A work comp claim pays medical and indemnity benefits to injured workers. In most states, the claim remains open as long as the injury continues to be treated, or until the worker and the insurance company decide to settle the case.

A settlement usually consists of a lump-sum payment to the worker, which releases the workers’ compensation insurance company from any further liability for the injury.
If the worker is also receiving or expecting Social Security disability benefits, he or she must consider the impact of a lump-sum settlement.

Remember that federal law limits the amount of monthly benefits from workers’ comp and Social Security disability, combined, to 80% of the pre-injury wage. If the amount of benefits would exceed that amount, then the Social Security disability payment is reduced.

But when a lump-sum settlement is prepared, Social Security must be notified. Social Security will then require the insurance company to furnish complete information on the date of the settlement and the net amount paid to the worker. Then Social Security divides the settlement amount by the monthly amount of indemnity paid to the worker before the settlement. The result is the number of months that Social Security will continue to pay its reduced benefit to the worker. After the final reduced payment is made, Social Security disability payments will increase to their full amount.

Consider the case of a worker who received $2,000 a month in work comp disability benefits, and was receiving reduced Social Security benefits because of the 80% rule. If the settlement amount is $20,000, Social Security will pay this same reduced benefit for 10 more months ($20,000 divided by $2,000 equals 10), then raise the disability amount to its full level.

To avoid this scenario, the lump-settlement should be calculated according to the workers’ life expectancy. In the above case, if the worker had a life expectancy of 10 years, the $20,000 settlement amount would be divided by 120 (10 years times 12 months). The result would be a monthly settlement benefit, based on life expectancy, of $166.66. Social Security then must consider this the amount paid each month for the purpose of meeting the 80% threshold, and will pay the full disability amount, up to the 80% limit. Wording a work comp settlement this way can mean a difference of hundreds of dollars of each month in benefits to the injured worker.