COVID-19 has brought a spotlight to a long-developing issue in workers
compensation (WC), namely the presumption of compensability. As legislators and
politicians increasingly turn to the use and expansion of the
"presumption of compensability" to extend automatic compensability to
selected workers who may have been exposed to disease, insurers and employers,
in particular, seek to understand the costs and other impacts on WC systems.
Traditionally, such systems have relied on verification that injuries and
illnesses occurred in both the course and scope of employment. Some wonder if
the continued expansion of presumption of compensability might undermine the
original intent of the "Grand Bargain" (essentially the exchange of
tort rights for no-fault benefits) between employers and employees.
The Evolution of Occupational Disease and WC Compensability
Some may argue that this first emerged as a significant issue on September
11, 2001 (although the solution to those injured and killed in association with
that fateful day—the 9/11 Victim's Compensation Fund—is a federally
designed and funded mechanism). These costs have been more significant than
initially predicted.
Concerns over the expanded use of presumption of compensability first got
the attention of WC rating sources around 2010. The National Council on
Compensation Insurance (NCCI) released its first white paper on the topic in
2013, another comprehensive look in 2018, and has now updated the issue in 2020
as a result of the accelerated turn to this approach in response to
COVID-19.
Before COVID-19's appearance (officially in March 2020), NCCI and other
rating bureaus have been unable to reliably quantify the cost impact of the
presumption of compensability as it has been applied to "first
responders." The impact on government is more difficult to quantify as it
is largely tax-funded rather than covered by commercial insurance. The NCCI
did, however, conclude unequivocally that this approach to WC compensability,
typically expanding the definition of covered occupational diseases (ODs), will
have substantive cost impact subject to the breadth and depth of
application.
The NCCI estimates that the use of presumption of compensability for
COVID-19-exposed workers could increase WC costs from a low of $2.78 billion to
as much as $81.5 billion for the 38 states it studies. New York and California,
both engaged in their own rating activity (outside NCCI data), have issued
their own estimates that are even more staggering.
One key unknown is whether the presumption of compensability tool will be
limited to this virus or whether the impact will be more general to
"ordinary diseases of life," as Hawaii has seemingly allowed. Will
there be changes then to parameter limits such as indemnity benefit waiting
periods, rendering a potentially minor illness as "lost time"
events?
New York's estimate of the impact on loss costs from varying
applications of the presumption of compensability for COVID-19 could exceed $31
billion, or 353 percent of current annual WC costs in the state of New York
(before COVID-19). For the state of California, the Workers' Compensation
Insurance Rating Bureau estimates a range of cost impacts from $2.2 billion up
to $33.6 billion with a midrange estimate of $11.2 billion (61 percent of
average annual WC costs in that state). Such presumptions now appear to have
traction. Key concerns include the following.
- Cost of significant increases to workers compensation insurance
premiums
- Competitiveness of businesses within affected states
- Implications for the WC systems and the "Grand Bargain"
- The full effect COVID-19 will have on this trend
The historical underlying proposition for WC was the occurrence of an
accident or a fortuitous event happening suddenly. In the 100-plus years since
its original deployment, new concepts such as psychiatric injury, repetitive
trauma, and occupational disease were periodically added to the various state
laws, expanding what was "compensable" under the many state-based
statutes. The system's evolutionary nature and state-driven diversity are
important components of how the systems change. Early challenges to the systems
were predominantly by injured workers contesting the sufficiency of benefits
defined by each statute.
Presumption of Compensability: Then and Now
With the inception of occupational disease in WC, it was typically tied to
specific workplace environments. The best examples are dust-related exposure
diseases such as silicosis, asbestos, and black lung disease. Exposure to these
and other specific diseases was exclusively related to the workplace and, thus,
presuming them to be covered by WC statutes was an easy-to-make argument.
Modern work environments have focused heavily on promoting safety by
emphasizing the prevention of known workplace connected diseases, though it is
not with any consistency across industries or companies unless by regulatory
mandate. As a result, WC systems evolved to include selected compensability of
occupational diseases that were not ordinary diseases of life or to which the
public was not ordinarily exposed. The "Grand Bargain" was working
equitably.
In the late twentieth century, WC systems began to be amended with a
statutory imposition of presumption of compensability. In general, the purpose
of the presumption of compensability is that something is true under the law
until proven otherwise. In a general sense, both in tort and in WC, the person
seeking benefits is presumed not to be entitled to them. The injured worker is
presumed to not be entitled to benefits until proven. Therefore, that person
bears the burden of proving entitlement.
In general, this means proving that an accident and resultant injury/disease
occurred in the course and scope of the employment. A presumption of
compensability generally changes that premise and holds that benefits are due
until and unless another party (the employer) proves that they are not.
Generally, the presumption of compensability shifts the "burden of
proof" without significantly changing the underlying statutory rules
regarding compensability.
In recent decades, presumptions of compensability have become more common in
WC largely through the efforts of unions representing the interests of
firefighters and police officers. Presumptions of compensability most often
fall within two categories, "conclusive" and "rebuttable."
