By Julius Young, Boxer & Gerson, Partner
At the end of 2020, it’s time to take stock of what transpired in the California workers’ comp world.
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, who are for now exempted from AB5. Under the terms of Prop 22, they will provide alternative, but limited benefits.
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, California’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 industry 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, QMEs, 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 WCAB district offices.
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
In 2020 California’s Insurance Commissioner approved yet another advisory workers’ comp rate decrease.
In a decision on November 25, 2020 on rates to be effective starting January 1, 2021, Commissioner Lara went lower than both the WCIRB 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 CDI recommended $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 CDI approved rates were $2.47 per $100 of payroll, declining to $1.52 per $100 of payroll as of 1/1/20 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 to what extent 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.
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 rates for 2020 were $1.52 per $100 of payroll, the average charged rate was $1.90. The CDI proposed 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 January 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.”
3. 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 2nd quarter of 2020 were 13% lower than the corresponding quarter 2019 and that medical-only claims fell by 30% in both the 2nd and third quarters of 2020. But indemnity claims did rise 6% in the 3rd 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.
The September 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.
4. 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 (CWCI) has established on 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 2020, 24.8% of claims were COVID related.
The impact of COVID on the economy broadly and on 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 Newsom Executive order N-33-20. 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”.
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.
Rebuttable COVID-19 presumptions were enacted, however, and the total cost of COVID to the system is still being studied.
5. 2020 was a quiet year in the courts for workers’ comp law
2020 will not be remembered for pathbreaking workers’ comp appellate cases. Still, a handful of appellate cases and WCAB en banc decisions are noteworthy:
•Dennis v. State of California Department of Corrections (WCAB en banc) (invalidating AD Rule10133.54 and finding that the WCAB, rather than the DIR Administrative Director, has jurisdiction over SJDB voucher disputes);
•Brome v. California Highway Patrol (a filed workers’ comp psyche claim tolled the one year statute of limitations under FEHA, Government Code 12940);
•County of Santa Clara v. WCAB (Barbara Justice) (Hikida case doctrine did not apply on facts of the case and apportionment not prohibited where evidenced established underlying degenerative condition was partial cause of the disability).
•Richard Todd v. SIBTF (WCAB en banc) (Holding that prior and subsequent permanent disabilities shall be added to the extent they do not overlap in order to determine the “combined permanent disability” specified in section 4751; and that SIBTF is liable, under section 4751, for the total amount of the “combined permanent disability,” less the amount due to applicant from the subsequent injury and less credits allowable under section 4753);
•Gund v. County of Trinity (A California Supreme Court decision holding that civilians who were attacked by an assailant while doing a welfare check on a neighbor at the request of the sheriff were deemed employees of Trinity County under Labor Code section 3366);
•Perani v. WCAB (unpublished 1st District Court of Appeal decision holding that a medical award for upper extremities treatment encompassed a later-diagnosed thoracic outlet syndrome)
But in 2020, as in recent years, there were numerous WCAB panel decisions dealing with trending issues. Many of those panel 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 and 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.
6. 2020 legislative action was largely limited to bills dealing with COVID and exemptions from AB 5
Bills to expand presumptions for PTSD 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. CAAA’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(Reyes), effective January 1, 2021 (until a January 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 worksite.
Another bill (AB 1867), sunsetting at the end of 2020, provided a supplemental paid sick leave for certain workers who contracted COVID-19. And CFRA, the California Rights Act, was expanded by SB 1383 to include more categories of family members.
Other bills that made the grade provided exemptions from AB5 for certain occupations, now codified at Labor Code 2775 through 2787.
7. 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 January 1 mandate written notification to employees and employers of subcontracted employees who were on the same worksite 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 Code 6325 and 6432 to provide additional enforcement powers.
On November 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 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. Non-compliance 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 employer 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.
8. Concerns continued about what changes the DWC would make in the system for paying QMEs for evaluations
For several years the DWC has attempted to formulate changes to the Medical-Legal fee schedule that would satisfy payors 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 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 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.
Exactly when the DWC will move forward was not clear at year’s end.
9. 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 of the combination of losses and expenses to premium collected. According to the September 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 that workers’ comp continues to be a profitable line of insurance in California at the moment.
According to the 2020 “State of the System,” California workers’ comp insurers averaged 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 $1.00 of benefits, in comparison to Medicare’s 2 cents, private group health 18 cents and the median state workers’ comp system cost of 24 cents to deliver $1 of benefits.
10. In 2020 there were important studies on the comp system that should be noted by stakeholders and policymakers
Notable studies (some of which are available to the public only in summary form) included the following:
•a wage loss monitoring study looking at years 2016-2017:
•Evaluation of California Senate Bill 863 Medical Care Reforms
• Changes in Medical Treatment Trends After 20 Years of Incremental Workers’ Compensation Reform
•Inpatient Hospitalization Trends 2010 to 2019
•Impact of the new geographic adjustment factor for the medical fee schedule
•Independent Medical Review (IMR) 2014 to March 2020
From the California Division of Workers’ Compensation (DWC):
•2020 IMR Report
•2020 Audit Unit Report on 2019 Audits
From the Commission on Health and Safety and Workers’ Compensation:
•CHSWC 2019 Annual Report
From the WCIRB:
•2020 State of the System
•2020 Geo Study on regional differences in California workers’ comp
•June 2020 Study of California Workers’ Comp Losses and Expenses