It’s time to take stock of what transpired in the California workers’ comp world in 2020.
As you may guess, it was mostly COVID, COVID, COVID.
But there was other stuff, too. Here is my list of the top 10 California workers’ comp developments in 2020, with a bit of commentary on each:
1. California’s electorate rebuked efforts by legislators, unions and labor advocates to treat gig workers as employees.
After the 2019 passage of AB 5, it appeared that the platform-based transportation companies were losing the battle on how drivers would be classified. It seemed probable that their workers would likely be found within the ambit of the California workers’ comp system and other California employment laws, as they would have difficulty showing they were not employers under the ABC test used by the California Supreme Court in the Dynamex case.
AB 5, which enshrined the ABC employment test, also had wide application to other types of businesses except for those that were exempted by statute in 2019 and a raft of exemptions passed in 2020.
But what a difference hundreds of millions of dollars make. A tsunami of advertising spending by Uber, Lyft, Postmates, DoorDash and others resulted in a huge victory for those companies, which are for now exempted from AB 5. Under the terms of Prop. 22, they will provide alternative, but limited, benefits.
Here is my blog post comparing California workers’ comp and the gig employers system established under Prop. 22.
At the end of 2020 it is unclear what other businesses will seek AB 5 exemptions, as I noted in my blog post “Prop. 22 Passes.”
2. COVID was an absolute disaster for many employers and workers, but the workers’ comp community rose to challenges.
As COVID-19 rolled through California in several waves, the state's economy underwent a sustained shock. Unemployment spiked, businesses closed, major sectors of the economy were under pressure, with lines of hungry people and widespread fear of evictions. The list can go on. But the California economy was uneven, as workers in the entertainment, restaurant and travel industries faced a dire situation while tech and some other sectors prospered.
As an industry, the California workers’ comp community proved to be quite nimble, as telecommuting and telemedicine were quickly adopted. Attorneys, treating doctors, qualified medical evaluators, judges and claims departments rose to the challenge of keeping the comp system flowing. Tech platforms allowed injured workers to interact with doctors and lawyers, and lawyers with judges at Workers' Compensation Appeals Board district offices. I noted all of this in a recent Thanksgiving post.
One might contrast this with the 2020 financial and political disaster of the California unemployment system. Workers experienced horrible delays in getting unemployment benefits started and billions of dollars were siphoned off on fraudulent claims. Perhaps this was a year in which we are reminded that we are better off with the current workers’ comp system than one that might be run by a single government bureaucracy.
3. California workers' comp rates paid by many employers continue to decrease.
California’s insurance commissioner approved yet another advisory workers’ comp rate decrease.
In a decision on Nov. 25, 2020, on rates to be effective starting Jan. 1, 2021, Commissioner Lara went lower than both the Workers' Compensation Insurance Rating Bureau recommendation and the recommendation of Mark Priven of Bickmore, the WCIRB public members’ actuary.
Lara adopted the figure of $1.45 per $100 of payroll. While the California Department of Insurance recommendation of $1.45 per $100 of payroll is not binding on any insurers, it is a benchmark indicator of a stunning decline in California workers’ comp approved rates going back to 2015. It is 4.6% below the CDI rate recommended for the start of 2020. By comparison, in 2015 the CDI approved rate was $2.47 per $100 of payroll, declining to $1.52 as of Jan. 1, 2020, and now to $1.45.
Lara declined to include a COVID-19 claims adjustment cost figure in his finding, noting that he was “not persuaded that there was sufficient and reliable data upon which to base an adjustment for COVID-19 costs.”
However, Lara recognized that insurers would do their own analysis of COVID developments in determining the extent to which a COVID cost adjustment should be incorporated in their rate filings. Insurers were ordered to identify such adjustment factors in their rate filings submitted to CDI, and the WCIRB was ordered to further study all of this.
The CDI’s proposed decision and order adopted by Lara can be found here.
Many factors go into what individual employers may actually pay for getting their workers’ comp coverage. Approved advisory rates are just that. Whereas the approved rate for 2020 was $1.52 per $100 of payroll, the average charged rate was $1.90. The CDI decision adopted by Lara noted that:
“Collected premiums in the first quarter of 2020 produced an average charged rate of $1.901, which compares to $1.962 and $2.213 observed in 2019 and 2018, respectively, showing a continuation of a downward trend in charged market rates that has been in progress since the first half of 2015 when the average charged rate was $3.01. The average charged rate of $1.90 for the first quarter of 2020 (which reflects all insurer expenses) was approximately 25% more than the insurance commissioner’s adopted Jan. 1, 2020, average advisory pure premium rate of $1.52, which reflects loss and loss adjustment expense only. It was also approximately 25.5% less than the industry average filed manual rate of $2.55, thus indicating the average effect of schedule rating and other rating plan credits.”
