The issue is whether or not disfigurement payments made by the Commonwealth of Pennsylvania pursuant to Section 306(c)(22) of the Pennsylvania Workers' Compensation Act (PAWC Act), 77 P.S. § 513(22), are subject to the workers' compensation offset provision in Section 224 of the Social Security Act (Act), 42 U.S.C. § 424a. Based on the relevant provisions of Pennsylvania and federal law regarding treatment of disfigurement payments under the Act's offset provision, it is concluded that disfigurement payments under the PAWC Act are subject to the Act's offset provision.

QUESTION PRESENTED

This responds to your request for advice concerning whether or not disfigurement payments made by the Commonwealth of Pennsylvania to Stephen D~ pursuant to Section 306(c)(22) of the Pennsylvania Workers' Compensation Act (PAWC Act), 77 P.S. § 513(22), are subject to the workers' compensation offset provision codified in Section 224 of the Social Security Act (Act), 42 U.S.C. § 424a.

SUMMARY

We have reviewed the information that you provided and have researched the relevant provisions of Pennsylvania and federal law regarding treatment of disfigurement payments under the Act's offset provision. Based on our research, we have concluded that Mr. D~’ disfigurement payments under the PAWC Act are subject to the Act's offset provision.

BACKGROUND

Mr. D~ was approved for PAWC benefits based on a work-related injury and received temporary total disability benefits effective June 15, 2001. On May 13, 2003, Mr. D~ entered into a Compromise and Release Agreement with his employer and its insurance carrier for a lump sum award. The agreement specified that, "[t]his payment does not resolve the Claimant's claim for disfigurement benefits. To the contrary, the Claimant, Defendant-Employer and its insurance carrier hereby agree and stipulate that said issues shall be resolved by the Workers' Compensation Judge." On May 29, 2003, a Workers' Compensation Judge ordered that Mr. D~’ employer pay him fifty weeks at his compensation rate, $644.00 per week, for his "serious and permanent disfigurement," namely, two facial scars. This award was in addition to Mr. D~’ lump sum award.

DISCUSSION

The Act provides that any person who is "disabled" is eligible to receive federal disability benefits. 42 U.S.C. § 423(a). Where an individual receives state and federal disability benefits, however, the Act limits the amount that the individual may collect from both programs. 42 U.S.C. § 424a. Specifically, the Act will reduce an individual's federal disability benefits where he or she is entitled to "periodic benefits on account of his or her total or partial disability" under a state workers' compensation law. 42 U.S.C. § 424a(a)(2). Pursuant to the Act's statutory formula, the Social Security Administration (Agency) will reduce the recipient's federal benefits to the extent that the combined monthly benefits exceed eighty percent of the recipient's average pre-disability earnings. 42 U.S.C. § 424a(a)(5); 20 C.F.R. § 404.408 (2003). Congress instituted this "offset" provision to ensure that claimants did not receive income in excess of their pre-disability earnings, reducing their incentive to return to work. See Richardson v. Belcher, 404 U.S. 78, 83 (1971); Freeman v. Harris, 625 F.2d 1303, 1306 (5th Cir. 1980).

The Act clearly contemplates that workers' compensation benefits paid on a weekly basis, as well as periodic benefits that have been commuted to a lump sum award, are subject to the offset provision. 42 U.S.C. § 424a(a), (b). Accordingly, there is no question that Mr. D~’ weekly temporary total disability payments and the lump sum award are subject to the Act's offset provision. The only question that remains is whether the disfigurement award made pursuant to the PAWC Act is also subject to the Act's offset provision.

This issue was considered and decided by Judge L~ in Romansky v. Shalala, 885 F.Supp. 129 (W.D. Pa. 1995). In that case, Plaintiff was injured in a work-related accident, leaving him with a partial disability manifested by severe headaches and a permanent facial disfigurement. As a result of his injuries, Plaintiff began receiving PAWC benefits. Subsequently, Plaintiff was approved for disability insurance benefits under Title II of the Act. The PAWC Appeal Board approved a settlement that commuted Plaintiff's benefits to a lump sum award, a portion of which represented fifty weeks of compensation for Plaintiff's facial disfigurement. The Agency thereafter offset the entire lump sum award against Plaintiff's disability insurance benefits.

