount initially awarded does not exceed the amount which would cause any reduction of disability benefits payable under the Federal Old Age, Survivors and Disability Act. The amount of the adjustment would be paid from the Second Injury Fund (SIF), which is supported by a uniform assessment spread out evenly over all employers and insurers.
Current law requires such annual cost of living adjustments (COLAs) in the workers' compensation benefit rate for death and permanent total disability to be paid from the SIF, but only in cases in which the injury or death occurred before January 1, 1980. The bill extends the adjustments to cases originating after December 31, 1979, although the adjustments would apply only to benefits paid on those claims after July 1, 2006.
The bill makes no change in the provisions of sections 1 and 9 of P.L.1980, c.83 (C.34:15-94.4 and 34:15-94.5), which provide for the reduction of certain portions of workers' compensation benefits by the amount of Social Security disability benefits paid. In addition, the bill expressly states that the supplemental benefits shall not be paid in a manner which in any way changes or modifies the provisions of those sections.