20 CFR 404.408(d)

SSR 76-34c

Vaughn v. Mathews, U.S.D.C. S.D. Ohio, No. 8627 (2/18/76)

Where the Secretary reduced claimant's Social Security Disability Insurance Benefits on the basis of a lump-sum amount he received in settlement of his workmen's compensation claim, he contended that the reduction was improper because (1) the lump-sum settlement was not based on a finding that he was "entitled" to workmen's compensation, (2) the lump-sum payment was not a true substitute for periodic payments, and (3) alternatively, those of his medical expenses which were covered by Medicare should not have been counted for reduction purposes. Held, the reduction was proper because (1) any workmen's compensation award, regardless of whether paid as a settlement compromise, inherently represents a finding that the claimant is "entitled", (2) a lump-sum award can be regarded as a substitute for periodic payments even where the award does not specifically equate the lump-sum to specific periodic amounts, and (3) medical expenses covered by Medicare could not be excluded in computing the reduction because they were not "paid or incurred" by the claimant.

PORTER, District Judge:

This is an action under 42 U.S.C. § 405(g). Plaintiff seeks review of the decision of the Secretary holding that plaintiff's disability insurance benefits were subject to a reduction under the "workmen's compensation offset" provisions of 42 U.S.C. § 424a. The case is here for general judicial review on the merits and is before us on the submissions of each side (doc. 9 for plaintiff; doc. 12 for defendant).

The plaintiff became entitled to disability benefits effective July 1969 but the benefits were subject to a reduction due to his entitlement to weekly workmen's compensation for a period ending in March 1970. Thereafter, he claimed further workmen's compensation for a psychiatric disability. This subsequent claim culminated in an agreement in April 1971 with the workmen's compensation administrator whereby the plaintiff settled his claim for "$8,500.00, plus unpaid medical bills on file." The settlement was made in full satisfaction of all claims and, after attorney fees were paid, the lump sum received by the claimant under the settlement agreement was $5,666.67.

The Appeals Council found that the plaintiff's disability benefits were subject to offset in the amount of $3,366.67 -- the $5,666.67 previously determined less $2,300 attributable to medical expenses after the date of the workmen's compensation award.

Title 42 U.S.C. § 424(a) provides in pertinent part:

"(a) If for any month prior to the month in which an individual attains the age of 62 --
(1) such individual is entitled to benefits under section 223 (42 U.S.C. § 423), and
(2) such individual is entitled for such month, under a workmen's compensation law or plan of United States or a State, to periodic benefits for total or partial disability (whether or not permanent), and the Secretary has, in a prior month, received notice of such entitlement for such month,
the total of his benefits under section 223 (42 U.S.C. § 423) for such month and of any benefits under section 202 (42 U.S.C. § 402) for such month based on wages and self-employment income shall be reduced . . . ." (Emphasis added).

And, Title 42 U.S.C. § 424a(b) reads as follows:

"(b) If any periodic benefit under a workmen's compensation law or plan is payable on other than a monthly basis (excluding a benefit payable as a lump sum except to the extent that it is a commutation of, or a substitute for, periodic payments),
the reduction under this section shall be made . . . ." (Emphasis added).

It is plaintiff's contention that the offset provisions of § 424a(a) and (b) are not applicable to the settlement of April 1971 because: 1) plaintiff's settlement and resulting lump sum payment was not based upon a determination by Ohio authorities that plaintiff was "entitled" to workmen's compensation benefits, and 2) the lump sum payment was not a true substitute for periodic payments -- i.e., not a "commutation of, or a substitute for, periodic payments" within the meaning of § 424a(b). Alternatively, plaintiff argues that even if the settlement of April 1971 does fall within the scope of § 424a, more medical expenses should have been excluded from the offset pursuant to 20 C.F.R. § 404.408(d).

We turn first to plaintiff's contention that the offset provisions of the Social Security Act are inapplicable since they only come into play where a person is "entitled" to workmen's compensation benefits and, here, the benefits received by plaintiff were not awarded pursuant to any explicit finding of entitlement. We find this argument to be without merit. As the Secretary points out (doc. 12, p. 3) the following language of Section 4123.54 of the Ohio Revised Code makes it clear that compensation benefits can only be made if the recipient is "entitled" to receive such benefits:

"Every employee, who is injured or who contracts an occupational disease, . . . wherever such injury has occurred or occupational disease has been contracted, provided the same were not purposely self-inflicted, is entitled to receive . . . such compensation for loss sustained on account of such injury, occupational disease or death, and such medical, nurse, and hospital services and medicines, and such amount of funeral expenses in case of death, as are provided by sections 4123.01 to 4123.94 inclusive, of the Revised Code. (Emphasis added).

Since the settlement of April 1971 was pursuant to Ohio Revised Code Section 4123.65, it is apparent that the compensation received was based on entitlement. We do not think the "denial of liability" recitation which appears in the settlement documents indicates that the Ohio Industrial Commission paid the plaintiff benefits to which he was not entitled. Indeed, plaintiff provides no authority of any kind for the proposition that benefits could properly be awarded absent "entitlement." We must conclude that plaintiff was entitled to the lump-sum settlement of April 1971.

