TN 4 (08-16)

Citations: Social Security Ruling

76-34 c, 87-20 c,
20 CFR §

404.408

A. Definition of excludable expense from offset

When the worker paid expenses, incurred expenses, or has pending incurred expenses in connection with the WC/PDB claim they are excludable from offset within the limits of the law. These expenses include documented medical, legal, or related expenses.

Unless otherwise specified, any reference to “WC” in this material also includes “PDB”.

NOTE: Garnishment for taxes, or child or spousal support is not an excludable expense.

B. Definition of “waiver” or “buyout” amounts

Waiver - the number holder (NH) intentionally relinquishes his or her rights to a specific payment.

Buyout - the NH receives an offer as a financial incentive in exchange for participation in another program.

C. When a waiver or buyout amount is not an excludable expense

WC settlements sometimes contain language indicating that a specific money amount is paid for “waiver” or “buyout” of various issues such as:

• for future medical expenses,

• for vocational rehabilitation (VR), or

• for rights to reopen or appeal a WC claim.

Example of waiver and buyout:

The NH agrees to accept a lump sum (LS) settlement of $54,000.00 for a full and final settlement 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 all past, present, and future VR costs; and

• $9,000.00 to waive all claims for past, present, and future medical expenses.

A waiver or buyout of the right to reopen a WC claim is not an excludable expense. Future medical expenses are excludable if they reflect a reasonable estimate of future expenses, given the circumstances in the individual case.

If VR is listed as a portion of the LS settlement, but the NH refuses VR or is not required to participate in a VR plan, then offset is imposed per DI 52110.005A.2. A waiver or buyout of VR costs indicates that the settlement does not require the NH to participate in a VR plan. Therefore, the waiver or buyout would not be an excludable expense.

D. Types of excludable expenses in LS settlements

1. Legal expenses

1. Legal expenses are excludable when they represent:

   • Legal expenses paid by worker; or

   • Legal expenses incurred by the worker concerning the WC claim.

2. Legal expenses are not excludable when they are:

   • Legal fees paid or incurred by the employer;

   • Legal fees paid or incurred by the WC carrier; or

   • Legal fees paid or incurred by someone other than the worker.

2. Medical expenses

Medical expenses are excludable when they represent one of the following:

• Medical expenses that the worker paid or incurred in connection with the WC claim;

• Medical expenses that the worker could incur in connection with the WC/PDB claim; (For guidance on future medical expenses see bullet below in this section);

• Medical expense paid out of compensation due to the worker;

• Verified medical expenses in addition to the amount shown in the award; or

• Future medical expenses when they reflect a reasonable estimate of future expenses, given the circumstances in the individual case. For example, Future medical expenses designated as Medicare Set-Aside Arrangements (MSAs) are excludable, see DI 52150.050D.2.a. in this section.

Question any excessive expense amounts per DI 52150.050G in this section.

a. Medicare or other insurance

WC LS settlements may include MSAs. 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 are excludable expenses as explained in the following Example 1 mentioned in this subsection.

No additional development, verification, or control is necessary for WC LS proceeds placed in an MSA. Medicare does not pay for any item or service when they expect a Federal or State WC law, or plan made or reasonably expected to make the payment.

Any medical expense that Medicare, or another health insurance policy or company paid for, or reimbursed, is not excludable for offset purposes.

For LS proration purposes, if the WC payer of the LS settlement does not make payment in a separate check, an MSA is an excludable expense. The following examples illustrate when an MSA is excludable and when it is not:

• Example 1: If one check issued then the MSA is an excludable expense

  • WC payer issued one check for $90,000.00. The example LS settlement language states: “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 cited in a letter from CMS.”

  • Prorate the $90,000.00 LS using $15,000.00 as an excludable expense.

• Example 2: If separate checks issued then the MSA is not an excludable expense

  • WC payer issued the following two separate checks:

    1. WC LS amount of $75,000.00, and

    2. 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.”

  • The Social Security Administration (SSA) will disregard the MSA amount. Prorate the $75,000.00 LS without excluding the $15,000.00 MSA.

b. Home health care benefits expenses

Home health care benefits expenses are:

• Excludable, if the benefits provide 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 benefits are for household tasks such as bathing, or cleaning.

