On June 19, 2018, the Supreme Court ruled that Employers can no longer take a credit against future medical expenses following a subrogation lien recovery. The credit against future wage loss benefits remains intact, and Employers may still reduce those benefits during the grace period. However, an Employer may no longer apply the credit to future medical expenses and pay those expenses at a reduced rate.
In Whitmoyer v WCAB (Mountain Country Meats), the claimant settled his case for $300,000. The carrier had a subrogation lien of about $110,000, leaving a balance of recovery of about $190,000. The Employer was therefore entitled to a future credit of $190,000, subject to reimbursement of expenses of recovery at 37%. In this particular case, Whitmore had settled his indemnity benefits, and the carrier sought to apply the credit against future medical expenses. Under the third party settlement agreement, this meant they could pay future medical costs at .37 cents on the dollar until the credit was exhausted.
Whitmoyer challenged the future credit based in part on an argument that Section 319, which establishes the right of subrogation in workers’ compensation cases, was never intended to apply to future medical benefits. The statute contains specific language that the credit applies to “future instalments of compensation.” The Supreme Court agreed with the argument, finding that the word instalment could only be considered to refer to weekly indemnity benefits, which are paid on a regular basis. Medical benefits, which may be paid sporadically and are not necessarily on any kind of schedule, cannot be considered instalments. The Court ruled that in cases where an Employer maintains a future credit following the recovery of a subrogation lien, that the credit may only be applied to future wage loss benefits.
Here is a quick summary of the importance of this decision:
- The case does not impact the calculation of Employer’s subrogation lien, which still includes wage loss and medical benefits paid in the claim.
- This case only applies to scenarios where the third party recovery exceeds the Employer’s subrogation lien. If the lien is more than the recovery, there is no future credit and this case has no impact.
- Employers still have the same future credit, but it can only be applied to wage loss.
- Employers may no longer take a credit against medical bills and pay those bills at a reduced amount. They must now pay the entire amount that is due after the bills are re-priced.
This case has several immediate impacts on employers who have a future credit following a subrogation recovery. First, employers should stop taking a credit against future medical expenses. The entire credit should be taken against future wage loss benefits. In many cases, employers will still obtain the full credit, albeit at a slower rate. Second, employers should monitor medical treatment more closely following a third party settlement agreement. Prior to Whitmoyer, a future credit discouraged claimants from treating unnecessarily because the employer would only be responsible for a portion of the medical treatment. Now that the employer is responsible for paying the entire re-priced amount, medical treatment following a third party settlement agreement is likely to increase. Further, when considering an indemnity only settlement, employers should be aware that no future credit for wage loss will be available in the event a potential third party action exists.
Feel free to contact us if you have any questions or would like to run a specific scenario by us.
A link to the full case can be found here. http://www.pacourts.us/assets/opinions/Supreme/out/Majority%20Opinion%20%20Reversed%20%2010358731638511278.pdf?cb=1
By Robert W. Elias
Elias Mickle Kennedy LLC
