TN 2 (07-09)
DI 52150.050 Excludable Expenses
Social Security Ruling 76-34 c , 87-20 c
20 CFR § 404.408
A. What is excludable from offset?
Expenses that are excludable from offset within the limits set by law include documented medical, legal, or related expenses actually paid, incurred, or to be incurred by the worker in connection with the workers’ compensation/public disability benefit (WC/PDB) claim. Exclude from offset any verified medical, legal, or related expenses.
NOTE: Garnishment (e.g., for taxes, or child or spousal support) is not an excludable expense.
B. “Waiver” or “buyout” amounts
WC settlements sometimes contain language indicating that specific money amounts are paid for “waivers” or “buyouts” of various issues such as future medical expenses, vocational rehabilitation (VR), or rights to reopen or appeal a WC claim.
For example, the number holder (NH) agrees to accept a lump sum (LS) settlement of $54,000.00 for a full and final settlement to be paid as follows:
$40,000.00 for all future claims for disability, both temporary and permanent;
$4,000.00 for attorney fees,
$1,000.00 as a buyout for any and all past, present and future VR costs, and
$9,000.00 to waive all claims for past, present and future medical expenses.
Waiver - the NH intentionally relinquishes his or her rights to, for example, future medical expenses;
Buyout - a financial incentive is offered to the NH in exchange, for example, of Vocational Rehabilitation.
A waiver or buyout of the right to reopen a WC claim is not an excludable expense. A waiver or buyout amount for future medical expenses should not be excluded until the expense is actually incurred. DI 52110.005A.2. addresses the issue of VR listed as a portion of the LS, and states that offset is imposed if the NH refuses VR or is not required to participate in a VR plan. A waiver/buyout of VR costs indicates the NH is not required to participate in a VR plan. Therefore, the waiver/buyout would not be an excludable expense.
C. Types of excludable expenses
1. Legal expenses
Legal expenses paid or incurred by the worker in connection with the WC/PDB claim are excludable.
If the worker pays an attorney fee in excess of the WC award specifications, do not exclude the excess amount.
NOTE: Legal fees paid or incurred by the employer, the WC carrier, or someone other than the claimant are not excludable.
2. Medical expenses
Medical expenses paid, incurred, or to be incurred by the worker in connection with the WC/PDB claim are excludable and often are paid out of compensation or amounts otherwise due the worker.
Verified medical expenses in addition to the amount shown in the award are excludable.
a. Future medical expenses
Future medical expenses are:
Excludable, if specified in the WC/PDB award. For future medical expenses designated as Medicare Set-Aside Arrangements (MSA), see DI 52150.050C.2.b. (in this section).
Not excludable until actually incurred by the worker if they are amounts not specified in the WC/PDB award.
Question any excessive amounts per DI 52150.050E. in this section.
b. Medicare or other insurance
WC lump sum (LS) settlements may include Medicare Set-Aside Arrangements (MSA). The Centers for Medicare and Medicaid Services (CMS) oversee MSAs. These arrangements provide amounts “set aside” to cover future medical expenses.
Proceeds paid out of a WC LS and placed in an MSA arrangement are excludable expenses (see Example 1 below). No additional development, verification, or control is necessary for WC LS proceeds placed in an MSA Arrangement. Medicare does not pay for any item or service when payment is made, or can reasonably be expected to be made, under a Federal or State WC law or plan.
Any medical expense paid for, or reimbursed by, Medicare or another health insurance policy or company, is not excludable for offset purposes.
For lump sum proration purposes, an MSA is an excludable expense if it is not paid in a separate check. The following examples illustrate when an MSA is excludable and when it is not:
Example 1: One check issued - the MSA is an excludable expense
One check for $90,000.00 is issued. Example lump sum settlement language: “The claimant agrees to place $15,000.00 of the settlement proceeds of $90,000.00 into a Medicare set-aside arrangement pursuant to the instructions set forth in a letter from the Center for Medicare and Medicaid Services.”
Prorate the $90,000.00 LS using $15,000.00 as an excludable expense.
Example 2: Separate checks issued – the MSA is not an excludable expense
Two separate checks are issued, one for the WC LS amount of $75,000.00 and one for the MSA amount of $15,000.00. Example lump sum language: “The claimant shall receive a WC LS settlement in the amount of $75,000.00. A separate payment of $15.000.00 is to be placed in a self-administered Medicare set-aside arrangement.”
SSA will disregard the MSA amount. Prorate the $75,000.00 LS without excluding the $15,000.00 MSA.
c. Home health care benefits
Home health care benefits are:
Excludable, if they represent equipment, furniture, home adaptations, skilled nursing care, or physical or speech therapy to aid the disabled individual, as explained in HI 00601.310.