A conclusive presumption of compensability protects the decision from a
challenge, which means the alleged injury is compensable, despite any proof to
the contrary that might be presented. A rebuttable presumption of
compensability is the opposite, as it is true until proven otherwise.
Presumptions of compensability in the "first responder" realm have
become commonplace as to cardiovascular conditions, cancers, and emotional
claims. These have only changed the necessary evidence to prove claims. Thus,
any employee could prove the compensability of a heart attack or other
cardiovascular event in WC, but a firefighter with a presumption of
compensability may have such an event or condition presumed compensable without
the need of proof. A non-first responder would have to prove his or her case,
while the firefighter would prevail unless the employer successfully rebutted
the cause and compensability.
Some states have legislated compensability of mental claims in WC without
the necessity of any physical harm or injury. Those states, and this paradigm,
are referred to as "mental/mental." In other jurisdictions, mental
conditions are compensable only if that follows some physical injury otherwise
compensable in WC. These jurisdictions are referred to as
"physical/mental."
Various jurisdictions have established these presumptions of compensability
for select occupations and conditions. The table is, thus, set across the
country for a variety of reactions to the presentation of an unexpected and
somewhat unprecedented contagion being presumed compensable.
The Impact of COVID-19 on WC
COVID-19 has produced unusual and substantial job losses. There is already
evidence of permanent changes in the way we dine, work, travel, and relax. And
through legislative action, there will be lasting changes to WC systems. State
legislative and executive actions have been increasingly common, the duration
of which is still to be determined. The presumption of compensability of
COVID-19 in WC has been increasingly common as states grapple with the
challenges of the virus crisis. Some jurisdictions' executive actions have
specifically included other employee groups in their orders, as well.
Those states implementing change through legislative action are doing so
through statutory amendment and will likely remain unless repealed by future
legislative action. The states acting through executive action are similarly
changing their WC laws but under the auspices of emergency powers delegated to
improve the response to such events. The executive declarations are, therefore,
temporary, yet it remains to be seen whether those state legislatures will
enact more lasting change that would affect a more permanent impact to WC
systems as a result.
Regardless of the type of action taken, those who incur the WC expenses are
likely to adjust in the face of this unexpected and possibly significant cost
of doing business. Insurance companies are likely to seek rate increases and,
for employers who self-insure, more controls to mitigate incremental costs. The
effects will be potentially significant and impact the speed of recovery of the
economy depending on the volume of individuals who qualify for COVID-19
benefits in those reacting states. At this writing, of course, not all states
have acted with COVID-19 presumptions of compensability as tactics are still
developing.
Cost impacts will vary significantly from state to state. The short to
midterm costs are potentially nominal. A fair number of patients with a
COVID-19 diagnosis will self-isolate and recover in a home setting. There will
be liability for indemnity benefits and nominal medical treatments or
medication that will range from minimal to weeks, even months of duration,
along with related treatment costs.
The longer-term, higher impact costs would begin when hospitalization is
incurred. Such care is expensive, with daily costs often exceeding $10,000.
Treatment in an intensive care unit or including surgeries, respirators, and
more would be significantly more expensive yet. Reports estimate that average
COVID-19 hospitalizations are 8 days, suggesting a reasonable probability of
close to $100,000 exposure per case for those incurring costs in this category.
This category may also include the permanent death benefits and funeral
expenses for the small percentage of patients who succumb to the disease and
its sequel or complications. Those complications could lead to litigation where
an employer might maintain that alleged death by COVID-19 was more likely due
to preexisting or comorbidities, such as heart disease, diabetes, or
asthma.
The impact on WC systems and premiums should be viewed in the context
relative to system impact (e.g., 61 to 353 percent of annual cost). Those costs
will be borne across employments in those jurisdictions adopting such a
presumption of compensability. This shifting of viral disease into WC
represents a significant cost and may lead to significant implications for WC
systems as a material departure from their original intended design and
purpose.
Conclusion
The immediate implication is likely to be litigated among stakeholders
attempting to allay the cost-shifting these issues portend. The stage is set
for WC in some jurisdictions to absorb substantial costs associated with
COVID-19 due to the expanded use of the presumption of compensability. Whether
those costs are immediate through a retroactive executive liability expansion
or in the future through legislative expansion with commensurate rate changes,
WC insurers will eventually be forced to increase premiums to cover this risk
where deemed compensable.
As states expand both their WC coverage and premiums, there will be a
potential incentive for businesses to minimize presence in those jurisdictions,
as practical, and thereby enhance profit. As COVID-19 plays itself out over
time, the extent and frequency of using the presumption of compensability will
influence how it is used for diseases in the future not yet on the radar.
Stakeholders in the WC systems would be wise to carefully consider the full
ramifications of the continued expansion of presumption of compensability
before capitulating to its unopposed use without a clear, supportable basis for
doing so.
The "Grand Bargain" was designed to offer balance in industrial
injury rights between employers and employees. Overuse of the presumption of
compensability risks tipping that balance away from that original intent and
increasingly toward inequity among these stakeholders.