Should Losses Caused by COVID-19 Be Covered Through the Workers’ Compensation System?

RAND Examines the Pros and Cons

By Hon. Susan V. Hamilton, Former Assistant Secretary and Deputy Commissioner, California Workers’ Compensation Appeals Board

As we mark the second anniversary of the arrival of SARS-COV-2, which causes the disease known as COVID-19, there is growing recognition that this unpredictable and highly contagious virus will likely be with us for some time. COVID-19 has challenged our country’s workforce. It continues to do so. Businesses that are able, have transitioned their employees from on-site to telework at home, some on a permanent basis. But many workers, those we now refer to as “essential” and/or “frontline,” must continue to work on-site. These employees include health care workers, police officers, firefighters, paramedics, food service workers, grocery clerks, transportation workers, teachers, and agricultural workers. They often work in close proximity to others and have frequent and close contact with the public, vendors and suppliers. If an essential/frontline worker becomes ill with COVID-19 should workers’ compensation provide coverage for the disease? Labor organizations advocate in favor of extending workers’ compensation benefits to these workers because their jobs put them at a greater risk of COVID-19 infection than the general public. Employer organizations, on the other hand, argue that the highly transmissible nature of the virus, the 3- to 5-day incubation period, and the inability to trace the source of a transmission, make it manifestly unfair to provide such coverage.

A recent Perspective by RAND researchers Michael Dworsky and Bethany Saunders-Medina (Dworsky and Saunders-Medina) examines the advantages and disadvantages of expanding workers’ compensation to cover costs for workers required to work outside the home who contract COVID-19. The article, COVID-19 and Workers’ Compensation: Considerations for Policy Makers (RAND, January 2022), looks at the current workers’ compensation landscape, reviews efforts already put in place to make it easier for essential workers to receive benefits, explores alternatives to workers’ compensation coverage, and poses questions for policymakers to consider as they navigate the murky and challenging waters of the COVID-19 pandemic.

Workers’ Compensation Coverage of COVID-19 Through Presumptions

Common diseases, like the seasonal flu and colds, which usually resolve in a short period of time with few complications are not typically covered by workers’ compensation. This is because the general public is at the same risk of exposure as a worker might be. But COVID-19 is different. Not only is it highly transmissible, but it also may require significant medical intervention and cause long-term complications. According to Dworsky and Saunders-Medina, these factors prompted many state governments to expand measures to provide presumptive coverage of COVID-19 related illnesses for those employees required to work at a work site outside of their homes. Since the pandemic began, 21 states have established rebuttable presumptions that such an employee’s COVID-19 infection is a compensable injury. The presumptions differ from state to state, but generally apply to frontline workers. In nine states, the presumption provisions apply to broader categories of employees. The presumptions typically take effect upon a positive COVID-19 test or physician diagnosis.

These measures shift the burden to the employer to present evidence that the employee did not contract the disease at the workplace. At least in theory, a presumption should make it easier for an employee’s claim to be accepted by the employer. A prior RAND study, COVID-19 in the California Workers’ Compensation System, found lower denial rates of frontline workers’ COVID-19 claims after the presumptions were enacted. However, the denial rates were still higher than denial rates for these workers’ non-COVID-19 related claims.

California is one of the states that has established rebuttable presumptions related to a workers’ COVID-19 infection. In May of 2020 Governor Newsom issued Executive Order N-62-20, which created a rebuttable presumption that California workers who worked outside of their home at their employer’s direction between March 19, 2020 and July 5, 2020, and who became positive for COVID-19 within 14 days of working at the employer’s jobsite are presumed to have contracted any COVID-19 related illness at work for the purposes of awarding workers’ compensation benefits. The Executive Order was later codified into law and its application was extended to employees who get sick or injured due to COVID-19 on or after July 6, 2020. (See, Cal. Lab. Code, § 3212.86.) In addition, two other rebuttable presumptions were codified. They are Cal. Labor Code section 3212.87, which applies to frontline workers (primarily those employed in healthcare, emergency services and protective services) and Cal. Labor Code section 3212.88, which applies to employees who test positive for COVID-19 during an outbreak at the employee’s specific place of employment, as long as specified criteria are met. All three of these presumptions will be repealed on January 1, 2023, unless they are extended by the Legislature.

The Arguments in Favor of Workers’ Compensation Coverage of COVID-19

What are the arguments in favor of covering COVID-19 through workers’ compensation? Dworsky and Saunders-Medina note several benefits. First, the ability of a worker to receive medical care for a COVID-19 infection. Workers’ compensation pays 100% of the cost of medical care for the work-related injury or illness without any co-pays or deductibles. Second, workers’ compensation provides some wage replacement for a worker who is unable to work after a COVID-19 diagnosis. Not all workers’ have access to sick leave or short-term disability programs. Dworsky and Saunders-Medina observe that workers in low wage jobs who do not have access to sick leave or disability benefits face higher risks of financial devastation if an illness prevents them from working. Workers’ compensation can mitigate such risks through wage replacement and the provision of medical treatment while the worker recovers from the illness. The third benefit is perhaps even more significant: safety. As Dworksy and Saunders-Medina explain, every day that workers sick with COVID-19 remain on the job, their presence in the workplace exposes co-workers, vendors, and customers they come in contact with to the virus. Using the workers’ compensation system to provide wage replacement and medical benefits should encourage sick workers to stay at home while they recover from the disease. A fourth advantage is that workers’ compensation coverage can protect employers by shielding them from potential tort liability.

