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Indemnity payments for a person who is totally permanently disabled1 are
set at the same rate as total temporary disability indemnity payments.
Payments are made for the remainder of the injured person’s life.


This article describes how a computer program calculates the present value of
the total permanent disability benefit.

Determine Initial Payment | Determine Future Payments
Discount Future Payments | Discount for Proability of Living
Add All Discounted Future Payments | Programming Considerations
Examples | Conclusion



1: DETERMINE INITIAL PAYMENT IN 2007

a. Adjust the Weekly Earnings Between the Minimum and Maximum
Allowable Weekly Wage in the Year of Date of Injury


The payment rate is based upon the weekly earnings before the injury.
LC 4659(b) states:

“If the permanent disability is total, the indemnity based upon the average weekly earnings determined under Section 4453 shall be paid during the remainder of life.”

LC 4453(a) lists the minimum and maximum allowable weekly wage. It states:

(5) Not less than one hundred sixty-eight dollars ($168) for permanent total disability, … nor more than six hundred nine dollars ($609), for injuries occurring on or after July 1, 1994.
(6) Not less than one hundred sixty-eight dollars ($168) for permanent total disability, … nor more than six hundred seventy-two dollars ($672), for injuries occurring on or after July 1, 1995.
(7) Not less than one hundred sixty-eight dollars ($168) for permanent total disability, … nor more than seven hundred thirty-five dollars ($735), for injuries occurring on or after July 1, 1996.
(8) Not less than one hundred eighty-nine dollars ($189), nor more than nine hundred three dollars ($903), for injuries occurring on or after January 1, 2003.
(9) Not less than one hundred eighty-nine dollars ($189), nor more than one thousand ninety-two dollars ($1,092), for injuries occurring on or after January 1, 2004.
(10) Not less than one hundred eighty-nine dollars ($189), nor more than one thousand two hundred sixty dollars ($1,260), for injuries occurring on or after January 1, 2005. …”

1LC 4452.5 defines total as 100% disabled. The person would have no future earning capacity.


This code section sets the initial limitations of the weekly earnings.

Example:
A person injured in the year 2005 the average weekly earnings
can be no less than $189.00 or more than $1260.00. So, if the person only
earned $100.00 per week the average weekly earnings for calculating the
payment is set at $189.00. If the person earned $3,000.00 per week the
average weekly earnings for calculation the payment would be set at the
maximum of $1260.00 per week.

This isn’t the end of the story. Things get more complicated. The labor code says
that the minimum and maximum are to be increased each year based upon the
state average weekly wage2 (SAWW). The increases commence on 1/1/07 and
are applicable only to injuries on or after 1/1/05. This is a type of cost of living
adjustment (COLA) only it is based upon average wages paid in the state of
California.

The limits for dates of injury before 1/1/05 are fixed. Only injuries occurring on or
after 1/1/05 do the limits increase each year.

LC 4453(a)(10) continues:
“…for injuries occurring on or after January 1, 2005. Commencing on January 1, 2007, and each January 1 thereafter, the limits specified in this paragraph shall be increased by an amount equal to the percentage increase in the state average weekly wage as compared to the prior year. For purposes of this paragraph, "state average weekly wage" means the average weekly wage paid by employers to employees covered by unemployment insurance as reported by the United States Department of Labor for California for the 12 months ending March 31 of the calendar year preceding the year in which the injury occurred.”

2This is total wages in state that is covered by unemployment insurance divided by
total covered employment divided by 52
.


The SAWW reported for the past relevant years are shown in Table 1.

Table 1. SAWW as Report in April by Year1



Note that the applicable SAWW for any particular year is the SAWW in March 31
of the prior year. Even though the SAWW is published in April or May the data is
actually six months old by the time it is published.

The definition SAWW in last sentence of LC 4453(a)(10) refers to the year
“preceding the year in which the injury occurred”. This is inconsistent
with preceding sentence that says: “Commencing on January 1, 2007, and
each January 1 thereafter, the limits specified in this paragraph shall be increased
by an amount equal to the percentage increase in the state average weekly wage
as compared to the prior year.”

The prior year in the statement, “… as compared to the prior year.” must refer to the
year before 20073 , i.e. 2006. This means compare the SAWW applicable to 2007
to the SAWW applicable to 2006. If the last sentence were to control all increases
would be constant and based upon the date of injury.

This does not comport with an interpretation that ties benefits to the varying state
average weekly wage. So, the interpretation here is that the limits will increase
based upon the year prior to the current year rather than the year prior to the date
of injury.

