Overpaying PTD: A 60-Second Seminar in Workers’ Compensation Claims Handling

Although rarely seen, there are times when an injured worker’s permanent-total disability (PTD) rate may “decrease” just like it did this year.  In today’s blog we will discuss how this rare phenomenon occurs, as we suspect that most claims offices are unaware of the decrease, and as a result are overpaying PTD benefits.

When an injured worker is declared by a judge to be 100% PTD, the applicant is usually represented by counsel, who is awarded a lump sum attorney fee, commuted off the side using one of the two following commutation methods: 

1. The “Uniform Reduction Method.”  This is nothing more than a fixed rate that never changes over the life of the award. A fixed amount is to be deducted from the applicant’s weekly PTD benefit for life.
2. The “Uniform Increasing Reduction Method.”  Every year the amount reduced from the applicant’s PTD benefit is increased by a constant percentage (usually 3%).

Most claims professionals are aware that in a 100% disability case the underlying PTD rate is increased annually by the “Cost of Living Allowance.”  Afterwards the attorney fee commutation reduction is applied to the underlying rate, resulting in a net payment to the applicant.  However, in those rare situations where the COLA is 0% (as was the case when the COLA was announced last November) the underlying PTD rate remains unchanged.  However, most claims professionals do not realize that a 0% COLA has no bearing on the annual commutation reduction.  Allow us to demonstrate.

Example:  Presume that an applicant’s underlying PTD rate in 2023 was $1,400 per week and subject to a uniform increased reduction commutation of $400.00.  The applicant’s net weekly PTD rate would therefore be $1,000.00.  As the COLA for 2024 is 0% the underlying PTD rate of $1,400 remains unchanged; however, the uniform increasing reduction adjustment still applies.  In 2024 the $400.00 weekly reduction increases by 3% to $412.00, resulting in a net PTD benefit rate of $988.00 per week.  Notice how the weekly PTD rate decreased over the prior year from $1,000 to $988.  Yet we suspect many claims offices continue to pay PTD in 2024 at the same rate as 2023, as they did not realize that a 0% COLA does not apply to a commutation!

We at Friedman + Bartoumian recommend that all claim offices review their open 100% PTD files to determine if a commutation order was issued pursuant to the uniform increasing reduction method.  If so, then the current weekly PTD rate being paid should be less than the rate paid in 2023.  We believe that this error is occurring at a vast majority of claims offices throughout the state.  It only takes a moment to double-check your files. Should you need assistance verifying the proper PTD rate, please feel free to contact the experts and here at F+B!