The Pandemic Impacted Workers’ Compensation Benefits in Many Ways. Some of Them Might Surprise You
In early November, the National Academy of Social Insurance (NASI) released the findings of its 25th annual report on workers’ compensation benefits.
Griffin Murphy, policy analyst at NASI, explained that the report identified some of the biggest impacts of the COVID pandemic on workers’ comp benefits, specifically between 2019 and 2021.
“First and foremost, the 6.1% decline in covered jobs related to the COVID pandemic contributed to a 6.5% decline in total benefits between 2019 and 2020,” Murphy said. Controlling for employment, the incidence rate of non-fatal occupational injuries and illnesses declined relative to 2019, according to BLS/OSHA data, which should correspond to a decline in benefits.
Cases with days away from work, however, jumped to the highest level since 2007, which should correspond to an increase in benefits.
“The net impact of these changes on workers’ comp benefits is not clear,” Murphy said.
The pandemic also drove an 11.4% decline in medical benefits compared to 2019. The share of medical benefits as compared to indemnity (cash) benefits fell from 49.7% in 2019 to 47.1% in 2020 after a decade of a near 50/50 split.
As Murphy pointed out, this change was likely driven by two factors: First, many COVID-19 claims were atypical “indemnity only” claims involving wage-replacement benefits during quarantine periods and included few or no medical benefits, and second, many non-emergency medical services were canceled or delayed in 2020.
“The bolstering of both paid leave under the Families First Coronavirus Response Act (FFCRA) and of unemployment insurance under the Coronavirus Aid, Relief, and Economic Security (CARES) Act likely led workers who might otherwise have claimed workers’ compensation benefits to turn instead to these easier-to-access options,” Murphy said.
As for the impacts to the costs of workers’ comp during this same time frame, the aforementioned decline in covered jobs related to the pandemic without question also contributed to the 7.3% decline in total costs between 2019 and 2020.
According to Murphy, the larger decline in costs relative to benefits is likely connected to the future-oriented nature of costs, with premiums the largest cost category in the report.
This means the decline in covered jobs would have a larger impact on costs for 2020 cases — much of which are based on claims from prior years — than on benefits.
“The jobs lost early on in the pandemic tended to be low- and lower-middle-wage and at above-average risk for injury. This drove down employer costs relative to payroll especially quickly — by 9.4% between 2019 and 2020 for private industry employers,” Murphy said.
In an absolute sense, Murphy stated, the decline in employment drove total benefit declines during the first year of the pandemic. When controlling for payroll, however, NASI has seen consistent benefit declines over the past two decades, so it is difficult to estimate the extent to which the decline is the continuation of that trend or the result of changes that took place in 2020.
“The reasons for declines in each state vary substantially, ranging from laws that reduce benefits and/or reduce access to benefits to shifts toward safer industries and safer work practices,” Murphy said. “Similarly, each state’s approach to coverage for COVID-19 illnesses makes it difficult to provide broad-strokes explanations of their impacts on benefits.”
The NASI annual report also points to a few surprises or standout facets pertaining to the impact on workers’ comp from 2019 to 2020, the first year of the pandemic.
The largest standout is indeed the stark change in the breakdown of medical and indemnity benefits. According to Murphy, the portion of medical benefits as a share of total benefits in 2020 is at its lowest point since 2005.
“To the extent that this was driven by the cancellations and delays of elective procedures, the 2021 and 2022 data should look more like the prior decade than the 2020 data. The new claim behavior of indemnity-only COVID-19 cases likely also drove this change,” he said.
On an aggregate basis, the relative stability of the workers’ compensation industry and data was also somewhat surprising. “We knew that total costs and benefits would decline with the large decline in covered jobs. Otherwise, costs and benefits as a portion of payroll continued to trend downwards as they have over the past 15 to 20 years,” Murphy said.
“The portion of workers’ compensation benefits paid directly by employers — as opposed to by insurers under premium plans — has increased substantially over the past two decades. In 2000, employers paid 35.0% of total benefits in the form of deductibles and self-insurer benefits; in 2020, employers paid 42.7% of total benefits.” — Griffin Murphy, policy analyst, NASI
The breakdowns of both benefits paid and employer costs of private insurers, self-insured employers, state funds and the federal government remained fairly stable. The portion of benefits paid under deductible policies continued to climb, consistent with increases of prior years.
The workers’ comp space also differs among states — specifically, workers’ compensation outcomes varied substantially across states in 2020. As the report indicates, Alabama experienced a 21.9% decline in standardized benefits between 2019 and 2020, while South Carolina — on the other end of the spectrum — experienced a 5.0% increase.
Alabama and South Carolina also defined the range in terms of standardized costs, with a 17.5% decline and a 0.7% increase between 2019 and 2020, respectively.
“Notably, Alabama was especially strict in the burden of proof it required for occupational disease claims, and it did not pay indemnity benefits for quarantine periods,” Murphy said.
Of the 16 states that had enacted either legislative or regulatory presumptions by the end of 2020, none stood out in terms of large changes to standardized benefits between 2019 and 2020. Murphy pointed out that data for 2021 and future years will provide more clarity as to any correlation between presumptions, coverage, and benefits.
So, what are other key “takeaways” from NASI’s annual report on workers’ comp benefits? Murphy pointed to the fact that, in 2000, benefits represented 76 cents of every dollar in employer costs. In 2020, that ratio had fallen to 63 cents per dollar of employer costs.
“Although annual benefits and costs do not correspond precisely, this large decline is noteworthy as it illustrates the growing gap between worker benefits and employer costs,” Murphy said.
“Also, the portion of workers’ compensation benefits paid directly by employers — as opposed to by insurers under premium plans — has increased substantially over the past two decades. In 2000, employers paid 35.0% of total benefits in the form of deductibles and self-insurer benefits; in 2020, employers paid 42.7% of total benefits.” &