Max Koonce: What Workers’ Compensation Trends Will Impact Future Performance?

Max Koonce: What Workers’ Compensation Trends Will Impact Future Performance?

By Max Koonce, Chief Claims Officer, Sedgwick

Max KoonceFor more than a century, businesses across the country have come to rely on the “Grand Bargain,” the premise of the workers’ compensation system as essential to healthy commerce. Although each state as the author of their workers’ compensation process may have variations as to the definition of disease and injury coverage, types of benefits and to what extent they apply, and the value of those benefits, the basic construct of the process is fairly consistent across state lines. It has been argued by some that change is needed within the system and that the workers’ compensation process is outdated and does not meet the needs of today’s employee; however, others contend that no such change is needed and that the system is functioning well and providing the needed support for employees that suffer work-related injuries. Regardless of one’s position on that debate, the current environment presents unique circumstances that employers may want to consider in how they approach their workers’ compensation programs.

In this article, we will look at some of the workers’ compensation trends and developments to consider in planning for the future.

As evidenced by the 2022 wave of the Omicron variant of the SARSCoV-2, COVID will continue to have a measurable effect on the workers’ compensation claims system, although the timing will vary, and the impact will differ by state.

Areas of uncertainty that remain with COVID as we transition from a pandemic to an endemic are:

  • Employer liability exposure for the spread of COVID to family members:
    • The California Supreme Court denied review of Matilde Ek, et al. v. See’s Candies, Inc., et al in April 2022. This case became the first by an appeals court that allows a worker’s lawsuit against an employer over a family member’s COVID death to proceed. However, the California Supreme Court has another opportunity to address employer’s liability for COVID contracted by an employee’s family member in Kuciemba v. Victory Woodworks, Inc. where the Ninth Circuit Court of Appeals has certified additional questions be addressed
    • The Federal District Court for the Eastern District of Wisconsin in Ruiz v. Conagra Packaged Foods, LLC reviewed a wrongful death and survival lawsuit against an employer alleging that the employer’s failure to implement safety measures in the workplace caused the COVID infection of the employee, which spread to his wife and led to her death. Although the claim brought by the employee was found to be barred by the workers’ compensation exclusive remedy, the claims brought by the estate of the employee’s wife have been allowed to proceed.
  • The prevalence of post-COVID conditions also referred to as long-COVID or long-haul COVID.

Labor Market Shifts
The economic recovery since the COVID recession has resulted in labor market shifts and wage changes that will undoubtedly impact workers’ compensation:

  • Current national unemployment rate is 3.5%, yet there remain over 11 million job openings. With employees being forced to cover greater workloads, the tendency towards higher claim rates will likely occur.
  • Shortened average job tenure due to workers moving into new jobs, occupations and industries tends to increase injury frequency and may also affect injury severity as difference in injury rates varies greatly across industries.
  • Demographic shifts, such as a change in the age distribution of workers in certain industries due to early retirement, may also affect injury frequency and severity.

Indemnity and Medical Costs
Costs in indemnity and medical benefits are increasing, with inflation as a driver, which as of the writing of this article sits at 8.2%.

Indemnity benefit increases in 2022 are in part explained by wage growth. According to the US Bureau of Labor Statistics (BLS) Quarterly Census of Employment and Wages (QCEW) released July 26, 2022, the median weekly earnings of the nation’s fulltime wage and salary workers increased 5.2% for the year ended 2nd quarter 2022. Additionally, most states annually index their maximum indemnity benefit to the state average weekly wage (SAWW) to prevent inflation from eroding the level of workers’ benefits. WCRI/IAIABC Workers’ Compensation Laws as of Jan. 1, 2022 show that the maximum temporary disability benefits in 2022 was larger in all but five jurisdictions than the average annual change in the previous 21 years – a median annual increase of 7%.

Medical costs, in turn, are essentially a function of price and utilization. From a price standpoint, the Producer Price Index (PPI) reflected that medical price inflation remains stable at 3.1% in 2022. Looking ahead, the Centers for Medicare and Medicaid Services forecast medical prices to go up from 2% to 3% annually for the next several years. In that medical fee schedules are typically tied to Medicare reimbursement rates a similar increase can be expected for workers’ compensation.

However, changes in total expenditures for medical services also depends on changes in utilization which could be impacted by:

  • The talent shortage in the healthcare industry which is resulting in increased labor costs for health systems and hospitals.
  • Consolidation in the healthcare market.
  • Medical advances such as “precision medicine” that offer potential for improved outcomes by tailoring interventions based on patient specific demographics and disease-specific data to treat patients with non-unions and fractures associated with polytrauma and burns.

Marijuana Legalization
A legislative trend that seems to have slowed in 2022 relates to marijuana legalization. Although it remains illegal on the federal level as a Schedule I drug under the Controlled Substances Act (CSA), in 2022 Rhode Island became the 19th state to legalize marijuana for adult recreational use. This issue will be on the November ballot in additional states, (Maryland, South Dakota, and Arkansas). Recreational use of marijuana undoubtedly has workforce implications.

With the enactment of a new law in Mississippi in 2022, there are now 37 states and the District of Columbia that have legalized the medical use of marijuana. Yet state courts have are continuing to reach different conclusions on the payment of medical marijuana under workers’ compensation. The interplay between medical marijuana and workers’ compensation will continue to be an issue to watch.

Workers’ compensation complexities will continue, and it is important to monitor data, trends and developments to be able to pivot accordingly. Sound decision-making and a strong focus on injured worker needs will continue to drive future program success.

Mr. Koonce is a member of the Executive Committee of the Board of Managers of NCSI and previously served two terms as its President.  This article previously appeared on the Leaders Speak page of WorkCompWire and is re-published here with the kind permission of WorkCompWire. Here is a link to the original article, which includes more information about Mr. Koonce and Sedgwick.



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