Payout for Future Medical Calculation

[humptydumpty]

I have been offered a settlement for an back injury that occured 4 years ago. There has been relatively little in the way of medical expenses over the years, about 30K and about the same is expected over my life expectancy. The WC provider is offering 40% of this future medical estimate. Is 40% a normal discont rate? Is there a normal discount rate or does each provider come up with their own criteria? All that is left to settle is future medical. Thanks.

[1171]

use spreadsheet present value function to find value at various interest rates
as interest rates are very low now 3-5% would be about right
you can also check here
http://www.claimspages.com/tools/value-of-money/
or
http://www.settlementevaluator.com/

[humptydumpty]

Thank you for your reply. I understand how to use PV and FV calculations, but what I am trying to find out is whether the offer from the WC provider is reasonable. They took what they have been spending on average for the past 4 years and multiplied it by my life expectancy and then multiplied that by 40%. It seems rather arbitrary. If I were to purchase an annuity with the settlement, it would not pay the cost of my estimated medical expenses on a yearly basis. And there is no consideration for an increase in those cost, so I will find myself further and further in a hole each year. Does the formula they are using sound normal, reasonable? Thanks.

[1171]

I assume the settlement offer was approximately $12K.
did you try their settlement offer in some FV calculations to see if the $30K projected amount was generated?

if you know about calculating the value of money over time then then you are well aware there are a number of present value calculations using your $30K future medical that result in a 40% discount rate (anything that produces about $12K):

3% for 31 years; 19yrs@5%; 23yrs@4% etc. etc. etc.


so yes, if you are roughly between 48 & 66 then it sounds reasonable.

does that clear it up?

P.S. another variable can be the payout frequency; but the spreadsheet can give you different models.

[1171]

you're welcome.