Our collective coronavirus crisis has upended lives and businesses in an unprecedented manner. It has abruptly and rudely shoved millions of people into the ranks of the unemployed. It has also shut off many businesses’ cash flow just as abruptly and rudely. But once we get past these initial existential threats (assuming we do, of course) there are likely going to be unexpected ramifications to threaten those workers and businesses that survive the immediate disasters.
One question being asked is whether COVID-19 infections could be the basis for Workers Compensation claims by workers who feel they likely contracted the virus through work. At the moment, the best answer appears to be that’s unlikely for many workers, possible for some, and subject to change depending on future actions by state legislatures.
Workers Compensation is primarily a state matter, and the particulars of Workers Compensation statutes can vary significantly from one state to another. Many states exclude “ordinary diseases of life” from the occupational diseases covered by Workers Compensation. But there are occupational exposures where that could be a different matter — healthcare workers, for example. But even for those workers, there likely will be significant disputes over coverage.
And since, in most states, Workers Compensation coverage is provided by private insurance companies (although mandated by state laws and subject to the specific benefits established by the varying states) initial decisions about coverage for COVID-19 will be made by insurance company claims people, subject to review and determination by state adjudicators, when a worker disagrees with a decision by an insurer.
Another potential complication: health insurance routinely excludes coverage for injuries and illness covered by Workers Compensation. And employers commonly use different insurers for health insurance and Workers Comp insurance.
It is conceivable workers could be caught between different insurance companies, each claiming the other should be responsible for paying for COVID-19 medical costs. And while those insurers try to pass the buck between themselves, the healthcare providers may well come after the worker for the unpaid bills.
Some state legislatures have already voiced interest in addressing these issues, so it may be likely that at least some states will address COVID-19 coverage issues in the near future. But given the patchwork nature of the Workers Compensation system in America, these decisions will also likely be a patchwork of differing rules.
For businesses that survive these initial disruptions, there may well be later significant financial threats to them, thanks to Covid-19 and Workers Compensation. And that has to do with the fact that in most states, businesses obtain their Workers Compensation coverage from insurance companies. And those insurance companies base premium charges, in large part, on payroll.
On March 26, 2020, the National Council on Compensation Insurance(NCCI) issued a FAQ on the subject of COVID-19 and Workers Compensation insurance. NCCI is the insurance industry trade organization that writes the manual rules that govern Workers Compensation insurance premiums in most states. And in that FAQ, NCCI revealed the likely causes of this coming financial threat to employers.
For one, NCCI spells out that, in cases where employers continued to pay people even when they were not working, insurance companies will count that payroll when they compute premium charges for Workers Compensation insurance. So, if employers pay out significant remuneration to workers who are not actually working, no good deed will go unpunished when it comes time to compute Workers Compensation insurance premiums.
Worse yet, NCCI insists that its own interpretation of its manual rules means that such non-working workers will still have their payroll assigned to whatever classification applied to them back when they were still working. So, if an employer is paying a carpenter to sit at home, the remuneration paid will still be used to compute premium charges and will still be placed into a carpentry classification.
The NCCI manual rules do not actually state this but NCCI is nonetheless telling insurers that this is the correct interpretation of manual rules.
In cases where workers change the nature of the work performed, potentially becoming eligible for a less expensive Workers Comp classification, NCCI insists that such change in work must be documented by the employer. Without such documentation, payroll for such work will remain in whatever classification formerly applied.
Because Workers Compensation insurance premiums are based on payroll and use obscure rules to determine the rates assigned to those payrolls, there can be very significant additional premium charges that are billed to employers after a policy ends. This is a routine and fairly well understood aspect of Workers Compensation insurance, although newer businesses can often be unpleasantly surprised by it.
Insurance companies audit the payrolls and operations of insured businesses after policies end, and sometimes those audits produce unexpectedly large bills for additional premiums. Given the complexity of the rules involved, it is not uncommon for insurance companies to make errors in computing these additional premium charges, even in normal times. These times are not normal.
Insurance companies are not currently conducting in-person audits for Workers Compensation insurance, and it is unclear at this writing when they may resume that practice. They will still adjust premiums after policies end, of course, but now they will rely on information provided by phone or online. And since employers typically don’t understand the complicated rules about these things (Does overtime pay get counted? Whose pay goes into the cheap clerical class? What about vacation pay? Sick pay? COVID-19 time-off pay?) the odds of errors and overcharges likely will increase.
So just when surviving businesses may be trying to get back on their feet, the bills for additional Workers Comp insurance premiums may be coming in. And insurance companies historically have not been overly patient with policyholders when they think those policyholders owe them money.
Worse yet, recent changes to the rules allow for punitive premium increases if an insurer feels a policyholder has not cooperated with a premium audit. So business owners who have already been stressed to the breaking point may find they unexpectedly are dealing with an insurance company demanding money they cannot afford to pay, based on payrolls that happened in the past, before we were all living in a disaster movie.
Insurance companies historically have not been hesitant to file suit over additional premiums they feel are owed them, even when those additional premiums have been erroneously calculated. And insurers have another powerful hammer to hold over employers: they can get current Workers Comp coverage cancelled over unpaid bills for past policies.
Workers Compensation insurance is subject to the oversight and regulation of the various state insurance regulatory agencies. And those agencies have been far from vigilant in limiting errors and abuses by insurers over Workers Comp insurance premiums. State insurance regulators have, in recent decades, largely abandoned rigorous oversight of Workers Compensation insurance premiums, adopting an attitude that price competition will serve to prevent overcharges. That laissez-faire approach has left insurers free to overcharge with abandon, in my experience, even in normal times.
In the times to shortly come, alas, American employers may find that their recovery is threatened even more than was formerly the case, by an insurance industry that gets to largely write its own rules, in language that is far from accessible, for insurance coverage that is required by law if the employer wants to be in operation.Of course, for the moment, workers and employers have far more immediate concerns. But once this storm runs out of rain, we will be mopping up for quite a while.
Edward J. Priz, CPCU, APA, has worked full-time in the Insurance Industry since 1976. In 1982, he also began consulting on Workers Compensation insurance issues, and in 1987 established his own consulting firm to specialize in this field, as Advanced Insurance Management. Mr. Priz holds the professional designation Chartered Property Casualty Underwriter (CPCU) from the American Institute of Property and Liability Underwriters, as well as the designation Associate in Premium Auditing, from the Insurance Institute of America.
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