3. Related expenses

A number holder may incur excludable expenses related to the settlement of the WC claim that do not appear to be specifically medical or legal in nature. These excludable expenses may include, but are not limited to, one or more of the following examples:

• Taxes related to the claim (see State-specific procedures);

• Deposition expenses;

• Costs for expert witness testimony;

• Photocopy expenses;

• Telephone expenses;

• Transportation costs; or

• Fees for recordation of the LS settlement.

If any other expenses are alleged, exclude them only if they are paid or incurred by the worker in connection with the WC claim.

E. Expenses not mentioned in the award or by the NH

Unless there is evidence to the contrary, assume that there were no expenses. Some States treat legal expenses as a matter between the NH and the attorney. If information about these expenses does not appear in the award, SSA may need to solicit information from the NH or the attorney. If the file shows legal representation for the NH in the WC claim, develop for legal expenses. For State-specific legal expenses instructions, see DI 52120.001.

F. Verifying excludable expenses

Verify expense allegations. The burden of proof rests with the NH. To obtain verification and evidence documentation follow the procedure in DI 52145.001.

1. Primary verification sources

Primary verification sources include:

• WC award;

• Court order;

• Signed settlement agreement; or

• Form SSA-1709 (Request for Workers' Compensation/Public Disability Information).

2. Secondary verification sources

Secondary verification sources 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 evidence that may determine expenses.

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 states the NH will not receive reimbursement for the expenses from any source and agrees to report any future reimbursement. IMPORTANT: 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.

G. Excessive amount of excludable expenses

We should question any expenses that appear excessive. Consider other factors in the claim (e.g., the type of injury, or expenses previously awarded). Ask the NH to substantiate the validity of such expenses by providing other convincing evidence.

Sometimes, a WC award specifies an unusually large amount for future medical expenses. In this case, obtain the following:

• Statements from the NH's medical sources, particularly his or her 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 before considering the amount.

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.

2. Examples to assist on determining an excludable expense

a. Example 1 – non excludable expense

The WC award stipulates a LS amount of $15,000:

$4,000 – present and past medical;

$8,405 – future medical; and

$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 – excludable expense

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.

H. Expenses that the NH did not pay

Carefully review any verification of excludable expenses. The NH must pay for or incur the expense for the WC claim.

Excludable expenses do not include:

• Prescription expenses for an illness not related to the WC claim or for other family members.

• Any medical expense that another health insurance policy or company paid for, or reimbursed. This is especially important when establishing future medical expenses. Assume the worker paid the medical expenses, unless there is evidence to the contrary.

I. 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, additional attorney fees may be involved. For example, this may occur in an award in which there is no retroactive change in WC and no change to ongoing payment other than an extension of the number of paid weeks. The WC decision may not clearly state how or for what period the excludable expenses should be deducted for offset computational purposes. The judge will often specify the deduction period it represents. If the document specifies no period, review the award or other evidence to determine the period representing the expenses. For example, expenses can relate to the entire WC period, a closed period in the past or future payments.

Take the following actions to determine the deduction period:

1. If the expenses represent amounts for a specified period, deduct expenses from the period they represent.

2. If you cannot determine the period the expenses represent, 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.

3. If unable to determine the period the expenses represent and there is no change in the WC rate, deduct the expenses effective with the date of the decision.

For cases processed effective 12/2008 that used the Offset First Considered (OFC) date (the OFC date preceded the date(s) determined in DI 52150.050I.1.a. through DI 52150.050I.1.c.), follow Reopenings - Change in Ruling or Legal Interpretation - Change of Position instructions per GN 04001.100.

NOTE: The ongoing expense amount or percentage must correspond with the WC frequency of payment (for example, if the WC rate is weekly, the corresponding ongoing expenses must also correspond in a weekly amount or weekly percentage).

2. Applying expenses shown as a percentage

When the award shows an expense 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 WC/PDB Offset-Periodic Payments (WCPP) screen in Interactive Computation Facility (ICF) or the Title 2 Redesign (T2R) Common input screen WC/PDB Periodic Payments Ongoing Expenses (WPOX).

