This year could be the most controversial rate recommendation in the 107-year history of the California workers’ compensation system. Why? Because we are dealing with a virus we’ve never experienced before. The medical community is still learning about COVID-19 transmission, treatment and prevention. Plus, there’s scant evidence to date on the long-term health effects of the virus.
Both the National Council on Compensation Insurance and the Insurance Information Institute have publicly said it’s too early to know the full impact of COVID-19 on workers’ comp insurance. But industry watchers believe a trend is definitely emerging where overall claims are down, which could benefit insurer loss ratios.
One thing is certain: there are many, many factors at play. Senate Bill 1159, California’s “presumption” law, was signed into law on Sept. 17. Going beyond the scope and coverage of efforts by other states, SB 1159 generally establishes that exposure to COVID-19, a highly infectious disease that can be contracted in a wide variety of ways, is a reasonably anticipated exposure. Previously, employees needed to present medical evidence that their illness was related to work. They also were required to provide a reasonable factual basis for asserting that the workplace caused their illness. Under SB 1159, any covered worker who contracts COVID-19 is now presumed to have contracted the virus at work.
Although the new law creates a higher burden for employers and could trigger a surge in claims, high rates of unemployment and telecommuting could act as a counterbalance because fewer people on a job site creates fewer opportunities for infection. Further complicating this calculus is denial of COVID-19 claims, which so far appears to be trending downward.
Although the June 2020 report of the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) on the impact of the economic downtown didn’t take into consideration the impact of COVID-19 on claims volume, it concluded that “it is possible and perhaps likely that growth in [COVID and cumulative trauma] claims will more than offset the impact of the economic slowdown on claim frequency.”
WCIRB has proposed a 2.6% increase in advisory pure premium rates. Although some have expressed concerns, now is not the time to rush to a judgement — WCIRB doesn’t make its decisions capriciously or in a vacuum and it relies on time-tested, proven methodologies. WCIRB also strives for fairness in its rate recommendations so employers in less-exposed industries see a smaller surcharge than businesses that have medium to high exposure to COVID-19.
After issuing its proposed 2.6% increase, WCIRB then announced it would not, in fact, be changing the average recommended premium of $1.56 per $100 of payroll. However, based on early claims experience and the impact of SB 1159, WCIRB has adjusted some underlying recommendations, including the average premium cost per $100 of payroll based on business classification. It added two classifications to the original four, which effectively widens the range to 0.01 per $100 of payroll for the least exposed to 0.24 for the most exposed.
Throughout the summer, the number of COVID-19 workers’ compensation claims soared, with total estimated costs as high as $2 billion for employers and their insurers. The cost of COVID-19 claims filed by workers subject to SB 1159 could be in the range of $600 million to $2 billion, according to WCIRB. The mid-range estimate of $1.2 billion represents about 7% of the pre-pandemic $18.3 billion annual cost of workers’ compensation claims. This gives us a general sense of the magnitude of COVID-19 on workers’ comp costs.
Is it significant? Yes. Is it insurmountable? Not at all, because California has an excellent workers’ comp system in place and insurers are required to charge actuarially justified premiums and reserve appropriate funds to pay future claims.
A closer look at other COVID-19 costs reveals a hospital stay for treatment of the virus can run into the tens of thousands of dollars, with costs ranging from $38,000 for a privately insured, in-network patient to $73,000 for an uninsured patient, according to FAIR Health.
With an estimated 15-20% of Americans infected with COVID-19 requiring hospitalization, FAIR Health estimates the total costs for all hospitalized COVID-19 patients will be in the range of $362 billion – $1.5 trillion in charges and $139 billion – $558 billion in estimated allowed amounts. That’s a wide range of costs, which of course depends heavily on any changes in the rates of infection in the U.S. going forward.
In early October, WCIRB held a public hearing on California’s workers’ comp rates and in the coming months is expected to announce its approved advisory pure premium rates. While it’s difficult to know with any certainty how this will play out, employers should know this: under California law, a covered worker who contracts COVID-19 is presumed to have contracted the virus at work, thereby making it a work-related illness. However, an employer may rebut this presumption.
Employers should take heed of these significant developments as SB 1159 is now the law of the land in California. To minimize liability under the new law, employers can take several immediate steps including:
- Prepare a written plan of measures you are taking to prevent COVID-19 in the workplace
- Comprehensively identify any active or potential hazards in the workplace such as unsafe or unhealthy practices or operations
- Provide training for employees and supervisors about how to prevent employee exposure to COVID-19
- Establish standardized procedures for identifying and controlling access to hazards
- Supervise employees exposed or potentially exposed to hazards
- Communicate to employees about the employer’s health and safety rules and programs
- Have a written letter prepared in the event that an employee has a COVID-19 infection in the workplace.
It’s also a good idea to keep pertinent documentation on hand including:
- Actions taken to eliminate employee exposure to hazards created by the violation as soon as the violation is discovered
- Daily steps taken to address potential and actual violations
- Information submitted to the Workers’ Compensation Claims Administrator
- All notices of outbreak or infection of workers that are issued to employees.
We’re living in unprecedented times and the pandemic has taken all of us out of our comfort zone. The California workers’ comp system is built to handle the unexpected and employers would do well to respond to this unprecedented period of uncertainty with preparedness and patience.
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