In disputing the Agency's action, Plaintiff maintained that the Act's offset provision only allows the Agency to offset state workers' compensation benefits that are awarded to compensate an individual on account of a "disability." In arguing that an award for facial disfigurement was not a disability award, Plaintiff focused on Pennsylvania case law recognizing that an award is granted under section 306(c) according to the nature of the injury, regardless of the extent of the disability and resulting loss of earning power. ^[1] Plaintiff, therefore, concluded that section 306(c) does not compensate an individual for a loss of earning power and, accordingly, is not an award on account of a disability. R~, 885 F.Supp. at 130. Based on this argument, Plaintiff posited that his disfigurement award did not fall within the Act's offset provision. Id.

In upholding the Agency's determination, the Court concluded that a disfigurement award is an award for a disability under the PAWC Act and, therefore, falls within the offset provision of the Act. Id. at 131. The Court found Plaintiff's argument flawed, noting that while section 306(c) does not account for the extent of the individual's loss of earning power, it did not follow that an award under section 306(c) does not compensate an individual for a loss of earning power. Id. Rather, the PAWC Act's structure "simply reflects the Pennsylvania legislature's intention to create an irrebuttable presumption that the permanent injuries listed in section 306(c), by their very nature, cause the claimant to suffer a disability that results in a fixed loss of earning power, rather than a loss of earning power that varies depending on the extent of the disability." Id. In reaching its conclusion, the Court noted that its interpretation was supported by Pennsylvania case law, the language of the PAWC Act, and federal case law. Id. at 131-32. Notably, the PAWC Act describes awards under section 306(c) as awards "for all disability" resulting from permanent injuries. 77 P.S. § 513 (emphasis supplied). Accordingly, the Court concluded that the PAWC Act compensates an individual for disabilities, whether they result in a demonstrated loss of earning power under sections 306(a) and (b), or in a conclusively presumed loss of earning power from permanent injuries, such as permanent disfigurement. R~, 885 F.Supp. at 132. "All are periodic benefits awarded on account of a disability and are, therefore, subject to the Social Security Act's offset provision." Id. at 132-33.

While the Third Circuit has yet to address this issue, we find Judge L~'s reasoning persuasive, and believe that the Third Circuit would adopt it. Indeed, as noted by Judge L~, several Courts of Appeals faced with the same issue have concluded that disfigurement payments are subject to the Act's offset provision. For example, in Davidson v. Sullivan, 942 F.2d 90 (1st Cir. 1991), the lower court ruled that permanent impairment awards under New Hampshire's Workers' Compensation Act (NHWC Act) were to compensate an individual for loss of bodily function, not loss of wages, and, accordingly, could not be offset against Social Security disability benefits. On appeal, the First Circuit disagreed. D~, 942 F.2d at 93.

In reaching its conclusion, the Court analyzed the NHWC Act, which contained one portion titled "Compensation for Total Disability," and another portion titled "Scheduled Permanent Impairment Award" which enumerated various body parts and the number of weeks of compensation to be awarded for the loss of each such part. In rejecting Plaintiff's argument that an award pursuant to the schedule should not be subject to the Act's offset provision, the Court paid particular attention to a treatise compiled by A. L~, The Law of Workmen's Compensation. As L~ explained, under the "schedule principal," although the amount of compensation is to be paid regardless of any actual loss of wages, it is "'quite clear that the schedule was never intended to be a departure from or an exception to the wage-loss principle' . . . . Rather, the schedule of listed permanent impairments was warranted because 'the gravity of the impairment supported a conclusive presumption that actual wage loss would sooner or later result . . . .'" D~, 942 F.2d at 94. Continuing, the Court concluded that "[b]enefits under New Hampshire's worker's compensation law . . . are for compensable disability, whether resulting in actual loss of earning capacity . . . or in conclusively presumed loss of earning capacity flowing from permanent impairment of a body part . . . . The award for scheduled permanent impairment is therefore a disability benefit subject to the 42 U.S.C. § 424a offset provision." Id. at 95.