Plaintiff further argues that the offset provisions of the Social Security Act are not applicable because the lump sum he received was not a true substitute for periodic payments. In rejecting this argument, the Appeals Council relied on Paris Stone v. Richardson, CCH UIR, Fed. para. 16,093 and 17,044 (S.D. Ohio 1970, 1973). We think that reliance is well placed. Paris Stone holds that the workmen's compensation offset applies to a lump sum settlement reached under Ohio Revised Code Section 4123.65. Indeed, the fact that there was never a determination in that case of "either the period involved in periodic payment or the amount involved in a periodic payment" indicates that a lump sum settlement under Section 4123.65 can be regarded as a substitute for periodic payments even where the lump sum has never been equated to a specific monthly or other periodic amount. Plaintiff's cases do not detract from the Paris Stone holding, and the Appeals Council cited two cases which are similar to ours in which lump sum settlements have been treated as substitutes for periodic payments (Tr. 161-62). Accordingly, we think plaintiff's argument on this point is not well taken.

We turn now to plaintiff's alternative argument that no part of the $8,500 lump sum settlement should have been subject to offset because it all went for legal fees and medical expenses. The Appeals Council addressed this issue in considerable detail and, rather than repeat the Council's discussion in toto, we shall merely attach the pertinent portion (Tr. 162-64) of their decision at the end of our opinion. For summation purposes, suffice it to say that the Council determined that, in addition to the $2,833.33 of attorney fees which were not subject to offset, there should be $2,300 excluded from the offset amount which $2,300 represented reasonable medical expenses paid or incurred by plaintiff between April 1971 (the settlement date) and July 1, 1973 (the date he became eligible for Medicare). In essence, plaintiff argues that the Secretary erred by not excluding medical expenses covered by Medicare from the offset.

The applicable regulation, 20 C.F.R. § 404.408(d), provides in pertinent part as follows:

"(d) Items not counted for reduction. Amounts paid or incurred, or to be incurred by the individual for medical, legal, or related expenses in connection with his workmen's compensation claim, or the injury or occupational disease on which his workmen's compensation award or settlement is based, are excluded in computing this reduction under paragraph (a) of this section to the extent that they are consonant with State law . . . ." (Emphasis added).

Citing this language, plaintiff argues: 1) that disability benefits are not to be reduced if such reduction is not in accord with State law; 2) that in Ohio, a "collateral source" may not properly be considered in diminution of damages; and 3) that, therefore, workmen's compensation benefits cannot properly be used to offset Social Security disability benefits to which claimant is otherwise entitled. We find this argument unpersuasive because, as the Secretary points out (doc. 12, p. 5), it is based upon an "ungrammatical and illogical" interpretation of the regulation. We believe an analysis of the pertinent language indicates that the "they" which must be consonant with State law refers to "amounts paid or incurred" and not to the "exclusion" of such amounts in computing the reduction. That is, medical expenses, paid or incurred by the individual are excluded from offset to the extent that they (the amounts of said expenses) are consonant with State law. We think it is clear that the regulation's "consonant with State law" language is addressing the question of how much may be excluded and therefore only comes into play where an exclusion from offset is shown to be proper in accordance with the rest of the regulation -- i.e., where qualifying medical expenses have been paid or incurred by the individual.[1] Thus, the permissibility of an exclusion is to be determined in accordance with the Social Security Act and the appropriate regulation promulgated thereunder (i.e., 20 C.F.R. § 404.408), and only the amount of such a permissible exclusion is affected in any way by State law -- i.e., the amounts are excluded "to the extent that they are consonant with State law." We agree with the Secretary (doc. 12, p. 5) that if the draftsman of the regulation meant to say that the permissibility of an exclusion were to be determined according to State law, he would not have written "to the extent they are consonant with State law" but instead would have written "to the extent that such exclusion is consonant with State law," or some equivalent thereof. In short, we think plaintiff's interpretation of the regulation is unsound. It is our opinion that Ohio's "collateral source" rule has no bearing on this case. In this connection, we would simply state that the cases cited by plaintiff are not on point -- they deal generally with the topic of collateral source but have nothing to do with the sort of Social Security issues presently before us.

In what appears to be almost afterthought fashion, plaintiff "throws in" two final arguments which we shall address briefly. First, plaintiff contends that since his eligibility for health insurance was not foreseeable when the settlement was reached in April 1971, his subsequent eligibility should have been ignored in calculating offset. The fact remains that plaintiff's Medicare eligibility was a fait accompli by the time offset was considered and calculated by the Secretary, and the plaintiff advances no reason why the Secretary should have (or dutifully could have) ignored the relevant facts and circumstances existing at that time. Secondly, and lastly, plaintiff argues that the offset regulation, 20 C.F.R. § 404.408(d), is invalid to the extent it goes beyond workmen's compensation "entitlements" and "purports to cover settlement agreements and compromises." As may properly be inferred from our earlier discussion, the concept of "entitlement" to benefits is not inherently at odds with settlements and compromises. Whatever a State agency pays, whether by virtue of settlement or otherwise, may be said to represent a finding as to the amount of benefits to which a claimant is "entitled." In any case, the Secretary's regulations are presumed valid and should not be overturned on the basis of an unsupported, one-sentence argument such as that advanced by plaintiff at the closing of his brief.

For the foregoing reasons, the Secretary's decision represents a proper application of the law and the regulations to the undisputed facts and must, therefore, be affirmed.

[1] Here, of course, it is the Secretary's position that medical expenses covered by Medicare do not represent amounts paid by the individual.

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