Important COVID-19 Workers’ Compensation Questions

May 13th, 2020 by Tom Lynch

Economic chickens are coming home to roost all over America. Except for the one percenters, and I may be wrong about them, everyone is feeling it, the pain. Biomedical devastation is leading us to places we have never imagined, let alone seen. In the quiet little room called workers’ compensation where I have sat for some number of years, there are questions that are going to need answering. Let’s look at a few of them.

But first, a little background. A week ago we wrote about a recent National Council on Workers’ Compensation (NCCI) analysis of workers’ compensation cost projections due to COVID-19. NCCI’s analysis projected a best case scenario, in which loss costs increase $2 billion, and a worst case scenario, in which they increase $81.5 billion, or 250% more than current total loss costs. Willis Towers Watson also released a scenario-based analysis that suggested pretty much the same thing.

On 8 April, the California State Assembly Insurance Committee asked the the California Workers’ Compensation Insurance Rating Bureau (WCIRB) to project loss costs if conclusive (rebuttable) presumptions were provided to front line workers, something Governor Gavin Newsom actually did through Executive Order one month later, so the “if” became a “done.” Later in April, the WCIRB released the requested report and concluded:

…the cost estimates in this Research Brief are presented as a range of potential impacts based on varying assumptions of the number of COVID-19 claims filed. On this basis, the WCIRB estimates that the annual cost of COVID-19 claims on ECI (Essential Critical Infrastructure) workers under a conclusive presumption ranges from $2.2 billion to $33.6 billion with an approximate mid-range estimate of $11.2 billion, or 61% of the annual estimated cost of the total workers’ compensation system prior to the impact of the pandemic.

Note two things. First, for perspective, if California were a country, it would have the fifth largest GDP in the world. Second, regardless, the WCIRB’s best case scenario is $.2 billion more than NCCI’s best case scenario for all 38 states where it provides ratemaking services.

Clearly, whatever scenario happens, workers’ compensation losses are going to be cataclysmic.

So, about those questions:

  1. Who’s going to pay for all of this? In normal times, the answer is obvious: Employers and insurers (when losses exceed an employer’s liability). But if we know one thing for sure, these are not normal times. So, who takes the hit?
  2. What about secondary chronic conditions the virus has been shown to cause in some people? Many survivors of SARS (Severe Acute Respiratory Syndrome) suffered crippling ailments for more than a decade. We’re already seeing COVID-19 survivors come home from hospital with severe, possibly persistent, chronic conditions. Are these conditions covered by the initial claim? I can see the plaintiff’s attorney now. “Your Honor, but for the COVID-19 occupational disease, poor John here would never have immediately lost kidney function requiring dialysis three times per week, and would be the picture of health.”
  3. How will COVID-19 claims impact experience modification, which affects an employer’s premium for three years? It is only logical that if loss costs increase by billions in one year, an employer of essential workers, say a hospital, will see its experience modification factor take off like a SpaceX rocket. That is a recipe for economic doom and disaster beyond what we’re already seeing.
  4. What happens when an essential worker who has contracted COVID-19 and filed a claim infects other family members, or the neighbor next door, for that matter? Would they be covered by the claim, or by health insurance if they happen to have it? Keep in mind, job losses due to COVID-19 are now in excess of 20.6 million. Many have lost not only a job, they have also lost the health insurance the job provided. The Kaiser Family Foundation has said, “26.8M would become uninsured after losing job-based coverage during the coronavirus if they don’t enroll in other coverage.” Consequently, this question is very important, because workers’ compensation health care is totally free, unlike employer-based and nearly all other insurance options that all come with deductibles and co-pays.

Meanwhile, back at the California Workers’ Compensation Insurance Rating Bureau, the organization has submitted a proposed rule to deal with number 2, above. It wants to exclude COVID-19 loss costs from the calculation of experience modification. Specifically, the proposed rule says:

Claims directly arising from a diagnosis of Coronavirus disease 2019 (COVID-19), reported with a catastrophe Number 12 pursuant to the Uniform Statistical Reporting Plan, shall not be reflected in the computation of the experience modification.

The proposed rule would also reclassify workers now working remotely from home as clerical – 8810, which is the lowest premium rate possible.

Let’s suppose for just a moment that the WCIRB’s proposed rule is approved, and California’s employers are off the hook with respect to experience modification. This presents another question: Will other states do the same? All of them? Some of them? None? Whatever happens, it seems to me we need a nationally consistent approach. Wouldn’t you agree?

Finally, this all leads back to the first question: Who’s the guy at the end of the line left holding the bill for COVID-19 claim costs?