Construction workers have their temperatures checked on a job site, photo by Maha Heang 245789/Adobe Stock

commentary

(The RAND Blog)

Should COVID-19 Be Covered By Workers' Compensation? Some Considerations

Construction workers have their temperatures checked on a job site

Photo by Maha Heang 245789/Adobe Stock

by Michael Dworsky and Bethany Saunders-Medina

August 31, 2020

As businesses in the United States struggle to reopen amid the pandemic, both employers and employees have valid concerns about how to safely and effectively resume operations. Workers who are exposed to COVID-19 in their workplaces face not only a threat to their health, but also the risk of high medical expenses and lost wages. Business groups, meanwhile, are seeking legislation that would shield businesses against lawsuits if workers become sick or die after being exposed to COVID.

While gridlock over the pandemic response continues at the federal level, states have been moving quickly to provide essential workers with protections through their workers' compensation systems. As of August 11, 18 states had expanded coverage through legislation, regulation, or executive orders, and an additional 13 states had pending legislation that would move in a similar direction.

The policy debate over covering COVID-19 through workers' compensation has focused on the question of who should bear the cost when workers fall ill: employers or employees? On the one hand, workers and their families are facing widespread financial hardship, and many could be devastated by the medical bills or lost income resulting from a serious case of COVID-19. On the other hand, workers' compensation typically does not cover “ordinary diseases of life” like the common cold, and business groups have argued that it would be unfair, given the difficulties in contact tracing and COVID-19's long incubation period, to require employers to pay benefits to workers who may have contracted the disease outside of work.

The debate over covering COVID-19 through workers' compensation has focused on who should bear the cost when workers fall ill: employers or employees?

Share on Twitter

What has been less widely acknowledged as states consider expanding their workers' compensation systems to cover COVID-19 is that a thoughtful approach to covering COVID-19 through workers' compensation has the potential to promote the broader goals of pandemic response: ensuring public safety, encouraging economic recovery, and protecting workers and their families from suffering economically. Of course, there are also some pitfalls that states should be careful to mitigate. A discussion of the potential benefits and drawbacks to covering COVID-19, as well as a look at several key issues that remain unresolved could serve to help policymakers navigate this crucial issue.

Background

Workers' compensation is America's oldest social insurance program. Most states established workers' compensation systems at the tail end of the progressive era in the 1910s. Details vary widely from state to state and are notoriously complex, but the program's mission is fairly simple: workers who are injured or become sick on the job are provided with necessary medical care and cash benefits that offset a fraction of earnings losses due to disability.

What is sometimes overlooked is that workers' compensation can provide substantial benefits to employers by shielding them from tort lawsuits for injuries and illnesses and can limit the damages that workers might recover to the actual or economic damages associated with replacing lost earnings, providing medical care, and vocational rehabilitation. In contrast to the tort system, punitive damages and damages for pain and suffering are eliminated, and the types of compensation provided are defined by state law. Economic historians have shown that widespread adoption of workers' compensation has been driven not just by labor, but by the interests of businesses seeking greater predictability in the cost of compensating workplace injuries. Workers' compensation is often referred to as a “Grand Bargain” between employers and workers because both sides got something important out of the arrangement.

Potential Benefits

In the current environment, workers' compensation has the potential to particularly help high-risk essential workers, many of whom are unable to work from home and are in low-wage jobs that are unlikely to offer extensive sick leave or disability benefits. Medical benefits under workers' compensation may be especially valuable because the program pays for 100 percent of the cost of necessary care, with no co-payments, deductibles, or other patient cost-sharing.

Another potential argument for covering COVID-19 through workers' compensation is administrative efficiency and timeliness. Unlike unemployment insurance or stimulus checks from the federal treasury, for the vast majority of workers compensation benefits are delivered by decentralized private entities, including insurance companies, quasi-public state funds, and large self-insured employers or their third-party administrators. While workers' compensation does not have a reputation for administrative efficiency, it may function more smoothly than the available alternatives, such as state unemployment insurance systems, which have suffered from decades of underinvestment and are straining to process claims and disburse benefits in a timely and accurate manner. Meanwhile, workers' compensation claim volumes have plummeted thanks to stay-at-home orders and job losses during the recession, likely leaving insurers with additional capacity to process claims and pay benefits. Compensating sick workers through workers' compensation would give states a way to bypass their overwhelmed unemployment insurance and safety net systems, instead leveraging the claims professionals employed by private insurers.

Workers' compensation has the potential to particularly help high-risk essential workers, many of whom are unable to work from home and are in low-wage jobs that are unlikely to offer extensive sick leave or disability benefits.

Share on Twitter

Businesses also stand to benefit from moving COVID-19 claims into the workers' compensation system. This would make workers' compensation the exclusive remedy for sick workers. In comparison to the blanket “liability shield” for businesses under debate at the federal level, workers' compensation coverage can provide many of the same protections while at the same time ensuring workers are compensated for their risks rather than left without recourse. If the threat of lawsuits from employees is really deterring businesses from reopening, then coverage of COVID-19 through workers' compensation could mitigate these risks.