Not excludable, if the expenses are for household tasks such as bathing, cleaning, etc.
3. Related expenses
A number holder (NH) may incur excludable expenses related to the settlement of the WC claim that are not specifically medical or legal in nature. These excludable expenses may include, but are not limited to:
Taxes related to the claim (see State-specific procedures)
Costs for expert witness testimony
Fees for recordation of the lump sum settlement
D. Expenses not mentioned in the award or by the NH
Assume there were no expenses, unless there is evidence. Some States treat legal expenses as a matter between the NH and the attorney. Information about these expenses does not appear in the award and may need to be solicited from the NH or the attorney. If the file shows legal representation for the NH in the WC claim, develop for legal expenses. (See State-specific instructions in DI 52120.001.)
E. Verifying excludable expenses
Verify expense allegations. The burden of proof rests with the NH. Follow verification and evidence documentation procedures in DI 52145.001 - Obtaining Verification/Proof of Workers’ Compensation/Public Disability Benefit (WC/PDB) Information.
1. Primary verification sources include:
2. Additional types of verification include:
Detailed statement by the worker's physician for expected future medical expenses;
Statement by an attorney of legal fees;
Bills, receipts, cancelled checks;
Other clear and convincing evidence indicating the amount of the expense; or
Any combination of the foregoing evidence from which the expenses may be determined.
3. Verification of expenses not mentioned in the award or in excess of the amount specified in the award
In rare situations, a NH may subsequently allege expenses not mentioned in the WC award or expenses in excess of the amount allotted in the award. Exclude these expenses only if the NH provides all of the following:
Evidence that shows the expense is directly related to the WC injury or illness;
Evidence that any future medical or MSA amounts allotted in the award are exhausted; and
A signed statement that the NH will receive no reimbursement for the expenses from any source and agrees to report any future reimbursement. The statement must include assurance that, if the NH receives reimbursement for these expenses in the future, the NH remains liable for repayment of any overpayment incurred because of the reimbursement.
F. Excessive amount of excludable expenses
We may question any expenses that appear excessive. Consider other factors in the claim (e.g., the type or injury, or expenses previously awarded). Ask the NH to substantiate the validity of such expenses by other convincing evidence.
Sometimes, a WC award specifies an unusually large amount for future medical. In these cases, obtain:
statements from the NH's medical sources, particularly his attending physician, to verify anticipated medical expenses; and
evidence of past expenses and an explanation for future expenses from the NH, attorney, or insurance carrier.
1. Determining the amount of excludable expenses
Determine the amount of expenses based on the evidence submitted. You may establish an amount less than alleged. If you establish a lesser amount, send a dictated paragraph to the worker explaining why we have used a lesser amount.
a. Example 1
The WC award stipulates a lump sum (LS) amount of $15,000:
$4,000 – present and past medical
$8,405 – future medical
$2,595 – attorney fees and related expenses
The only evidence in file shows a prescription for aspirin. Additional development is necessary. If the development does not produce an explanation or additional evidence for these expenses, do not exclude the future medical expenses.
b. Example 2
The award consists of a gross LS amount of $34,560. Allocations for past, present, and future medical expenses are equivalent to the entire settlement. The NH’s injury requires a prosthetic limb. The file contains estimates that the total of all costs involving the prosthesis, including traveling expenses, are between $1,140 and $1,860 per year. The NH is 30 years old.
Based on the NH's age and other evidence in file, the $34,560 amount is a reasonable amount to exclude without additional development.
G. Expenses not paid by the NH
Carefully review any verification of excludable expenses. The NH must pay for or incur the expense for the WC claim.
Do not exclude expenses such as prescriptions for an illness not related to the WC claim or for other family members.
Do not exclude any medical expenses paid for, or reimbursed by, another health insurance policy or company. This is especially important when establishing future medical expenses. Assume the worker paid the medical expenses, unless there is evidence to the contrary.
H. Applying excludable expenses to the offset computation
1. Applying expenses to periodic payments
WC hearing decisions often involve excludable expenses, particularly attorney fees, and there can be multiple WC decisions and multiple attorney fee awards. Even if the decision does not result in changes in the WC amount (e.g., an award in which there is no retroactive change in WC and no change to ongoing payments other than an extension of the number of weeks to be paid), additional attorney fees may be involved and the WC decision may not clearly delineate how, or for what period, the excludable expenses should be deducted for offset computational purposes.