CONCLUSION

We believe that Mr. D~’s disfigurement award should be offset from his federal disability benefits because the PAWC Act presumes that the injuries listed in section 306(c) result in a loss of earning power. Accordingly, Mr. D~'s disfigurement award is an award on account of a disability under Pennsylvania law subject to the Act's offset provision. 40 U.S.C. § 424a.

Patricia M. S~
Acting Regional Chief Counsel

By: __________________
Elizabeth A. C~
Assistant Regional Counsel

At the time Carlotta B~'s claim for disability insurance benefits (DIB) was granted, she was receiving bi-weekly state workers' compensation benefits. Because of B~'s concurrent entitlement to DIB and workers' compensation benefits, her DIB was reduced or offset pursuant to 20 C.F.R. § 404.408(a)(2); 42 U.SC. § 424a(a). On April 5, 1999, B~'s physician released her to return to a modified job at her employer. On August 31, 1999, B~'s employer filed a petition to suspend her workers' compensation benefits. We requested a copy of the employer's petition to suspend and you forwarded to us a copy of the petition received from B~'s attorney. The petition shows that the employer marked as "yes" the area on the petition form requesting supersedes. (See attached). On September 26, 2000, Mark A. P~, a Workers' Compensation Judge (WCJ), issued an order granting B~'s employer's petition for suspension effective April 5, 1999). Significantly, the Workers' Compensation Act contains no provisions requiring a claimant/employee to repay "undeserved" benefits when it has subsequently been determined that she was not entitled to benefits for a designated period. Thus, the workers' compensation benefits which B~ received from April 5, 1999 through October 2, 2000 are not considered something similar to a social security "overpayment" and B~ is not obligated to pay her employer back. Therefore, the offset of B~'s DIB should be removed as of October 2000, as this is when she ceased receiving dual payments and when the possibility of her receiving a windfall ended. If the offset were removed as of April 5, 1999, B~ would, essentially, be "receiving double"- both social security disability benefits and workers' compensation benefits for 17 months, far in excess of her pre-disability income, which would run counter to the policy behind the social security offset provision. Congress' intent in including an offset provision in the Social Security Act was to prevent individuals from receiving double benefits, such that their income would exceed that which they earned when they were gainfully employed. Therefore, the offset in the instant matter should be removed in October 2000, which is the earliest month that workers' compensation payments ended, or stated alternatively, when B~ ceased receiving benefits.

ISSUE

You requested assistance in determining the effective date for removal of a workers' compensation offset where the date of "dis-entitlement" to workers' compensation benefits pre-dated the date which payment ended by 17 months. Additionally, you sought explanation regarding "supersedeas" in this matter and in the context of workers' compensation actions, generally.

FACTS

At the time Carlotta B~'s claim for disability insurance benefits (DIB) was granted, she was receiving bi-weekly state workers' compensation benefits. Because of B~'s concurrent entitlement to DIB and workers' compensation benefits, her DIB was reduced or offset pursuant to 20 C.F.R. § 404.408(a)(2); 42 U.SC. § 424a(a). On April 5, 1999, B~'s physician released her to return to a modified job at her employer. On August 31, 1999, B~'s employer filed a petition to suspend her workers' compensation benefits. We requested a copy of the employer's petition to suspend and you forwarded to us a copy of the petition received from B~'s attorney. The petition shows that the employer marked as "yes" the area on the petition form requesting supersedeas. (See attached). On September 26, 2000, Mark A. P~, a Workers' Compensation Judge (WCJ), issued an order granting B~'s employer's petition for suspension effective April 5, 1999.

