Workers' compensation—the social insurance systems that every state uses to provide medical care and wage replacement benefits to workers who are injured on the job—typically does not cover common infectious diseases like COVID-19. The extraordinary nature of the pandemic has forced states to adapt quickly, however. Since March, 18 states (PDF) have changed their workers' compensation systems (through executive orders or legislation) to make it easier for some essential workers who contract COVID-19 on the job to obtain benefits; bills to make similar changes have been proposed in another 11 states.
The thinking generally has been that workers need to be insulated from the financial risks of catching COVID-19 on the job, just as employers need to be shielded from financially devastating lawsuits should employees get sick at work. Workers' compensation has always represented a grand bargain balancing these competing needs. Handling workplace COVID-19 infection through workers' compensation offers both advantages and disadvantages relative to other approaches: states should weigh these tradeoffs carefully as they debate adopting or extending these reforms.
But one reason that policymakers might want to cover COVID-19 through workers' compensation is this: it could potentially reduce disease transmission among essential workers, the customers they serve, and their communities—if states think carefully about the incentives created by insurance pricing.
In addition to providing workers with benefits and protecting employers from lawsuits, the encouragement of workplace safety (PDF) has long been recognized as a central objective of workers' compensation policy. Workers' compensation regulators and insurers generally rely on two complementary approaches to promote workplace safety.
One approach is to raise insurance premiums for employers with poor safety records, a system known as experience rating. In the same way that car insurance rates go up after a driver is found at-fault in a crash, workers' compensation premiums go up if a business has a bad track record of injury and illness claims.
Handling workplace COVID-19 infection through workers' compensation offers both advantages and disadvantages relative to other approaches.Share on Twitter
The second approach is for insurers to work with their policyholders—employers—to take preventative measures up front. For instance, insurers might send safety consultants to workplaces or encourage employers to adopt safety plans that meet certain guidelines. In some cases, insurers even fund safety equipment. Price plays an important role here because insurers often incentivize safety investments by offering discounts on workers' compensation premiums. The hypothetical car insurance parallel would be offering lower rates to customers with safer cars or who take a defensive driving class.
In ordinary times, these carrot-and-stick approaches work in tandem: experience rating and insurer safety interventions have both been shown in numerous studies to reduce workers' compensation claim frequency and severity.
Experience rating—the stick—is a standard feature of U.S. workers' compensation systems (PDF) but in context of COVID-19, it could have some undesirable consequences. It might, for instance, incentivize employers to discourage workers from filing claims. That would erode workers' access to benefits—undermining an important reason for covering COVID-19 through workers' compensation in the first place. Employer retaliation against health and safety complaints has already been documented during the pandemic, and experience rating for COVID-19 claims may expose workers who actually file claims to similar risks.
Employers respond to experience rating through hiring discrimination against disabled workers, who are perceived as posing a greater risk of future injuries.Share on Twitter
Evidence also suggests that employers respond to experience rating through hiring discrimination against disabled workers, who are perceived as posing a greater risk of future injuries. In the COVID-19 era, such statistical discrimination could play out as hiring discrimination against Black, Latino, and Native American workers, since COVID-19 infections have been disproportionately concentrated among these communities.
There's reason to be concerned about the financial burden on businesses of premium increases due to experience rating, too. The exceptional contagiousness of the new coronavirus has led to huge outbreaks or quarantine orders—sometimes affecting dozens or even hundreds of workers—at a single workplace. Claims are likely to be correlated to a degree unheard of for injuries. Experience rating also fails to provide any safety incentives for the smallest employers, because they are exempt from experience rating.
Finally, part of the usual justification for experience rating is that safe employers shouldn't be forced to cross-subsidize the costs incurred by more careless employers in the same industry. This makes sense for injury risks that are largely under the employer's control. In the pandemic, however, community spread undercuts this fairness argument: employers that do everything right still face some possibility that their workers will become sick and file claims.
Given these downsides, states might consider leaning more heavily on premium discounts and other ex ante incentives to encourage workplaces that minimize virus-transmission risk.