The most common situation is that the judge will specify the period during which the deduction is made. If no period is specified, review the award or other evidence to determine the period represented by the expenses (e.g., expenses relate to the entire WC period, or a closed period in the past, or future payments, etc) and:
If the expenses represent amounts for a specified period, deduct expenses from the period they represent.
If the period the expenses represent cannot be determined and the award involves an ongoing increase or ongoing decrease in the WC rate from the rate previously used to compute offset, deduct expenses effective with the date of the WC rate change.
If unable to determine the period represented by the expenses and there is no change in the WC rate, deduct the expenses effective the date of the decision.
For cases processed effective 12/08 which used the Offset First Considered (OFC) date (i.e., the OFC preceded the date(s) determined in DI 52150.050H.1.a. through DI 52150.050H.1.c.), follow GN 04001.100 Reopenings - Change in Ruling or Legal Interpretation - Change of Position.
NOTE: The ongoing expense amount or percentage must correspond with the WC frequency of payment (e.g., if the WC rate is weekly, the corresponding ongoing expenses must be shown in a weekly amount or weekly percentage).
2. Applying expenses shown as a percentage
When expenses are shown as a percentage rather than an amount, always carry the percentage two decimal places, as the following examples illustrate:
Example #1 - the award stipulates a weekly WC rate of $360.00 with 25 percent allocated to ongoing attorney fees. Indicate 25.00 as the percentage amount on the WCPP screen in ICF or the T2 Common input screen WPOX.
Example #2 - the award stipulates every third check will go to the attorney as payment of attorney fees (the equivalent of 33.33 percent of the benefits paid). Indicate 33.33 as the percentage amount on the WCPP screen in ICF or the T2 Common input screen WPOX.
3. Applying expenses to periodic payments - example
DIB previously awarded and offset coded:
New WC award (decision date 03/25/2007):
New award of $180.00 weekly rate effective 12/18/2005 (an increase of $105.00 a week from the previous WC weekly rate). Carrier to continue payment at $180.00 a week.
Retroactive WC increase due 12/18/2005 - 03/25/2007 (66 weeks)
66 weeks X $105.00 = $6,930.00 retroactive WC due
Award stipulates attorney fees of $3,000.00, of which $2,000.00 is “payable now” and the remaining attorney fees to be paid at $25.00 per week. The carrier began deducting $25.00 from the weekly WC payments on 04/01/2007.
The $2,000.00 “payable now” expenses are deducted retroactive to the increase in WC benefits. To determine when these expenses run out:
Enter a fictitious lump sum (LS) on the Lump Sum Award Data (WCLS) screen in ICF using the amount of the “payable now” expenses ($2,000.00) as the LS amount, prorated effective 12/18/2005 (the effective date of the WC rate change), and at the rate of $105.00, i.e., the difference between the old weekly WC rate of $75.00 (which has already been paid) and the new weekly WC rate of $180.00.
NOTE: We prorate at the amount of the increase ($105.00) to determine how long it will take to recoup the $2,000.00 “payable now” expenses, because we cannot use the WC which has already been paid ($75.00 weekly WC).
Make note of (or print) the results of the fictitious LS displayed on the WCNE (Lump Sum Proration - No Expenses Involved) screen. This example includes a LS remainder. The fictitious LS of $2,000.00 prorated beginning 12/18/2005 at the weekly increase of $105.00 yields a LS Stop date of 04/29/2006 and a remainder of $5.00. The $105.00 WC weekly “rate” (i.e., the increase) equates to a daily “rate” of $15.00, so the $5.00 remainder will be recouped in one day – 04/30/2006. The “payable now” $2,000.00 excludable expenses are recouped from the retroactive WC rate increase for the period 12/18/2005-04/30/2006.
Page back to delete the fictitious LS information.
The Start date for the remaining $1,000.00 attorney expense deduction (at $25.00 a week) is 04/01/2007 because that’s the date the carrier began deducting $25.00 from the weekly WC payments. To determine the ending date of the $25.00 weekly expenses:
Enter a fictitious LS of $1,000.00 on the WCLS screen in ICF prorated at the weekly rate of $25.00 effective 04/01/2007. The $25.00 ending date is 01/05/2008. Make note of (or print) the results displayed on the WCNE screen.
Page back to delete the fictitious LS information.
Input the actual award information. Your input information includes the following:
WCCL (Claims) screen:
WCPP (Periodic Payments) screen:
NOTE: Avoid coding expenses on the WCCD and WCEE screens due to an ICF processing limitation which deducts expenses effective the first day of the month (even if another day is entered).