The September 26, 2000 order authorized B~'s employer to cease paying B~’s workers' compensation benefits. The "Conclusions of Law" section of the WCJ decision states clearly that there will be no ongoing wage benefits due to B~. We contacted Fran W~, an adjuster at Fireman's Fund Insurance Company, the employer's workers' compensation carrier, to obtain the exact date on which payments ended and she informed us that October 2, 2000 was the date of the last payment issued to B~. Because B~ had received bi-weekly workers' compensation payments, the next payment that would have been due to her had her benefits not been suspended would have been dated October 16, 2000. Therefore, she received half of her usual workers' compensation benefits for the month of October 2000.

DISCUSSION

The purpose of the Social Security Act's offset provision and the underlying policy concerns which gave rise to its inclusion in the Act dictate when B~'s DIB should no longer be reduced or "offset". The policy behind the social security offset is that an individual should not receive in combined disability benefits greater than 80% of her pre-disability earnings, otherwise there would be no incentive for a return to work. See 20 C.F.R. § 404.408(c)(i); K~ v. C~, 55 F.3d 857, 860 (3d Cir. 1995) (discussing Congress' intent to prevent payment of excessive combined benefits/avoid duplication of benefits); and W~ v. A~, 81 F. Supp.2d 649, 652 (W.D.Va. 2000) (stating "[t]he purpose of this provision [the reduction in social security benefits] is to ensure that a claimant does not receive double benefits for the same injury, reducing his or her incentive to return to work.") The key factor, then, is an individual's actual receipt of payment. Therefore, the key in this matter is determining the time periods when B~ actually received workers' compensation benefits.

Notably, both the POMS and the offset regulation incorporate the Act's concern to avoid duplication of benefits, although each employs different language. The POMS uses "payment ending" language and the regulation uses "entitlement" language. As you noted in your memorandum to us, POMS DI 52150.025 states that offset will be removed (or not imposed) effective with the earliest month that periodic workers' compensation payments end. The regulation states in relevant part that a reduction (offset) is required when the individual entitled to DIB is also, for that month, concurrently entitled to a periodic benefit (including workers' compensation) on account of a total or partial disability under a law or plan of a state. See 20 C.F.R. § 404.408(a)(2). The notion of "entitlement" to other periodic benefits in the regulation presumes that an individual who is entitled to such benefits will actually receive them.

In this matter, although B~ was adjudicated as not entitled to workers' compensation payments after April 5, 1999 per the suspension order, her payments did not end until October 2000. Pending resolution of B~'s employer's petition to suspend, the employer was obligated to continue paying workers' compensation benefits to B~; therefore, arguably, she was still entitled to them at the time she actually received them; i.e., her claim was status quo unless and until the WCJ ruled otherwise. As noted above, B~’s continued receipt of benefits through October 2000 is our primary concern, not the date the WCJ determined that she could have gone back to work. Significantly, the Workers' Compensation Act contains no provisions requiring a claimant/employee to repay "undeserved" benefits when it has subsequently been determined that she was not entitled to benefits for a designated period. Thus, the workers' compensation benefits which B~ received from April 5, 1999 through October 2, 2000 are not considered something similar to a social security "overpayment" and B~ is not obligated to pay her employer back. Therefore, the offset of B~'s DIB should be removed as of October 2000, as this is when she ceased receiving dual payments and when the possibility of her receiving a windfall ended. If the offset were removed as of April 5, 1999, B~ would, essentially, be "receiving double"- both social security disability benefits and workers' compensation benefits for 17 months, far in excess of her pre-disability income, which would run counter to the policy behind the social security offset provision.

Further, while the Workers' Compensation Act does not require a claimant to pay benefits back, the Act does provide for reimbursement to an employer from a separate fund for paying out benefits to which a claimant was ultimately found not entitled. This procedure involves the "supersedeas" which has no impact on the offset issue in this matter, but which warrants explanation based on the concern expressed in your memorandum. The supersedeas is an urgent request for immediate resolution of the issue at hand, without the taking of evidence. It acts as a stay of all proceedings and is only granted in rare circumstances. See generally 77 P.S. § 774(2) ("A supersedeas shall serve to suspend the payment of compensation in whole or to such extent as the facts alleged in the petition would, if proved, require.")

