As we approach the end of the calendar year, it’s important to remember that cost-of-living adjustments (COLA) should be made to continuing life pension and permanent total disability awards.
For benefits payable on Jan. 1, 2023, all continuing Life Pension and Permanent Total benefits (70% PD or greater) for Date of Injury 1/1/2003 and later should be increased based on the COLA application found in Labor Code 4659. Please note that this only applies to dates of injury of 1/1/03 and later. COLA does not apply to dates of injury before 1/1/03.
COLA application could mean that a benefit check has 2 different weekly rates involved.
2023 COLA INCREASE
For 2023, the COLA increase is 0.0515924, or 5.15924 percent, according to this DIR Newsline:
Why that percentage? Well the state average weekly wage (SAWW) increased from $1,570 to $1,651, which amounts to an increase of 5.15924 percent.
CHANGE IN TD EARNINGS
The maximum and minimum temporary total disability rates are also increasing in 2023. For 2023 dates of injury, the minimum and maximum rates are going to the following amounts:
- $364.29 minimum TTD earnings x 2/3 = $242.86 minimum TTD rate for 2023
- $2,478.72 maximum TTD earnings x 2/3 = $1,619.15 maximum TTD rate
While a 5% COLA increase may sound like a lot, it actually pales in comparison to the 2022 COLA increase of 13.5213 percent. Why did it do that? Well that’s because the 2022 state average weekly wage (SAWW) increased from $1,383 to $1,570—an increase of 13.5213 percent according to this Newsline.
As you may recall, the 2022 change in TD earnings was as follows:
- $346.42 minimum TTD earnings x 2/3 = $230.95 minimum TTD rate for 2022
- $2,309.56 maximum TTD earnings x 2/3 = $1,539.71 maximum TTD rate
WAIT A SECOND, WHICH BENEFITS DOES COLA AFFECT AGAIN?
Permanent partial disability (PPD) benefits are not adjusted by SAWW changes. Life pension, permanent total disability (PTD), temporary total disability benefits (TTD), and death benefits could all be affected directly or indirectly.
APPLYING COLA TO LIFE PENSION BENEFITS (AKA LIFETIME BENEFITS)
When we use the phrase “life pension” benefits, we refer to the life pension that kicks in on PD awards of 70% or greater.
Please note that COLA is applied to the current benefit rate BEFORE any reduction. The reduction is based on one of two Methods.
EXAMPLE OF A COLA APPLICATION
Please note that this is an example only. Each case has unique attorney and commutation values.
Here are the facts of our sample PD and life pension award:
- 10/16/2010 Award; 2007 DOI; 83% PPD; Start date 7/19/08
- Life pension start date 11/1/2020
- Life pension start rate $177.81
Attorney fees are commuted “from the side” by the Uniform Reduction method.
When doing a calculation like this, please recall that the Disability Evaluation Unit’s commutation calculator gives the following warning:
“The claims administrator is cautioned that when calculating the annual increase in PTD pursuant to LC 4659(c), the applicable SAWW adjustment is to be applied to the prereduced PTD rate, i.e. the rate before reduction for any prior commutations.”
METHOD #1: UNIFORM CONSTANT REDUCTION METHOD NOTES
One way to apply COLA to our example is the Uniform Constant Reduction Method.
For this method, the weekly deduction remains constant or uniform for the life of the injured worker. The reduction becomes effective on the day after the date of commutation.
Method #1 – Uniform (constant) Reduction – Application Example
2020 LP Start Rate: $177.81
The Uniform Reduction ($39.14 in this example, based on DEU Commutation) is then subtracted from the rate before reduction.
LP Start in 2020: $177.81 – $39.14 = $138.67 to the injured worker
2021 COLA = 4.3774%
$177.81 x 1.043774 = $185.59
The Uniform Reduction ($39.14 in this example) is then subtracted from the updated rate before reduction.
Effective 1/1/2021: $185.59 – $39.14 = $146.45 to the injured worker
2022 COLA = 13.5213%
$185.59 x 1.135213 = $210.68
The updated rate for 2022, before reduction = $210.68.
Effective 1/1/2022: $210.68 – $39.14 = $171.54 to the injured worker
2023 COLA = 5.15924%
$210.68 x 1.0515924 = $221.55
The updated rate for 2023, before reduction = $221.55
For Benefits Payable Effective 1/1/2023:
$221.55 – $39.14 = $182.41 to the injured worker
|2024||TBD||+ COLA||$39.14||A minus B|
|2025||TBD||+ COLA||$39.14||A minus B|
METHOD #2: UNIFORM INCREASING REDUCTION METHOD NOTES
Another way to apply COLA to our example is the Uniform Increasing Reduction Method.
For this method, the weekly reduction increases every year effective January 1st by the same fixed percentage equal to the “assumed annual SAWW increase” listed above. The initial reduction becomes effective on the day after the date of commutation. For the convenience of the parties, the reductions for the current year plus the next fifteen years are shown below.
|(Input year LP starts)||2020||$26.67|
In this case, the Reduction increases annually by 3% for the duration of the Life Pension Benefit.
- Check the Award specifics for the amount of annual increase.
Method #2 – Uniform Increasing Reduction- Application Example
|Benefit to Worker
|2024||TBD||+ COLA||$30.02||A minus B|
|2025||TBD||+ COLA||$30.92||A minus B|
CONCLUSION: ADDITIONAL TIPS
These COLA increases are something you will want to take into account on your cases with benefits owing before heading to your New Year’s Eve festivities. Here are a few more helpful things to consider when doing that:
- Check your award and associated paperwork including any commutation worksheets from the DEU. The commutation worksheets should identify any reduction from that award. That calculation may or may not be written into the Stipulation/Award.
- Reductions would only apply with a commutation from future benefits, such as for attorney Fees.
- Consider review of any prior COLA and benefit rate adjustments for correct application.
If you need a little more help on COLA applications, we do have free webinars on commutations and other topics available at the following link (CE credits are available):
Tim Mussack, the author of this blog post, leads Bradford & Barthel’s AMA Guides & Ratings Department. This division analyzes doctor reports to determine whether the physician has properly applied the AMA Guides, and also assists clients with complex COLA applications. Mr. Mussack and his associates have analyzed over 20,000 reports and identified tens of millions of dollars in potential savings for clients. For further information, see https://bradfordbarthel.com/areas-of-practice/bb-ratings/. If you have any questions about rating PD, please feel free to reach out to Tim at email@example.com or 916.569.0790.
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