The Economist Report for a Life Care Plan: An Expert Witness You Can Always Afford
Date: 25.06.2020 Time to read: 3 min
"Show me the money." - Jerry Macquire
In the context of a life care plan, the economist inputs the estimated cost of future care and lost earnings capacity, then outputs or discounts those amounts to present value. Present value is essentially reverse compound interest.
Present value answers the question: how much would I have to invest now at the going interest rate to wind up with a given future amount? Because the present amount will typically be lower than the future amount, “discounting to present value” has become shorthand for the economist’s job.
The economist does more than just that. He factors in how much costs for a given service will change over time. Healthcare costs grow over time as well, even relative to inflation. A procedure that is worth $500 today may be worth $750 in today's dollars 5 years from now.
So the report will take the growth rate into account as well as the future value a present sum of money, invested, would return in the future.
In a pinch, economists can switch hit --- in addition to tackling present value, they can also tackle lost earnings capacity and so also serve as the poor man’s vocational/lost-earning capacity substitution. The main issue with utilizing the economist to analyze raw data regarding employability is that, ultimately they may overshoot the extent of unemployability.
And the defense will simply bring in their own vocational expert witness to testify as much --- that the plaintiff could mitigate its losses by working but in reduced capacity.
An example: Joe MLB right-handed pitcher suffers an injury that destroys the use of his right hand. John economist testifies that he is now 100% unemployable and calculates the lifetime loss as to projected MLB contract rates and other incidentals. James Voc testifies that Joe MLB still can use his left hand and therefore is 50% employable and can mitigate these lifetime losses by working in several different occupations, thus undercutting John’s analysis.
There are other missteps economists can take when functioning in a “lost earnings” role without a vocational assessment or expert witness complementing the analysis:
- Projecting the losses for too long of a time period
- Failure to fully discount losses
- Basing the forecast on an outlier year
- Failing to discuss mitigation (the above example)
- Failure to conduct industry and firm-specific research
- Failure to deduct taxes according to jurisdiction
- Incorrectly factoring in offsetting pension benefits
- Using an inaccurate inflation rate
- Inaccurately measuring the value of fringe benefits
So if you’re using the economist as a switch-hitter, make sure they avoid the above mistakes.
Because ultimately, it is better to have a figure to attach to lost earnings capacity, supported by an expert witness, than nothing.
For example, in a situation where the limits are low and settlement is the primary goal --- an economist added to a medical cost projection should round out the bases.
Given the economist's versatility, he's an expert witness you always want complementing a life care plan or medical cost projection. He always crushes the ball on his side of the plate and frequently can get a double when hitting on the other side of the plate in a vocational capacity.
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