It is apparent that B~'s employer requested a supersedeas to preserve the right to seek reimbursement from the Supersedeas Fund for any benefits that would be paid to B~ pending resolution of the petition to suspend. The WCJ in this matter did not grant the supersedeas request as evidenced by proceeding with evidentiary hearings in March and August of 2000, where live witness testimony was taken, as well as the admission of deposition testimony and other exhibits. (See page 2 of the WCJ decision). The lack of mention of the employer's supersedeas request in the September 26, 2000 order is not significant because, by virtue of the WCJ's taking evidence on the issue of suspension and proceeding with the matter, the supersedeas request was deemed denied. See 34 Pa. Code § 131.43 ("Unless a supersedeas is granted by written order, it will be deemed denied from the date of filing of the request"). Had the WCJ granted the employer's request for supersedeas, a written order stating such would have been issued, and the insurance carrier would have been authorized to suspend B~'s benefits immediately.

In terms of reimbursement from the Supersedeas Fund, if the employer requested supersedeas and the WCJ denied the request, the employer can then apply to the Supersedeas Fund for reimbursement. See 77 P.S. § 999(a) ("[i]f, in any case in which a supersedeas has been requested and denied, . . . payments of compensation are made as a result thereof and upon the final outcome of the proceedings, it is determined that such compensation was not, in fact, payable, the insurer who has made such payments shall be reimbursed therefor"); see also Gallagher B~ Servs. v. Workers' Compensation Appeal Bd., 756 A.2d 702 (Pa. Commw. 2000). However, as noted above, whether B~'s employer sought reimbursement has no bearing on the offset issue because the fact will not change that B~ did receive workers' compensation benefits for the period April 5, 2000 through October 2, 2000 and will not have to pay them back.

As a final note, the September 26, 2000 order to suspend payment of benefits, which is distinct from the deemed denial of the employer's supersedeas request, was a final, appealable order.

We contacted an assistant to the WCJ who issued the order to determine the current status of B~'s claim and he indicated that B~ appealed the granting of the suspension to the Workers' Compensation Appeal Board. This information is significant in that now there is a possibility that the September 26, 2000 order suspending benefits could be overturned, resulting in a reinstatement of B~'s benefits. If that occurs at some time in the future and the employer is required to pay a lump sum of back due benefits, the social security offset provision would apply to that lump sum and, of course, to any ongoing benefits from that point.

CONCLUSION

Congress' intent in including an offset provision in the Social Security Act was to prevent individuals from receiving double benefits, such that their income would exceed that which they earned when they were gainfully employed. Therefore, the offset in the instant matter should be removed in October 2000, which is the earliest month that workers' compensation payments ended, or stated alternatively, when B~ ceased receiving benefits. While B~ did receive a workers' compensation payment for the period 10/2/00 through 10/16/00, such that there is the potential for her to receive both workers' compensation and DIB for the first half of October, we will defer the issue of the exact date in October 2000 for of the removal of the offset to your program expertise. Further, as explained above, "supersedeas" has no bearing on the date of removal of offset in this matter.

In closing, because of the potential that B~'s benefits could be retroactively reinstated should she succeed in her appeal, the status of her workers' compensation benefits should be monitored on a regular basis. According to POMS DI 52150.025, until this matter is verified as closed and final, it should be diaried for six months, and thereafter, to check the status of B~'s appeal. In this regard, it would be helpful to keep the telephone number of the adjuster at the Fireman's Fund Insurance Company in B~'s file, as she would know the employer's payout status at all times. Additionally, should this memorandum be used as a reference in other workers' compensation offset matters, we note, as a reminder, that it pertains to workers' compensation law in Pennsylvania only.