COVID-19 comp expansions could have significant impact on industry

Several states have expanded or are considering widening access to workers compensation coverage for COVID-19 beyond first responders and health care workers to include all workers labeled essential.  

Over the past week Kentucky and Illinois became the first states to implement emergency orders to provide access to public-facing essential workers, such as grocery, pharmacy, Postal Service and day care workers. Lawmakers in Louisiana and New Jersey also recently proposed legislation to expand COVID-19 coverage beyond first responders and health care workers, who traditionally are covered by comp in the event of a communicable disease.

While these changes have been lauded by employee groups and unions, they could have a significant negative financial impact on the workers comp industry, experts say.

In Kentucky, an executive order signed by Gov. Andy Beshear on Thursday entitles frontline workers removed from work because of workplace COVID-19 exposure or suspected exposure to temporary total disability payments during the quarantine period, even if the employer ultimately denies liability for the claim. In Illinois, the state’s workers compensation commission issued an emergency amendment Monday creating a rebuttable presumption for COVID-19 acquisition that extends to nearly all workers. Whether more states will follow remains to be seen.

The sweeping changes present “a potentially enormous and unfair burden on workers compensation insurers that’s completely unprecedented in history,” said Robert Hartwig, clinical associate professor and director of the Risk and Uncertainty Management Center at the University of South Carolina in Columbia.

“It has never been the case that employers have been held responsible for such things as an employee catching a cold or catching the flu from a coworker or client or customer because it’s virtually impossible to prove that such things were contracted in such a manner,” Mr. Hartwig said. “This is potentially extraordinarily costly to workers comp insurers, but also to many large employers who have either very high-deductible programs or are largely self-insured.” The change could also be “potentially catastrophic to workers comp state funds,” he said.

Traditionally, employees must meet their burden of proof by showing their accidents arose out of and in the course of their employment and that the condition was caused by work, said Rich Lenkov, capital member and head of the workers compensation practice at Bryce Downey & Lenkov LLC in Chicago.

“This rule change makes it much easier to prove that,” he said. “But it’s important to remember that this is still a presumption and a rebuttable one so employers should still do their due diligence and investigate every workers comp claim because you can overcome the burden.”

The New York Compensation Insurance Rating Board conducted a legislative analysis of the potential cost impacts of COVID-19 virus exposure as an occupational disease. It estimated in late March that presumptive COVID-19 coverage could cost the workers comp system in the state more than $31 billion — more than triple the state comp system’s current annual losses in both the insured and self-insured markets.

“Workers compensation was never designed to cover communicable diseases, and certainly not … (diseases) associated with a global pandemic,” said Mark Walls, Chicago-based vice president of communication and strategic analysis for Safety National Casualty Corp. “Basically what these presumption laws do is shift these claims from employee group health into workers comp, so the potential cost of that could be significant.”

Kentucky’s executive order expands benefits and temporary total disability payments for frontline workers who acquire COVID-19, but unlike Illinois, the coverage is not presumptive and requires the same evaluation as other claims as to whether the disease acquisition occurred in the course of and scope of employment.

“We had been a little bit ahead of the curve in expanding benefits and providing (temporary total disability) for first responders and workers in the medical field, so this expansion of benefits is not that much of a stretch for us,” said Mary Colvin, vice president of claims at Kentucky Employers’ Mutual Insurance Co., which covers about 30% of workers comp in the state. “There is still so much unknown. But we feel like we really need to step up as an insurance carrier to help people.”

The real financial impact will come on the higher end of the severity spectrum, such as individuals needing intensive care or passing away from the virus, said Mike Hessling, CEO North America of Rolling Meadows, Illinois-based Gallagher Bassett Services Inc. “That’s where the real cost is going to be material for employers. … But no one really knows how many claims we’ll see as a result of this or what the financial impact will be.”

Employers in Illinois could potentially be on the hook for medical treatment, total temporary disability during quarantine and/or recovery, and possibly a settlement if the worker suffers permanent damage to the lungs or other organs from COVID-19, said Lisa Azoory-Keller, partner at Chicago law firm Nyhan, Bambrick, Kinzie & Lowry P.C.

“It’s going to be really hard to rebut that presumption,” she said. “I don’t expect employers to even invest the money to fight it because rebutting the presumption is going to be such a huge standard. I think employers are just going to be inclined to roll over and pay given the new emergency action.”

But certain classes of employees covered by the rule in Illinois may face an uphill battle trying to prove that they contracted COVID-19 from work, Mr. Lenkov said. For example, covered hotel employees who have not been exposed to guests would have that presumption fairly easily refuted, he said.

While these various emergency orders and amendments demonstrate “a strong desire to impact positively a very difficult situation,” they have the potential to upend the “delicate balance” of the workers compensation system, said John Hanson, an Atlanta-based senior consultant with Willis Towers Watson PLC.

“Everyone agrees that the right thing is to find a solution for folks with occupational COVID,” he said. “That is the right thing, but the answer is that it may not be in the comp system.”

In Europe, several insurers have begun offering COVID-19 supplemental health coverage to employers that essentially provides the equivalent of medical and indemnity for COVID-19 claims. Mr. Hanson said this could be a viable alternative in the U.S. to covering COVID-19 in the comp system.

Regardless of what happens down the road, Mr. Walls said he’s confident that the workers compensation system has sufficient reserves to cover COVID-19 losses.

“But make no mistake, this is going to be a significant adverse event for the workers comp industry,” he said.

Whether these COVID-19 claims will affect rates is also in question. Jeff Eddinger, a senior division executive for the Boca Raton, Florida-based National Council on Compensation Insurance, said the ratings agency will soon make the determination whether to include COVID-19 claims in experience ratings.

“Is it something that’s out of the control of an employer or is it something that is indicative of their future experience?” he questioned. “Obviously, this is a very unique situation that no one saw coming.”

The California Workers Compensation Insurance Rating Bureau announced April 7 that it would not include COVID-19 claims in its experience modification calculations.

“The insurance industry is being asked to cover claims that they didn’t contemplate covering but not collect additional premium for doing it,” Mr. Walls said. “It’s too early to say what this will do to rates going forward.”

While Mr. Lenkov foresees more states adopting similar COVID-19 workers compensation approaches — and possibility even coverage at the federal level similar to what was implemented after 9/11 — he also expects to see challenges to these executive orders and emergency amendments in court.

“Illinois, in the space of 24 hours, instituted this rule that represents the most dramatic change in workers comp benefits in at least a decade, if not much longer,” he said.

States need to understand that their actions could easily result in dramatically higher rates in the workers compensation industry, Mr. Hartwig said.

“Regulators … need to understand their actions are not without consequences,” he said.  

More insurance and risk management news on the coronavirus crisis here.