The tort system presents a number of obstacles as an alternative to workers’ compensation coverage. Foremost, the exclusive remedy limits a worker’s ability to file a civil suit against their employer for a work-related injury. Those limited exceptions are unlikely to be applicable to a claim of a work-related COVID-19 infection. Tort litigation is also expensive and time-consuming. From an employer’s perspective the tort system’s potential for an award of non-economic damages is less favorable than coverage through workers’ compensation where benefits are limited.

The Arguments Against Workers’ Compensation Coverage of COVID-19

What are the disadvantages of covering COVID-19 through workers’ compensation? Foremost, is it fair to do so? The highly transmissible nature of the virus and the lack of the ability to reliably pinpoint the source of an infection make it difficult for an employer to dispute that the illness was work-related. If COVID-19 is covered through workers’ compensation employers face the possibility of paying the costs for a worker who did not actually contract the disease on the job through higher premiums charged by their compensation insurer. Given the novel nature of the virus it is not currently possible to identify with any degree of accuracy the likely costs associated with COVID-19 related permanent impairment and long-term medical costs. These are important factors that could increase an employer’s premiums if COVID-19 illnesses are covered through workers’ compensation.

Can Employers’ Concerns Be Mitigated?

Are there any solutions that could assuage employers’ concerns of premium increases should COVID-19 infections continue to be covered through workers’ compensation? Yes, say Dworsky and Saunders-Medina, and those solutions have to do with the manner in which workers’ compensation insurance is priced. One approach to insurance pricing is “experience rating.” This method allows for increased premiums for employers with poor safety records. Employers with favorable safety records are rewarded with lower premiums. Experience rating is intended to ensure that employers with good safety records are not forced to subsidize the costs incurred by an employer with a poor safety record in the same industry. As Dworsky and Saunders-Medina point out, the theory underlying experience rating makes good sense for injury risks that are largely within an employer’s control (e.g., safety guards on dangerous equipment), but the highly contagious nature of COVID-19 that allows for easy spread throughout a community undercuts the fairness argument. An employer can provide the safest workplace possible, but one of their employees could still become infected with the disease and file a claim.

The second approach, one that Dworsky and Saunders-Medina endorse, is to encourage employers to take proactive steps to improve workplace safety as an incentive for lower premiums. In the case of COVID-19, such safety measures could include providing employees with appropriate personal protective equipment and installing robust ventilation systems.

What Impact Has Workers’ Compensation Coverage of COVID-19 Had on Insurers?

To date, COVID-19 has not had a negative impact on the profitability of the workers’ compensation insurance market, Dworsky and Saunders-Medina report. Many employees who contracted COVID-19 in the early days of the pandemic have recovered without the need for prolonged time off work or costly medical care. Additionally, a study by the Workers’ Compensation Research Institute found at least a 30% decline in non-COVID-19 claim frequency in most states. While it appears likely that insurers are in a good position to “weather the storm” should claims volumes and costs rise in the future, insurers face the risk of the unknown long-term health implications for workers who have recovered from a serious COVID-19 infection. Such long-term consequences might include claims for permanent disability, lifetime medical treatment or death benefits. These unknown long-term consequences present a challenge to insurers because premiums collected in a given year must be adequate to cover all of the costs arising from injuries and illnesses during that year. Thus, longer-term costs such as lifetime medical, permanent disability and death benefits must be priced into premiums.

Further Research

Dworsky and Saunders-Medina pose several important questions policymakers and regulators might consider in their examination of the costs and efficacy of the efforts to date to provide compensation coverage to workers diagnosed with COVID-19. First, they recommend that further research be conducted to determine whether workers stay home when they are sick because they have workers’ compensation benefits. Second, they suggest further examination of whether or how insurance pricing incentives have actually caused employers to make workplaces safer. Third, they encourage examination of workers’ knowledge and understanding of their option for receiving workers’ compensation benefits. For example, are economically vulnerable workers who might benefit the most from the workers’ compensation system actually filing claims or are they discouraged from doing so by system complexity, lack of awareness, or the possibility of employer retaliation? Fourth, how have COVID-19 rebuttable presumptions impacted claim filing rates, claim acceptance rates, and claim denial rates? Fifth, how effective have various state and federal measures (i.e., COVID-19 specific sick leave, stimulus payments, and expanded unemployment) been in helping workers who may have contracted COVID-19 while working? Finally, is the tort system providing any compensation in situations in which COVID-19 has been found to be non-compensable through workers’ compensation?

The answers to these questions will inevitably guide policy makers in making the most prudent choices to address the significant challenges that COVID-19 has had upon our nation’s workforce. In the meantime, Dworsky and Saunders-Medina conclude with the recognition that coverage of COVID-19 claims through workers’ compensation could be advantageous to both employees and their employers.

As a post-script, a recent research article in the American Journal of Industrial Medicine endorses the need identified by Dworsky and Saunders-Medina for further research to document and understand evidence underpinning the need for workers’ compensation coverage for COVID-19 and to evaluate the effectiveness of California’s COVID-19 rebuttable presumptions (Cal. Lab. Code §§ 3212.86-3212.88) The article, Worker and employer experiences with COVID-19 and the California Workers’ Compensation System: A review of the literature (Am J Ind Med. 2022:1-11) presents a review of 40 articles on worker and employer experiences surrounding COVID-19 and workers’ compensation. The article illuminates the paucity of currently available research on COVID-19 and workers’ compensation; nonetheless, it does identify experiences and practices related to COVID-19 and workers’ compensation that will help guide further research and future policy decisions.

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