California Governor Gavin Newsom’s May 6 executive order expanded Workers’ Compensation benefits to employees who test positive for COVID-19 within 14 days of performing a labor or service at work. Critics of Newsom’s order, including concerned business owners and the California Chamber of Commerce, argue that it could drive up costs for businesses already struggling to stay afloat during the worst economic crisis since the Great Recession of 2008.
Newsom’s order does presume that an infected employee contracted coronavirus at work; nevertheless, it also requires employees to obtain a diagnosis from a licensed physician and allows employers with existing evidence to dispute employee claims within 30 days. The order will remain in place through July 5 and is retroactive to the start of the state’s stay-at-home order that began March 19. The governor said in a press release that the expansion aims to remove a burden for front-line workers and help them access benefits so they can focus on their recovery.
Workers’ Compensation Insurance policies do not typically cover viral illnesses because it is often difficult to determine where an individual contracted an illness. The COVID-19 pandemic created a unique challenge for Workers’ Compensation systems and introduced new questions about eligibility, prompting many states to adopt temporary measures to expand access to benefits. California’s order removes many barriers for employees seeking Workers’ Compensation benefits related to COVID-19, allowing eligible workers to more quickly access medical treatment and financial support. Similar steps have been taken in several states for frontline and essential workers.
Expected increase in claims could affect premiums, overload state systems
While California is one of at least 13 states that have made it possible for those who contract the virus to receive Workers’ Compensation benefits, Newsom’s order is more far-reaching than other states’ orders, which apply solely to first responders and health care workers.
The Illinois Workers’ Compensation Commission’s emergency rule granting benefits to essential employees positive for COVID-19 without requiring proof that they contracted the virus at work was withdrawn after business groups filed a lawsuit and a judge blocked the rule from going into effect.
Most states that have expanded Workers’ Compensation benefits for COVID-19 have done so to ensure frontline and essential workers can access care and wage replacement benefits when needed. California’s broader eligibility standard has also raised concerns among insurers and business groups about the possibility of future rate increases, since COVID-19 claims were not contemplated when many policies were originally priced.
The average cost of Workers’ Compensation Insurance claims in the U.S. was around $40,000 from 2016 to 2017. COVID-19 claim costs can vary significantly, ranging from relatively minor medical expenses to substantial hospitalization and recovery costs in severe cases. As insurers continue to gather claims data, the long-term impact of COVID-19 on Workers’ Compensation systems and insurance pricing remains uncertain.
Beyond increased insurance premium rates, critics say a surge in employees applying for Workers’ Compensation benefits could also deter businesses from bringing employees back and overload state workers’ compensation systems.
In the wake of state unemployment systems being quickly overwhelmed by the unprecedented surge in claims that have accompanied widespread business shutdowns, some experts have warned that workers’ compensation systems could face similar pressures if COVID-19-related claims increase substantially. Additional claims could include not only illnesses related to the virus but also mental health concerns and injuries associated with long-term remote work arrangements.
The potential for fraudulent claims is another concern, as payouts for Workers’ Compensation claims are often higher than those available through traditional health insurance. At the same time, many of these emergency orders are temporary measures with designated end dates, requiring regulators, employers and insurers to continually reassess their impact.
Businesses seek guidance on changing laws, insurance
Other states that have expanded Workers’ Compensation benefits to cover COVID-19 for select employees include Kentucky, Minnesota, Missouri and Washington. As state guidelines evolve, many business leaders are asking questions about their Workers’ Compensation Insurance coverage.
As state guidelines continue to evolve, businesses should monitor legislative and regulatory developments closely and consult with trusted insurance advisors to ensure they understand how changes may affect their coverage and obligations.
While some estimates suggest COVID-19-related Workers’ Compensation benefits could add significant costs to the insurance system, overall claim activity has also been affected by reduced economic activity and elevated unemployment levels.
Another important consideration for businesses is how COVID-19 claims are being tracked within state Workers’ Compensation systems. Distinguishing pandemic-related claims from a company’s normal loss experience may help carriers evaluate risks more accurately and avoid allowing temporary pandemic-related losses to disproportionately affect future pricing.
Because the pandemic represents an extraordinary event rather than a reflection of normal business operations, insurers and regulators have sought ways to balance adequate employee protection with long-term affordability and stability within the Workers’ Compensation system.
For most businesses, Workers’ Compensation Insurance remains one of the most important forms of coverage because it protects both employees and employers when workplace injuries and illnesses occur.
Unlike in the U.S., Workers’ Compensation benefits claims in Canada are for loss of earnings rather than for health care expenses. Ontario’s Workplace Safety and Insurance Board’s criteria for determining eligibility for benefits related to COVID-19 include evidence that the applicant’s risk of contracting the virus at work was greater than the average risk in the general public and that the applicant’s work “significantly contributed to their illness.”
Adhering to guidelines, implementing safety practices essential
The full impact of expanded Workers’ Compensation eligibility is likely to become clearer as more businesses resume normal operations. Some employers may proceed cautiously until they better understand the potential costs associated with COVID-19-related claims, while others may feel more comfortable reopening after implementing workplace safety modifications and risk-management measures.
Government, legal and industry advisory bodies have made recommendations for maintaining safe workplaces and reducing the potential spread of COVID-19, for businesses that have been open during the last few months as well as those with plans to reopen.
Business leaders have been urged to follow best practices from the U.S. Centers for Disease Control (CDC), U.S. Department of Labor Occupational Safety and Health Administration (OSHA) regulations, and state or local guidelines. Businesses would also benefit from revisiting their own workplace safety policies, updating employee handbooks and familiarizing themselves with recommended workplace precautions to protect employee health, including new seating arrangements, closing common areas like kitchens, facilitating social distancing, providing sanitizing stations and implementing augmented cleaning protocols.
Employee safety should remain a primary concern for employers. In addition to maintaining current safety protocols and complying with applicable guidance, businesses should take a proactive approach to planning for future operational, regulatory and insurance-related challenges.