The comparison is then of the SAWW reported in April 2005 (for the applicable
year 2006) to the SAWW reported in April 2006 (for the applicable year 2007).
The SAWW report in April 2005 is 838.42. The SAWW reported in April 2006 is
880.00. This is an increase of 4.96%. Refer to Table 1 above.

The limits for injuries on or after 1/1/05 commencing 1/1/07 are: minimum is
$198.37 and maximum is $1322.49 shown in bold in Table 2.

3There is an ambiguity with statement and the last sentence defining SAWW but interpretation given in the text here comports more with the context of the code.


Table 2. Minimum and Maximum Weekly Earnings


A person injured in 2005 has weekly earnings limited to $1260.00 in 2005 and
2006 but in 2007 the limit is raised to $1322.49. The limits for dates of injury on
or after 1/1/05 get increased every January 1. This is because the paragraph of
LC 4453(a)(10) is describing the limits for injuries occurring on or after 1/1/05.

Is this increase in limits applied retroactively to injuries occurring back to 1/1/05
and after? It may be that the legislature only intended the increase in limits to
apply at the initial setting of the allowable weekly earnings. But the language of the
code section states it applies to injuries on or after 1/1/05. If the legislature had
intended for the increase to apply only for setting the initial limit it would not have
the increase to become effective at a later time, i.e. effective 1/1/07. It would
have simply said the increase only applies to an injury occurring on or after 1/1/07.

As a result of this language the limits for dates of injuries on or after 1/1/05 are
recalculated on 1/1/07. In effect this is applying the limits retroactively to earlier
dates of injury.

b. Multiply by 2/3 to get the Weekly Payment in Year of Date of Injury

The weekly indemnity payment is two-thirds of the allowable weekly earnings. LC 4653 states:

“If the injury causes temporary total disability, the disability payment is two-thirds of the average weekly earnings during the period of such disability, consideration being given to the ability of the injured employee to compete in an open labor market.”

Example continued: In the above example, the minimum earner would be
allowed a weekly payment of 2/3 x 189.00 = $132.25. Thus, the totally disabled
minimum earner would receive payments for remainder of his or her life of
$132.25 per week. A totally disabled person who earned more than $1260.00
per week would receive a weekly payment of $881.65 for the remainder of
his or her life.

In summary the weekly indemnity payment between the minimum and maximum allowable weekly wage is 2/3 of the weekly wage.

Payments are actually made every two weeks at the end of the two-week period.4

c. Multiply Payment by Adjustment Factor to get Payment in 2007


To determine the present value of total disability payments a starting date must
be established. It is assumed that the present value is being determined in the
year 2007, so, the starting date for payments will be in the year 2007. It is then
necessary to determine the starting payment in 2007.

More complications. Once the initial payment is set as described above there
is another code section that operates to increase that payment similar to a cost
of living increase.

LC 4659(c) states,
“For injuries occurring on or after January 1, 2003, an employee who becomes entitled to receive a life pension or total permanent disability indemnity as set forth in subdivisions (a) and (b) shall have that payment increased annually commencing on January 1, 2004, and each January 1 thereafter, by an amount equal to the percentage increase in the "state average weekly wage" as compared to the prior year.”

The above section of this article dealt with the limits of allowable weekly earnings.
This code section is dealing with the weekly benefit payment – not limits.

This payment increase applies to dates of injuries on or after 1/1/03 and
commences 1/1/04. Note this differs from the adjustment of the limits of weekly
earnings. The limits increases applied to injuries on or after 1/1/05 and applied
commencing 1/1/07.

The payment for injuries occurring before 1/1/03 are fixed and do not get increased.

These adjustments to the payment rate accumulate. The increase for any
particular year is on top of the previous year’s payment. It works like a cost of living
increase. The payment increase applies to the increase of the payment from the
previous year.

A person injured in 2003 will get an increase in payment rate on 1/1/04 and again
on 1/1/05 and again on 1/1/06 and again on 1/1/07. Each increase may be at a different percentage depending on the applicable percentage increase in SAWW.

4LC 4650(c) “Payment of temporary or permanent disability indemnity subsequent to the first payment shall be made as due every two weeks on the day designated with the first payment.”


Table 3 shows the accumulation of the increase factors. The payment rate in the
year 2007 for an injury that occurred in 2003 would be 1.1132191 multiplied by
the original rate in 2003.

