Understanding Future Value Calculations in Economic Valuations

As you’ve explored our software, you may have noticed that the results often include future value calculations. We often receive inquiries about what these future value calculations are used for. To clarify, let’s dive into one specific instance where future value calculations are critical in economic valuations.

What is the Role of Future Value Calculations?

If you’ve read our previous blog post, Do I Have to Discount to Present Value?, you’re already familiar with the concept of present value. Present value is a method used to reduce a stream of future damages or financial outcomes to a single, current figure. This calculation is essential for providing a clearer understanding of future obligations in a present-day context.

In a similar manner, future value calculations serve a distinct purpose: they are used to apportion damages over a number of years or to account for the increasing costs of future needs. This is especially important when dealing with long-term financial obligations, such as in personal injury or medical malpractice cases, where future costs must be projected and scheduled for payment.

A Key Example: Periodic Payments for Medical Malpractice Damages in California Let’s explore a real-world application where future value calculations are necessary: the medical malpractice landscape in California.

Under California’s Code of Civil Procedure § 667.7, healthcare providers have the option to request periodic payments for damages in lieu of a lump sum payment. This is particularly relevant in cases where the injured party requires long-term care or will incur significant future medical costs.

The Process of Apportioning Damages: Past vs. Future

While periodic payments can ease the burden on defendants by spreading out their financial obligation over time, they are only available for future damages. This means that the court must apportion the total damages into past and future amounts.

Past damages: These are the costs incurred up to the point of the trial, such as medical expenses already paid and lost wages. Future damages: These represent the projected costs that will continue into the future, including ongoing medical care, lost future earnings, and other long-term consequences of the injury. Once the court establishes the distinction between past and future damages, expert testimony from both sides is typically provided to estimate the future costs. Experts will factor in various elements such as inflation, the rising cost of medical care, and life expectancy.

The Importance of Future Value in Periodic Payments

The future value calculation comes into play when determining the appropriate periodic payments for future damages. For instance, let’s consider a scenario where expert testimony establishes that future medical care will cost $100,000 per year. In addition, let’s assume that the Consumer Price Index (CPI) for medical costs is projected to increase at a rate of 3.5% per year.

Using this information, the first payment might be calculated at $100,000, but by year two, the payment would increase to $103,500 to account for the 3.5% annual increase. The payments would continue to grow in line with the CPI for medical costs, ensuring that the injured party’s future needs are adequately covered for the remainder of their life or until the court determines that the payments should cease.

How Courts Determine Payment Schedules

Once the future value of damages has been calculated, the court will review the testimony and the economic projections to establish an appropriate payment schedule. This schedule outlines when and how the future damages will be paid over time. The goal is to ensure that the injured party receives the necessary funds in a way that matches their projected needs, without burdening the defendant with a large lump-sum payment upfront.

It’s important to note that the amount of future damages and the payment schedule are subject to court approval, and the calculations made by economic experts play a critical role in this process.

Need Help with Future Damage Calculations? Calculating future damages and determining the appropriate periodic payment schedule can be a complex process. If you’re working on a case that involves future value calculations and periodic payments, we’re here to help. At Juris Economics, we specialize in providing expert economic analysis for damage assessments and future value calculations.

If you need assistance with calculating a future damage schedule or have any questions about future value in economic valuations, please don’t hesitate to contact us:

Juris Economics Phone: (858) 477-9537 Email: customerservice@juriseconomics.com

We look forward to helping you navigate these complex calculations and ensure that the future value of damages is properly accounted for.