• Example 2

The award stipulates that 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 T2R Common input screen WPOX.

3. Applying expenses to periodic payments - example

The following scenario illustrates how to apply expenses to periodic payments:

DIB previously awarded and offset coded. DIB MOET and OFC date is 01/2005 and the weekly rate $75.00.

A post-entitlement action comes in, the new award states:

• Decision date 03/25/2007; $180.00 weekly rate effective 12/18/2005, the carrier is to continue payment at $180.00 a week

• The period specified as 12/18/2005 - 03/25/2007 (66 weeks).

• Award stipulates attorney fees of $3,000.00, of which $2,000.00 is “payable now”, and the remaining attorney fees will be paid at $25.00 per week starting 03/26/07.

The following scenario illustrates how to process the post-entitlement action:

Step 1:

The $2,000.00 “payable now” expenses are deducted retroactively. Since they provide the period, allocate the $2,000.00 over the 66-week term of 12/18/05 through 03/25/07. This equates to $30.30 per week. Therefore, the retroactive coding would appear as 12/18/05 through 03/25/07, $180.00 weekly with $30.30 expenses.

REMINDER: You may want to refer to your regional/PC resource websites for tools to assist in calculating WC/PDB rates, lump sum proration, and excludable expenses.

Step 2:

1. Input the following award information on the WCCL screen:

   1. Periodic Payments Involved “Y;” and

   2. Lump Sum Involved “N.”

2. Code the WCPP screen with the following information:

   NOTE: We are using the WCPP screen in this case scenario due to an ICF processing limitation, the WCCD and WCEE screens will always deduct expenses effective the first day of the month even if you enter another day.

   1. 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.)

   2. Enter the new weekly WC rate of $180.00 effective 12/18/2005, with ongoing expenses of $30.30 through 03/25/07.

      NOTE: The $3,000.00 fee represents $2,000.00 payable now and leaves $1,000.00 remaining. The start date for the remaining $1,000.00 expense deduction is 03/26/07 at $25.00 per week.

   3. Determine the ending date of the $25.00 weekly expenses.

   4. Divide the $1,000.00 remaining by $25.00 to determine the number of weeks that we will prorate the fee; $1,000.00 divided by $25.00 = 40 weeks.

   5. Based on the start date of 03/26/07, the 40 Week proration expense period ending date is 12/30/07.

      NOTE: You can also use the Excludable Expenses Calculator to determine the end date.

   6. Code $180.00 with $25.00 a week expense (representing the remaining $1,000.00 attorney expense payable) for 03/26/07 to 12/30/07, which represents 40 weeks at $25.00 a week.

   7. Code $180.00 for 12/31/07 to show the continuing weekly WC payment.

      Code the periodic WC dates, periodic payment amounts, and ongoing expenses as follows:

      WC/PDB OFFSET - PERIODIC PAYMENTS            WCPP
      PERIODIC PAYMENT:	PERIODIC PAYMENT:	ONGOING EXPENSES:
      START (MMDDYY)	STOP (MMDDYY)	AMOUNT	PROOF (Y/N)	FREQUENCY	AMOUNT OR %	PROOF(Y/N)
      120105	121705	75.00	Y	W
      121805	032507	180.00	Y	W	30.30	Y
      032607	123007	180.00	Y	W	25.00	Y
      123107		180.00	Y	W

   NOTE: Technicians are responsible for validating the correct offset in ICF. If a calculation appears incorrect (WC rate increases, and MBA also appears to increase), technicians should perform manual calculations to validate offset.

4. Applying expenses to the LS award

To process LS awards involving expenses, see Prorating a Workers’ Compensation/Public Disability Benefit (WC/PDB) Lump Sum Settlement in DI 52150.060.

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 Notice Provisions Pre-1981 Amendment Cases per DI 52170.040.

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.

An attorney sends the NH to a doctor for an examination in connection with a pending WC settlement. The NH paid the doctor charges of $125 for the exam. The settlement does not mention this expense. It is excludable because the NH incurred the expense in connection with the WC claim.

