The COVID-19 pandemic has been with us for over nine months now, with no end in sight. During this time, we conducted several Out Front Ideas COVID-19 Briefing webinars and The Path Forward virtual conference. These educational events were designed to provide risk managers and others in the industry with a better understanding of how COVID-19 was impacting our industry. As more time passes, the impact on workers’ compensation is becoming more evident. However, we are still in the early stages of developing claims, and it will be some time before we have clarity on the full impact.
What has changed? Frankly, everything — how the industry handles claims, the types of claims submitted, how medical treatment is provided, staffing models, and the list goes on. Today’s workers’ compensation is different from what it was before the pandemic started, and it is not likely to revert to the exact model we had before March 2020.
Defining workers’ compensation
First and foremost, the definition of a workers’ compensation claim has been fundamentally redefined. When workers’ compensation started over 100 years ago, it was to cover traumatic workplace accidents, things that happened at a specific date, time and place.
Over time, workers’ compensation expanded to cover occupational diseases. These diseases could be traced to exposures that were particular to the workplace and associated risks—a chronic disorder caused by work activities or environmental conditions in the workplace. In many states, workers’ compensation expanded to cover injuries occurring gradually over time. As a result, repetitive trauma/continuous trauma claims are now a significant cause of injuries and workers’ compensation claims in some states.
Front and center today are infectious diseases. Workers’ compensation was not designed to cover a global pandemic. Claims for an infectious disease could be covered under workers’ compensation if there was an increased risk due to employment, and there was documentation of exposure and a diagnosis. Tens of thousands of workers’ compensation claims for COVID-19 have been covered nationally under this standard. But now we have states enacting presumptions that COVID-19 is work-related for specific occupations. These presumptions fundamentally change one of the basic tenants of workers’ compensation, the burden of proof. Typically, the affected employee would be responsible for proving exposure happened in the workplace and that they are at higher risk for exposure than the public. With presumptions, it leaves employers responsible for proving exposure did not occur in the workplace, which can be extremely difficult.
With these changes, one of the more frequently asked questions in the industry is, does this open the door for future infectious disease coverage under workers’ compensation? I participated in a Southern Association of Workers’ Compensation Association (SAWCA) regulatory roundtable discussion earlier this year, and the consensus from the panel was yes, that door is now open.
Workers’ compensation is a statutory coverage. Carriers cannot exclude specific causes of loss like other insurance coverages can. After the 9/11 terrorist attacks, the reinsurance market responded by excluding terrorism from workers’ compensation treaties. Now we see reinsurers exclude infectious disease and pandemic from coverage. Since the carriers writing the coverage cannot exclude that risk, this leaves carriers exposed to unlimited liabilities. There has been talk of a federal pandemic reinsurance program, similar to the Terrorism Risk Insurance Act (TRIA) with terrorism. But those talks are very preliminary.
Tied closely to the workers’ compensation industry is employer payroll. Fewer people working means fewer premiums, and the payroll in certain sectors is significantly down. The question is, when will this bounce back? Recently the CEO of one of the largest hotel chains in the world said it would be at least 2023 before they returned to 2019 occupancy levels. Major airlines are predicting decreased demand through at least 2022.
But the impact is going beyond the travel industry. As many office buildings around the nation remain mostly unoccupied, this impacts all the ancillary businesses around those buildings — restaurants, retailers, dry cleaners, parking garages, etc. Brick and mortar retailers that were already struggling are facing an increasing challenge. Thousands of businesses will ultimately close forever.
When will the economy bounce back? When will we see 2019 employment levels again? Those are two huge unknowns facing the workers’ compensation industry.
Because fewer people are working in some industries, that leads to fewer claims. In April 2020, TPAs reported that their claims volume was down close to 50%. While that volume is bouncing back, it remains below 2019 levels.
This decrease in claims adversely impacts all workers’ compensation industry vendors that are volume-dependent. TPAs, medical networks, medical providers, case managers and even defense attorneys are seeing decreased volume. This reduced revenue may eventually lead to more industry consolidation.
Not all claim volume is down. First responder claims are increasing more than ever before, with both the pandemic and civil unrest resulting in thousands of new injuries. Healthcare industry claims are up as well. Some retailers, including supermarkets and big-box stores, have expanded their payroll to keep up with demand. Trucking, shipping and delivery businesses have also expanded payrolls.
Catastrophic injury claims have not decreased during the pandemic because the types of industries where there are higher incidences of such claims have kept working, such as construction, trucking and public entities. Violent attacks against first responders have also increased with the civil unrest around the nation.
The foundation of the insurance industry is the law of large numbers and predictability. Years of accumulated data is analyzed by actuaries to determine the expected claims for the future. How has COVID-19 changed this? Unquestionably, there has been delayed medical treatment and extended disability on existing claims. The big question is, to what degree? It will take years for this to flow through actuarial development triangles.
The pandemic has likely impacted the benchmarks you used to measure your workers’ compensation programs. Employers need to reset their starting point when evaluating the effectiveness of their loss prevention and claims handling programs.
As time passes, we are starting to understand better the types of claims the industry is seeing from COVID-19.
Safety National’s data shows their most impacted industry group, as expected, is healthcare. However, closely behind healthcare is first responders with police officers, firefighters and paramedics. According to the National Fraternal Order of Police, 247 law enforcement officers have died from COVID-19 through the end of October. The public entity piece is missing from the bureaus’ analysis because most of these entities are self-insured.
At this time, Safety National’s data also shows the total number of death claims reported for employees below age 55 is almost the same as for employees over age 65. However, there are 48 times as many claims in the under 55 age group.
Sedgwick has handled over 45,000 COVID-19 workers’ compensation claims for their clients. 78% of those are closed with an average paid of $1050. 54% of the claims had no payments made.
Healthcare accounted for 57% of Sedgwick’s COVID-19 claims, with public entity, retail, services, and food/beverage rounding out their top industry groups.
Sedgwick claims show almost an equal distribution of claims by age group between 30-40 years old up to over 60 years old. However, the average incurred in the over 60 age group is close to double any other age group. Over 71% of the death claims they have seen were for employees 51 or older.
Overall, most of the COVID-19 claims by the workers’ compensation industry are relatively minor. However, death claims and claims with extended ICU hospital stays can have total incurred values over $1 million.
One big question going forward is, how will these claims develop? Will we see continued medical complications develop? Will we see permanent partial and permanent total disability claims?
The path forward
One way in which the workers’ compensation industry has adapted to the pandemic environment is with the increased use of telemedicine. Sedgwick still sees telemedicine on over 10% of their claims. Before COVID-19, telemedicine utilization was on less than 1% of claims.
Return-to-work has been a more significant challenge with business restrictions, which could increase costs on existing claims. Sedgwick data showed a 21% increase in TTD paid on active claims from March-September compared to 2019.
Finally, carriers have to develop new models to estimate their potential exposure to future pandemics. Without question, COVID-19 will continue to impact the workers’ compensation industry significantly into 2021 and beyond.
Kimberly George ([email protected]) is the senior vice president of corporate development, M&A and health care at Sedgwick. Mark Walls ([email protected]) is vice president of communications & strategic analysis at Safety National. Together they host the “Out Front Ideas” educational series. You can view their archived sessions here.
The opinions expressed here are the authors’ own.
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