Table 3. Payment Increase Factor by Year for Total Permanent Disability

* No increase in applicable SAWW. Only increases apply. Decreases do not apply.

In summary the payment in a particular year is computed as follows: first, the
weekly wage is adjusted between the minimum and the maximum based upon
Table 2; second, the adjusted weekly wage is multiplied by 2/3 and, third, the
weekly rate is multiplied by 2 to get the payment, fourth, the payment is multiplied
by the payment increase factor for the particular year as shown in Table 3.

Example: A person injured in 2006 who earned $1200 per week has weekly
earnings between the minimum and maximum according to Table 2. So, the
weekly rate in the year 2006 is 1200 x 2/3 = $800.00. On 1/1/07 the maximum
allowable weekly earning was increased. But this has no effect because the
weekly earnings were below the maximum already. The weekly rate is increased
on 1/1/07 by 4.95932% to $839.67. Every January 1, thereafter, the weekly rate
would be increased.

Example: A person is injured in 2005 earned $1500.00 per week. In the year
2005 the maximum weekly earnings allowed is $1260.00. So, the payment would
be 2/3 times 1260 = 840.00 in the year 2005. On 1/1/06 the weekly rate would be
increased by 4.00813% to $873.67 for the year 2006. Separate code sections apply
to the maximum and to the payment; so, each section must be applied separately
or independently.5 The payment code section says “shall have that payment
increased annually commencing on January 1”.

It is interpreted that the legislature meant by “that payment” the amount of the first
payment. The payment increase then depends upon the prior year’s payment rate.
This is shown in Table 4.

Table 4. Payment Increases


If the increase in the limits results in a greater increase than the increase based
upon the payment in the prior year then the increase based upon the limit increase
will be controlling. The method that results in the largest payment will be applied.
The increase in limits is shown in Table 4.


Table 5. Limit Increases


5It can be argued that the payment was already increased by the SAWW when the
maximum was raised. But this argument fails where the weekly wage was already
at the maximum and raising the maximum results in no increase.



On 1/1/07 the maximum weekly earnings allowed was increased to $1322.48.6
So, for a DOI in 2007 2/3 of 1322.48 is 881.65. Does that 881.65 payment also get
increased for SAWW? If “that payment” means a payment in the prior year going
back to the initial payment rate then the answer is no because there was no
prior year.

For an injury occurring in 2007 there would not be an increase due on the payment
because the first payment increase does not come until 1/1/08. There was no prior
year payment.

For a DOI in 2006 the weekly earnings in 2006 is limited to $1260.00 and the
payment is $840.00. On January 1, 2007, the limit increased and a payment based
upon the maximum weekly earnings is 2/3 of that, which is 881.65. The payment in
the prior year was 840.00. The annual increase in payment of 4.95932% makes the
new payment 881.65. Since these are the same there is no need to quarrel as to
which method takes precedents.

Once weekly earning is adjusted within the allowable limits given in Table 2, the
initial payment is 2/3 of the allowable weekly earnings times the payment factor
shown in Table 3. Payment = 2/3 x allowable weekly earnings x payment factor for
the applicable year. Examples are given in Table 6.

For injuries occurring in 2005 there is a difference. The maximum payment in 2005
was 840.00. This increased in 2006 to 873.69 and in 2007 to 917.02. But the
maximum payment based upon the weekly earnings limit of 1322.48 is 881.65.
So, the payment used for 2007 is 917.02.

For present value purposes the only concern is the starting payment in the year
2007. Step 1 is completed. It has established the disability payment in the
year 2007.

When the program needs to be updated for 2008 new values will have to be calculated for tables 1-6 and table 8.

6It can be argued that the increase in maximum only applies to injuries occurring on or after
1/1/07. But the code section says “the limits specified in this paragraph shall be
increased”. Limits for dates of injuries on or after 1/1/05 are specified in the paragraph.



Table 6. Examples of Weekly Payment in 2007


* Maximum limit was increased to 1322.48 but since the increase in payment method produces the higher payment, the prior limit must be used to compute weekly earning values between the minimum and the maximum when applying the accumulated SAWW increase factor.


Determine Initial Payment | Determine Future Payments
Discount Future Payments | Discount for Proability of Living
Add All Discounted Future Payments | Programming Considerations
Examples | Conclusion

Present Value of
Total Permanent Disability

For Date of Computation in 2007
Warren Schneider and Stephen Schneider
Med-Legal, Inc.



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