Efforts by workers' compensation insurers to promote safety are widespread but may be less well understood. In the context of COVID-19, these efforts deserve a closer look. Workers' compensation insurers already inspect job sites and provide safety consulting to employers, with some insurers inspecting higher-risk job sites as often as two or three times a year. For comparison, the federal and state workplace safety agencies (OSHA and the state OSHA agencies) inspect only about 70,000 of the 8 million workplaces in the United States annually—meaning that most workplaces are rarely, if ever, visited by a government safety inspector.
Covering COVID-19 through workers' compensation would effectively enlist safety experts from insurance firms to monitor whether businesses are taking necessary steps to prevent transmission when they reopen. They may not have the legal authority of government inspectors, but having safety consultants offer a premium discount for a safe workplace seems more productive than nothing.
Some insurers go further, providing clients with modest amounts of capital to make up-front investments in safety. Ohio's Bureau of Workers' Compensation, for example, has a Safety Intervention Grant that provides employers with three-to-one matching funds to establish engineering controls intended to improve workplace safety. An evaluation showed that this program led to dramatic reductions in both injury rates and costs per claim.
It is easy to imagine this model being updated for the COVID-19 era; instead of machine guards, insurers could help pay for plexiglass barriers, face shields, and hand sanitizer dispensers. Indeed, the Ohio BWC already has begun to distribute masks (PDF) directly to covered employers. And in California, the workers' compensation State Fund has announced a $50 million fund to support COVID-19–related job site modifications in essential businesses. These examples come from public (Ohio) or quasi-public (California) “state fund” insurers, however. What exactly the mostly private workers' compensation insurance industry is doing remains unknown.
If state policymakers want to fully mobilize workers' compensation insurers in the fight against the pandemic, states would have to act on several fronts.Share on Twitter
If state policymakers want to fully mobilize workers' compensation insurers in the fight against the pandemic, states would have to act on several fronts.
First, states might need to change their workers' compensation laws to move COVID-19 claims into the workers' compensation system—including those filed by private-sector essential workers. Right now, the state laws that exist vary widely in terms of which workers are covered. The most common models are limited to front-line public safety and health care workers (PDF), but there is potential for safety benefits from expanding coverage to private-sector businesses—including both large establishments that have seen large-scale outbreaks (e.g., food processors and other manufacturers) and customer-facing small businesses such as restaurants and retail. In states that establish broad presumptions covering all employees who are working outside their homes, we would expect to see more insurer attention to infection control in the private sector. In the absence of legal clarity that COVID-19 is covered through workers' compensation, it would seem to make little business sense for commercial insurers to invest in infection control.
Second, state insurance regulators would have to decide whether experience rating should apply to COVID-19. Experience rating is designed to transfer risk from insurers to employers, reducing the financial incentive for insurers to work hard at prevention. Workers' compensation actuaries serving a majority of states proposed excluding COVID-19 from experience rating, and several states already adopted such regulations. State insurance regulators also might consider issuing guidance or (in states with stricter rate regulation) amending rules to encourage premium discounts linked to COVID-19 prevention efforts.
Finally, state public health authorities and (in some states) workplace safety regulators would need to issue clear COVID-19 prevention protocols so that insurers know what to do. Guidance from the CDC, occupational health guidelines developed in California and other states, as well as workplace safety standards (PDF) adopted in Virginia, provide some possible off-the-shelf options. Workers' compensation insurers generally aren't in the business of infectious disease prevention: those that decide to invest in COVID-19 prevention should not have to reinvent the wheel and decide what does or doesn't work.
The incentives created by insurance pricing are hardly an obvious policy lever for fighting COVID-19. But in the country's all-hands-on-deck fight against the pandemic, state policymakers might take a fresh look at aspects of labor and business regulation that usually fade into the background and ask if modest changes hold any potential to reduce disease transmission. The pricing of workers' compensation coverage—and the incentives it creates for insurers and employers to invest in safety—could represent a small contribution to promoting public health while policymakers work to salvage the U.S. economy.
Michael Dworsky is an economist at the nonprofit, nonpartisan RAND Corporation, where he conducts research on health care, workers' compensation, and the economics of disability. Bethany Saunders-Medina is a policy analyst at RAND 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.