4. COVID affected the California workers’ comp system in many ways, some known and some yet unknown.
As the California economy contracted in 2020 during COVID, WCIRB stats showed that written workers' comp premium took a big dive, falling 12% through September 2020 compared with the same 2019 period. Yearly premium was projected to fall to 2012 levels.
Reported workers’ comp claims fell, with the WCIRB noting in a September 2020 Quarterly Experience Report that indemnity claims in the second quarter of 2020 were 13% lower than the corresponding quarter in 2019 and that medical-only claims fell by 30% in both the second and third quarters of 2020. But indemnity claims did rise 6% in the third quarter of 2020 in comparison to 2019, due in part to COVID claims.
According to the WCIRB, “The recent lower (non-COVID-19) claim counts are due to the slowdown of economic activity, less work being done outside the home, and delays in reporting of claims during the shelter-in-place period.”
In 2020, the normal flow of workers’ comp medical treatment was interrupted for many injured workers, as many could not access in-person therapy, diagnostic tests, procedures and surgery. A significant WCIRB study raised the question of whether treatment delays may have downstream consequences such as increased temporary disability duration and increased permanent disability. That study, “Cost Impacts of Medical Care Delays in the California Workers’ Compensation System,” was discussed here.
The Sept. 30, 2020, WCIRB Quarterly Experience analysis has some post-COVID analysis but does not include post-March 2020 stats on how COVID has impacted claim severity, medical severity or frictional and administrative costs in the system.
5. COVID claims were a significant share of overall 2020 California workers’ comp claims.
As noted above, some of the ultimate costs and trends caused by COVID are not clear. What we do know, however, is that COVID claims are an increasing share of overall claims.
The California Workers’ Compensation Institute has established an online dashboard regarding COVID-19 workers' comp claims, which can be sorted by occupational type, age, geography, gender, acceptance or denial, etc. The dashboard does not delve into ethnic and racial COVID figures, though COVID has hit some ethnic/racial segments particularly hard.
We are in the middle of a major COVID surge as this blog post is written, but as of mid-December 2020, there were 66,899 COVID industrial claims and 336 deaths.
On a yearly basis through November 2020, COVID claims were 12.3% of total claims. But in November, 24.8% of claims were COVID-related.
The impact of COVID on the economy broadly and individuals has been profound. But what this will end up costing the comp system has been unclear. Early on in the pandemic, the WCIRB presented research on projected COVID costs, focusing on workers covered by the March 19, 2020, executive order N-33-20 by Gov. Gavin Newsom. For the four months that presumption (later extended by statute) applied, i.e. March to July 2020, the WCIRB estimated the cost as follows:
“The WCIRB’s mid-range estimate of $1.2 billion for the approximate four-month period the order applies is 7% of the $18.3 billion estimated total annual cost of losses and LAE in the California workers’ compensation system, prior to the impact of COVID-19 claims and the economic downturn.”
That analysis can be seen here.
A subsequent WCIRB paper estimated that COVID costs could hit some stunning totals; projections ranged from $2.2 billion to $33.6 billion depending on what percentage of workers were infected and what presumptions were enacted.
The CWCI also prepared a report to the industry regarding concerns over a COVID-19 presumption. Rebuttable COVID-19 presumptions were enacted, however, and the total cost of COVID to the system is still being studied.
6. 2020 was a quiet year in the courts for workers’ comp law.
The year will not be remembered for pathbreaking workers’ comp appellate cases. Still, a handful of appellate cases and WCAB en banc decisions are noteworthy:
But in 2020, as in recent years, there were numerous WCAB panel decisions dealing with trending issues. Many of those decisions dealt with issues arising out of recent prominent cases such as Kite (whether ratings should be added or combined under the Combined Values Chart); Hikida; Justice; Fitzpatrick; Dahl; Rolda; and various cases with issues concerning overlap, the QME process and replacement panels, apportionment, cumulative trauma, the substantial evidence requirement and the SIBTF.
7. 2020 legislative action was largely limited to bills dealing with COVID and exemptions from AB 5.
Bills to expand presumptions for post-traumatic stress disorder and skin cancer for certain law enforcement personnel and to grant certain industrial presumptions to hospital employees who provide direct patient care did not advance. The California Applicants' Attorneys Association's stated goal of running bills to reduce delays in care and eliminate bias in apportionment did not materialize.
Instead, the session was all about COVID and the gig economy.
There were extended negotiations over multiple bills that would have provided rebuttable or conclusive presumptions of compensability for various groups of workers who contract COVID-19. The bill that survived, SB 1159, provides a rebuttable presumption for certain essential workers and for workers who contract COVID-19 where there is an outbreak as defined in the bill.
AB 685, effective Jan. 1, 2021 (until a Jan. 1, 2023, sunset), was passed, requiring certain notices to workers, employers of subcontracted employees, and bargaining representatives when there are exposures as defined in the bill. It also authorizes Cal/OSHA to take steps to cite and even close a work site.