7. Calculating monthly WC/PDB rate with excludable expenses

Calculate the WC or PDB payments and excludable expenses separately for each month. If applicable, calculate the monthly WC or PDB amount and round to the next lower dime per instructions in DI 52150.035C.2.

For expenses, round normally to the nearest penny; subtract the amount from the WC or PDB for the month and then round down the final WC or PDB amount to the lower dime. Apply separate monthly equivalency tests to the WC or PDB rate and to the expenses, if applicable.

The following table provides an example of calculating the monthly WC or PDB rate with excludable expenses:

a. Excludable expenses start or end in the middle of the month

Keep these items in mind when dealing with middle of the month expenses:

• Prorate the expenses using $0 for days excludable expenses are not involved per DI 52150.040D.1.

• Compute the expenses daily rate and round to the nearest penny, as seen in DI 52150.035B.

• Subtract this amount from the WC or PDB rate for the month.

• Round down the final WC or PDB amount to the lower dime.

The following table provides an example of calculating the monthly WC or PDB rate with excludable expenses that start or end in the middle of the month:

b. Excludable expenses mid-month change and monthly equivalent comparison

Keep these items in mind when dealing with middle of the month expense changes and monthly equivalent comparison:

• Prorate the expenses as in DI 52150.040D.1.

• Round the expenses to the nearest penny.

• Subtract this amount from the WC or PDB for the month.

• Round down the final WC or PDB amount to the lower dime.

The newly derived excludable expenses rate for the adjustment month may be:

• higher than the monthly equivalent for the higher weekly expenses rate; or

• lower than the monthly equivalent for the lower weekly expenses rate.

Base the new excludable expenses rate in the month of change on these comparisons:

• Compare the monthly equivalent for the higher weekly expenses rate to the new expenses rate computed for the mid-month adjustment, using whichever rate is lower. The change cannot result in monthly expenses higher than the monthly equivalent for the higher weekly expenses rate. or

• Compare the new expenses rate computed for the mid-month adjustment to the monthly equivalent for the lower weekly expenses rate, using the higher of the two. The change cannot result in monthly expenses less than the monthly equivalent for the lower weekly expenses rate.

  If applicable, apply separate monthly equivalency tests to the WC or PDB rate and to the expenses. For examples of WC/PDB rate monthly equivalency comparison see DI 52150.040D.4.

  The following table provides an example of excludable expenses equivalency comparison:

J. 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 or 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 for deduction from continuing payments. Entries on both screens should only occur where the case calls for it (an award that says $800 expenses from retroactive periodic payments and 15 percent 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 expense 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; and

• STOP date if one is entered.

For coding limitations and workarounds, see the Interactive Computations Facility (ICF) Resource Page for WC/PDB Offset Computations .

K. Excludable expenses and PDB

PDB cases involving excludable expenses are rare. If you encounter such a case, follow the WC procedures for verifying and allowing excludable expenses throughout this subchapter.

L. References

• GN 04001.100 Reopenings - Change in Ruling or Legal Interpretation - Change of Position

• GN 04030.080 Reopening When Workers’ Compensation/Public Disability Benefits Offset is Involved

• DI 52110.005 Vocational Rehabilitation (VR) Payments

• DI 52120.001 Introduction to State Specific Workers’ Compensation (WC) Procedures

• DI 52145.001 Verification/Proof of Workers’ Compensation/Public Disability Benefits (WC/PDB)

• DI 52150.035 Determining the Workers’ Compensation/Public Disability Benefit (WC/PDB) Amount Used to Compute Offset

• DI 52150.040 Changes in Workers’ Compensation/Public Disability Benefit (WC/PDB) Benefits Paid

• DI 52150.060 Prorating a Workers’ Compensation/Public Disability Benefit (WC/PDB) Lump Sum Settlement

• DI 52165.010 How to Complete the Worker’s Compensation/Public Disability Benefits (WC/PDB) Interactive Computations Facility (ICF) Screens

• DI 52170.040 Notice Provision for Pre-1981 Amendment Cases

• MSOM ICFT2 031.013 WC/PDB Offset - Periodic Payment Excludable Expenses (WCEE)

• MSOM ICFT2 031.014 WC/PDB Offset - Periodic Payments (WCPP)