Code the following:
Enter the weekly WC paid for 12/01/05 through 12/17/05 with no ongoing expenses. (If you erroneously begin your input with the mid-month Start date of 12/18/05, ICF computes offset as if there were no payments made prior to 12/18/05.)
Enter the new weekly WC rate of $180.00 effective 12/18/2005, with ongoing expenses of $105.00 (which represents the $2,000.00 “payable now” expenses starting 12/18/2005 and ending 04/29/2006 as described above).
Code a separate entry for the period of time the expense remainder (from the “payable now” expenses) will be recouped. In this example, the period of time is one day, 04/30/2006, so code a Start and Stop date of 04/30/2006 and the weekly $180.00 WC rate, but do not code the $5.00 expense remainder at this time.
Code $180.00 a week WC from 05/01/2006 through 03/31/2007 with no expenses (the “payable now” expenses have run out and the $25.00 per week expenses don’t start until 04/01/2007 - the date the carrier began deducting $25.00 from the weekly WC payments).
Code the $1,000.00 expenses deducted at $25.00 a week with a Start date of 04/01/2007, a Stop date of 01/05/2008, and at the weekly WC rate of $180.00.
Code the WC weekly rate of $180.00 with no expenses for 01/06/2008 and continuing.
The periodic WC dates, amounts and expenses are coded as follows:
WC/PDB OFFSET - PERIODIC PAYMENTS WCPP
AMOUNT OR %
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The WCPP screen now shows:
WC/PDB OFFSET - PERIODIC PAYMENTS WCPP
AMOUNT OR %
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NOTE: This workaround disguises the actual expense deductions. An explanatory narrative regarding how the data is manipulated and how the expenses are deducted should be scanned into the Non-Disability Repository for Evidentiary Documents (NDRED), along with a special message to the MBR to alert technicians about the Datasheet coding.
4. Applying expenses to the LS award
To process LS awards involving expenses, see DI 52150.060 - Prorating a Workers’ Compensation/Public Disability Benefits (WC/PDB) Lump Sum Settlement.
5. Applying expenses to “Notice Provision” cases
The notice provisions only apply to cases involving onset before 03/01/1981 or entitlement before 09/01/1981. See DI 52170.040 – Notice Provisions Pre-1981 Amendment Cases.
6. Applying expenses alleged after processing the initial LS proration
After processing a LS proration, a NH may claim expenses not mentioned in the award or claim an amount greater than the amount originally specified and proven.
Review the evidence to determine the period represented by the expenses. Recalculate the offset to include the additional expenses if the worker provides appropriate verification of the expenses.
EXAMPLE: An attorney sends the NH to a doctor for an examination in connection with a pending WC settlement. The doctor charges $125 for the exam, which the NH pays. The settlement does not mention this expense. Because the NH incurred the expense in connection with the WC claim, it is excludable.
I. ICF limitations and periodic payment excludable expense deductions
Use caution in ICF with excludable expenses associated with periodic payments. ICF allows expense entries on both the WCEE -WC/PDB OFFSET - PERIODIC PAYMENT EXCLUDABLE EXPENSES and WCPP - WC/PDB OFFSET - PERIODIC PAYMENTS screens for the same injury/illness. Do not deduct the same expense twice. The WCEE screen is designed for a one time deduction of an expense. The WCPP screen is designed for ongoing periodic expenses to be deducted from continuing payments. Entries on both screens should only occur where the case calls for it (e.g., an award that says $800 expenses from retroactive period payments and 15% excludable expenses starting on a specific day after the retroactive period). Do not enter the same expenses on both screens.
NOTE: Although the WCEE screen includes an excludable expenses START and STOP date in MMDDYY format, ICF ignores the START day and excludes expenses starting with the first day of the month and year input. This can result in incorrect computations. Also, ICF ignores the STOP date if one is entered.
For coding limitations and workarounds, see the Interactive Computations Facility (ICF) Resource Page for WC/PDB Offset Computations .
J. Excludable expenses and public disability benefits (PDB)
PDB cases involving excludable expenses are rare. If you encounter such a case, follow the WC procedures for verifying and allowing excludable expenses.
GN 04030.080 - Reopening When Workers’ Compensation/Public Disability Benefits Offset is Involved
DI 52165.010 - How to Complete the Worker’s Compensation/Public Disability Benefits (WC/PDB) Interactive Computations Facility (ICF) Screens
MSOM ICFT2 031.013 - WC/PDB Offset - Periodic Payment Excludable Expenses (WCEE)
MSOM ICFT2 031.014 - WC/PDB Offset - Periodic Payments (WCPP)