Most states permit a workers’ compensation carrier to assert a future credit against benefits otherwise payable when an injured employee recovers damages from a responsible third party. The availability of a future credit is now the rule rather than the exception. Yet, while the existence of the credit is widely accepted, the mechanics of how that credit functions in practice remain surprisingly underdeveloped in the case law. Courts have devoted substantial attention to lien reimbursement, allocation of third-party recoveries, and equitable reductions, but far less scrutiny has been applied to what happens during the credit period itself. This gap has produced some uncertainty as well as lively debate over how medical expenses are paid, at what rates they must be paid, and which party bears the burden of proving when the credit has been exhausted, and the carrier’s obligation to resume benefit payments is triggered.
The future credit is conceptually straightforward. When an employee recovers damages from a third-party tortfeasor, the portion of that recovery attributable to future workers’ compensation benefits relieves the carrier of its obligation to make benefit payments until the recovery is exhausted. The purpose of the credit is to prevent double recovery by the employee and to place the carrier in the same financial position it would have occupied had no third-party recovery occurred. In theory, the carrier merely steps aside temporarily while the employee spends down the recovery, after which the carrier resumes its statutory obligation to provide benefits.
In practice, however, the credit period creates a transitional phase in which the employee remains entitled to workers’ compensation benefits under the statute, yet the carrier is not actively paying them due to the future credit. It is during this period that unresolved questions arise. The most significant of these concerns medical expenses. Workers’ compensation systems uniformly impose fee schedules, prevailing rate limitations, or maximum reimbursement caps on medical providers. These statutory rate controls are central to the workers’ compensation bargain, ensuring predictable costs for employers and carriers while guaranteeing access to care for injured workers. By contrast, an injured patient outside the workers’ compensation system is typically billed at full retail rates, subject only to private insurance contracts or later negotiation.
The question, then, is whether an injured employee who is paying medical expenses during a future credit period must pay those expenses at retail rates, or whether the workers’ compensation medical fee schedule continues to apply. Allowing retail billing during the credit period would significantly alter the economic balance of the credit. Retail rates are often substantially higher than workers’ compensation rates, meaning the employee’s third-party recovery would be exhausted more quickly. That accelerated exhaustion would, in turn, force the carrier to resume payments sooner, effectively depriving it of the full value of the credit and exposing it to costs greater than those imposed by statute.
Only a handful of jurisdictions have confronted this issue directly. A new Alabama Supreme Court case provides perhaps the clearest articulation of the governing principles. In Ex parte BE&K Construction Co., 421 So.3d 660 (Ala. 2025), the Alabama Supreme Court confirmed that when an employee recovers from a third-party tortfeasor, the portion of the recovery attributable to future medical expenses must be exhausted before the employer or carrier is obligated to resume payment of those expenses. In Harrington, the Court addressed the corollary rate issue. Interpreting Ala. Code § 25-5-77(a), which limits an employer’s total liability to the prevailing rate or maximum fee schedule, the Court reasoned that the statutory caps define not merely what the carrier pays, but what the law requires to be paid. Because the Act applies to future medical benefits that the carrier will ultimately be obligated to provide, the Court concluded, albeit in what some might call “dicta” (opinions that are not essential to the case’s final ruling, meaning they aren’t part of the binding legal precedent (the holding) but are “said in passing”), that carriers must be permitted to insist that statutory rate limitations continue to apply during the credit period. Otherwise, the carrier would lose the benefit of the statutory caps when calculating its subrogation exposure and would be forced to resume payments earlier than contemplated by the Act.
Although most states have not addressed the issue as explicitly, similar reasoning is implicit in many statutory schemes. In jurisdictions where the carrier retains the right to direct medical care, approve providers, or control treatment during the credit period, it is difficult to justify a departure from statutory fee schedules. The right to direct care exists precisely to ensure that treatment is reasonable, necessary, and cost-effective under the workers’ compensation system. Allowing providers to charge retail rates during the credit period would undermine that right and distort the intended operation of the credit.
Another unresolved question concerns who bears the burden of proving exhaustion of the credit. Statutes rarely address this issue directly. In practice, courts tend to place the burden on the party seeking to change the status quo. Because the carrier is relieved of payment obligations during the credit period, the employee typically bears the burden of demonstrating that the credit has been exhausted and that the carrier’s duty to resume payments has been triggered. This burden allocation is consistent with the principle that the employee controls the third-party recovery and is in the best position to document how it has been spent. Nonetheless, carriers that fail to monitor the depletion of the credit or that refuse to acknowledge exhaustion in the face of competent proof risk judicial intervention and potential penalties.
The mechanics of tracking the credit also present practical challenges. Medical providers may be unaware of the credit arrangement and may bill the employee directly at retail rates. Employees, unfamiliar with fee schedules, may pay those bills without objection. Without carrier oversight, the recovery can be depleted inefficiently, defeating the purpose of the credit. Best practices therefore require carriers to remain actively involved during the credit period, communicating with providers, ensuring that statutory rates are applied, and maintaining records sufficient to demonstrate the remaining balance of the credit.
Nationwide surveys confirm that while most states recognize future credits, few have developed comprehensive jurisprudence governing their operation. Some states limit credits to indemnity benefits only, while others apply credits to both indemnity and medical benefits. Some require court or administrative approval of credit calculations, while others rely on informal accounting. What remains consistent, however, is the underlying principle that the credit is intended to mirror the carrier’s statutory obligation, not expand it.
As future medical expenses continue to dominate workers’ compensation costs, courts will increasingly be forced to confront these unresolved issues. Decisions like Harrington provide a persuasive framework grounded in statutory interpretation and subrogation principles. They recognize that the credit period is not a legal vacuum, but a temporary suspension of payment within an ongoing statutory relationship. During that period, the rules governing compensability, reasonableness, and rates should remain intact. Anything less risks transforming the future credit from a shield against double recovery into a trap that accelerates carrier liability beyond what the law requires.
Until more jurisdictions address these questions directly, practitioners should proceed with caution. Clear documentation, proactive management of medical billing, and a firm understanding of statutory rate structures are essential to preserving the value of future credits. The credit is only as effective as the rules governing its operation, and without judicial clarity, that effectiveness depends largely on disciplined administration and informed advocacy.
You can find MWL’s complete chart HERE on how a Workers’ Compensation Carrier can record their future credit in all 50 states. For questions regarding recording a future credit in any state, please contact Lee Wickert at leewickert@mwl-law.com