There are similar potential benefits to employees. As it stands, there are widespread reports of workers who are afraid to return to work due to the risk of workplace transmission. Workers' compensation coverage could substantially mitigate the financial risks currently facing workers who become sick. Such coverage might then boost the supply of willing and available workers, facilitating economic recovery.

Potential Drawbacks

Workers' compensation benefits need to be weighed against the costs. One concern is that more generous workers' compensation benefits have been shown to increase the length of time a worker stays on disability. At least in part, this is due to a price distortion unavoidably introduced by wage replacement benefits; the loss of benefits can push a worker's effective wage below the value of the output the worker would produce by returning to work.

With infectious diseases, however, the risk of transmission (among workers or from workers to customers) increases with each day a sick worker spends on the job. More research is needed to quantify this externality in the specific context of COVID-19. But, policymakers will need to weigh any costs associated with the moral hazard against the status quo that incentivizes workers to work through illness—an argument that does not apply to the injuries that are more commonly handled through workers' compensation.

Many employer groups and business associations are fervently opposed to expanding workers' compensation coverage for COVID-19 due to concerns over costs. While there is still enormous uncertainty, early cost estimates have been stratospheric. In April, California's workers' compensation actuaries estimated a one-year price tag of $11 billion in paid benefits and expenses, amounting to two-thirds of the projected cost of the California workers' compensation system for 2020.

The total cost to society, however, has not been calculated. Most of these costs don't go away if they're not covered by workers' compensation: they are simply shuffled among different parties. Workers' compensation coverage could reduce total costs by encouraging safer working conditions and discouraging workers from working while contagious, thus providing the additional social benefit of reducing the potential for spread.

Remaining Questions

In the earliest days of the pandemic, many states moved quickly to expand workers' compensation coverage of COVID-19 to first responders and health care workers. By early summer, however, there were confirmed workplace outbreaks in a wide variety of industries, from meatpacking to manufacturing to grocery stores. And severe outbreaks now seem to be widespread among farm workers.

A known problem with workers' compensation is workers deciding not to file and losing out on benefits they rightfully deserve. Barriers to claim-filing include unawareness and, more worrisome, the fear of illegal (yet still commonplace) employer retaliation. These barriers loom largest for the most vulnerable workers—those with precarious, non-unionized employment, or who may be unaware of their rights due to language or other cultural barriers.

Without analyzing data on workplace outbreaks or the employment status of individuals with confirmed COVID-19 cases, it is hard to know what proportion of infected or quarantined workers are actually filing workers' compensation claims. However, early data from California give some cause for concern. Over half the COVID-19 claims filed through July were from health care workers (39 percent) and first responders (16 percent). By contrast, other essential sectors reported much lower percentages of claims, including retail (eight percent), manufacturing (seven percent), transportation (five percent), and food services (four percent). Particularly troubling is the low volume of claims filed by agricultural workers (893 cases through the end of July, or 2.9 percent of statewide COVID-19 workers' compensation claims. While there are no readily available estimates of the total number of COVID-19 cases among farm workers, it seems likely that far more than 900 farm workers had been infected by the end of July; in May and June of 2019, there were over 200,000 farm workers in California.

Policymakers will need to weigh any costs associated with the moral hazard against the status quo that incentivizes workers to work through illness.

Share on Twitter

These data suggest covering COVID-19 through workers' compensation is only a first step to making sure that workers have access to benefits; labor regulators and public health authorities may need to engage in education and (in cases of retaliation) enforcement to make sure workers are able to exercise their rights.

In addition to eliminating barriers to accessing workers' compensation benefits, policymakers will need to decide what conditions need to be met for a COVID-19 workers' compensation claim to be valid. For example, should workers become eligible once a known exposure is confirmed and a quarantine recommendation issued? Or should they only become eligible once diagnosed by a health care provider and/or testing positive? COVID-19 presents a unique difficulty in this regard due to its long incubation period. Waiting for confirmed test results could have the unintended side effect of furthering the spread of an outbreak, especially given the lag time between taking a test and receiving results. A robust paid sick leave policy could help fill the gap between the time when an employee suspects they may have been exposed to the virus and the time when the diagnosis is confirmed.

Conclusion

COVID-19 represents a wholly different type of workplace hazard from the traumatic factory-floor injuries that were commonplace a century ago when workers' compensation systems were designed in the United States. It is far from obvious that a system originally designed for such different risks should play a large role in the current pandemic. Yet in some ways, COVID-19 has created challenges for workers (exposure to risk with uncertain legal recourse) and employers (unwanted exposure to tort liability) that parallel the conditions that originally led to the workers' compensation program. Policymakers might thoughtfully consider the potential benefits and drawbacks to expanding workers' compensation coverage for COVID-19 as part of a broader response to ensuring an efficient economic recovery from the pandemic while also promoting public safety.


Michael Dworsky is an economist at the nonprofit, nonpartisan RAND Corporation in Santa Monica, where he conducts research on health care, workers' compensation, and the economics of disability. Bethany Saunders-Medina is a policy analyst and coordinator for the RAND Institute for Civil Justice.

Commentary gives RAND researchers a platform to convey insights based on their professional expertise and often on their peer-reviewed research and analysis.