Another bill (AB 1867), sunsetting at the end of 2020, provided a supplemental paid sick leave for certain workers who contracted COVID-19. And the California Family Rights Act was expanded by SB 1383 to include more categories of family members.
Other bills that made the grade provided exemptions from AB 5 for certain occupations, now codified in Labor Code 2775-2787.
This legislative activity is covered in my post “It’s Done."
8. During the COVID era, much focus shifted from worker injuries to preventing infections under COVID, and Cal/OSHA adopted controversial COVID-19 prevention guidelines.
Both legislation (AB 685) and Cal/OSHA regulations now require employers to take certain steps to deal with COVID.
AB 685, set forth in Labor Code 6409.6, will as of Jan. 1 mandate written notification to employees and employers of subcontracted employees who were on the same work site with an infectious individual. Written notice must also be given to their bargaining representative.
The notice must include information regarding workers' comp benefits and other COVID-19 related benefits under any laws, including COVID-19 leave, various kinds of sick leave, and anti-discrimination/anti-retaliation protections. Notice of disinfection and safety plans must be provided. And if there is an outbreak (defined differently under AB 685 than under SB 1159), notice must be given to the local health department.
AB 685 also amends Labor Codes 6325 and 6432 to provide additional enforcement powers.
On Nov. 30, Cal/OSHA adopted emergency COVID-19 prevention standards. A follow-up meeting to discuss the new standards was held in December, attended by hundreds of employers, many of whom expressed concern about how the standards would work in the real world and whether they could meet the standards. At year’s end, it is unclear to what extent the Cal/OSHA standards board will entertain amendments in the near term.
These standards require that affirmative measures be undertaken by employers, including setting up site-specific COVID plans; identifying and correcting hazards; investigation, documentation and notification duties; as well as providing testing. Noncompliance can result in penalties.
These standards are not directly relevant to workers’ comp benefits, although they could come into play if there is a claim of an employer's serious and willful misconduct. However, given the current importance of COVID-19 issues in the California workers’ comp system, a basic familiarity with these standards will likely be helpful to most people in the comp community.
Although laudable, these standards set forth in AB 685 and in the Cal/OSHA regs may prove to be difficult for some employers to navigate.
Here is my recent post on the new Cal/OSHA COVID standards.
9. Concerns continued about what changes the DWC would make in the system for paying QMEs for evaluations.
For several years the Division of Workers' Compensation has attempted to formulate changes to the Medical-Legal Fee Schedule that would satisfy payers and the QME community.
Forums and stakeholder meetings held during 2018 and 2019 did not result in a viable revision. Adding a sense of urgency was a 2019 report from the California State Auditor that was critical of DWC administration of the QME system, followed by a January 2020 oversight hearing of the Joint Legislative Audit Committee on the findings of the State Auditor.
In January 2020, the DWC convened two additional stakeholder meetings to discuss possible formulas for a revised QME fee schedule. A bill designed to address the issue, AB 1832, did not move forward.
In June 2020, the DWC announced draft regulations and set up a forum for comment on them, but as with prior proposals, a large number of adverse comments were received, particularly from the QME community. Again, the DWC pulled back, but then in November 2020 it published another proposed revision, holding December 2020 hearings to take public comments on a proposal for flat fees for reports with an allowance for per-page record review additive.
Here’s my post on the December 2020 public forum, noting both support for the revisions and a raft of significant concerns expressed by opponents.
Exactly when the DWC will move forward was not clear at year’s end.
10. Workers’ comp remained a profitable business for insurers, but high overhead and high frictional costs continued to make the system expensive to operate for the benefits delivered.
Combined ratio measures the relationship between the combination of losses and expenses to premium collected. According to the Sept. 30, 2020, WCIRB Quarterly Experience Report, workers’ comp combined ratios remained at a lower level than in many years, and “despite the recent increase, combined ratios for 2013 through 2019 are the lowest since the 2003-through-2007 period.” That means workers’ comp continues to be a profitable line of insurance in California at the moment.
According to the 2020 State of the System report, California workers’ comp insurers averaged an 8.9% return on net worth over 15 years, more than the countrywide workers’ compensation average returns.
But California has an expensive way of delivering workers' comp benefits. According to the WCIRB’s 2020 State of the System report, California workers’ comp costs 52 cents to deliver $1 of benefits, in comparison to Medicare’s 2 cents, private group health's 18 cents and the median state workers’ comp system cost of 24 cents to deliver $1 of benefits.
And finally, there were important studies on the comp system that should be noted by stakeholders and policymakers.
Some of the important studies have been discussed above. Other notable studies (some of which are available to the public only in summary form) included the following:
From the California Workers' Compensation Institute:
From the DWC:
From the Commission on Health and Safety and Workers’ Compensation:
From the WCIRB:
Workers Comp Zone sends all readers of the blog well wishes as we enter 2021. In early 2021, I’ll be doing my yearly workers’ comp quiz for the prognosticators out there.
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