Monday, March 23, 2020

How prepared are workers’ compensation systems for COVID-19?

Regardless of the workers’ compensation model (private insurance, competitive state fund, exclusive state fund), every insurer has to prepare for the unexpected. Afterall, insurance is the transfers the financial risk of rare but costly events from the insured to the insurer.  As noted in my last post, the COVID-19 event most certainly is a rare event and just as assuredly will result in accepted workers’ compensation claims.  How each workers’ compensation insurer will fair in this reality depends greatly on past actions to:

  • Understand the risk
  • Plan for the financial consequences, and
  • Prepare for the operational impact

Like all large business, workers’ compensation insurers identify their risks through environmental scanning, SWOT analysis, and risk ranking exercises.  Then comes the hard part:  putting in place the financial and operational contingency plans to ensure the resilience of the organization at a time it is needed most.  Low probability but high impact events like the COVID-19 pandemic may be identified but what happens next depends on the leadership.   

Corporate planning exercises are internal to the organization and not necessarily subject to public scrutiny making it hard to know how many workers’ compensation insurers saw COVID-19 coming and what, if anything, they did to prepare. Identifying past events and their impacts—how well we have learned from past events- is critical to such preparations.

The “Unknown” occupational disease risk in workers’ compensation

When workers’ compensation systems started a century ago, the focus was “industrial accidents” .  Few “industrial diseases” were included in early legislation and typically by industry or process ( things like lead poisoning in smelting or sulfur poisoning in coal mining) and not diseases.   The “Spanish Flu” pandemic of 1918 provided ample proof that a pandemic virus was a real risk to workers particularly in healthcare centres. 

The formulation of workers’ compensation legislation in most jurisdictions prevented workers’ compensation systems from accepting claims for previously unknown or scheduled diseases.  This limitation was noted at the time.  For example, one jurisdiction’s annual report noted:

As an example of the limitations of the Act, it may be mentioned that during the severe epidemic of Spanish influenza in the fall of 1918, many inquiries, telephonic and otherwise, were made as to whether the influenza was covered by the Act, some of the inquirers claiming that it was due to their daily work. There could, of course, be only one answer to these inquiries, that the influenza, though a great misfortune, could not by any stretch of imagination be considered as an accident arising out of employment.
[Source: Second Annual Report of the Workmen’s Compensation Board of the
Province of British Columbia For The Year Ending December 31st 1918, Page U11]
As the tone of the passage suggests, the worker’s compensation authority saw the lack of coverage as a gap in the legislation.  The then chairman wrote:

In the closing months of the last year we have been compelled to reject a number of claims arising out of the influenza epidemic, in which mothers with small children made application for pensions. One case was particularly painful. When informed that we must reject her claim, the mother of eight small children asked us in desperation: "What am I to do?" We were unable to answer. She withdrew from the Board room accompanied by two of her frightened children clinging to her skirts, and one in her arms, to answer the question as best she could. These experiences also compel us, at the risk of being censured for going outside of our sphere, to call attention to the enormous wastage of life, health, and happiness through failure or inability to obtain medical attention.
[Source:  1918 Annual report ibid., page U47]

Over time, most workers’ compensation systems adapted to include coverage for occupational diseases.  The Spanish flu killed 675,000 in the US (population in 1918 was 103 million) and an estimated 40 million worldwide (when the population was about 1.8 billion).
From a workers’ compensation perspective, the possibility of a new disease suddenly emerging to injure and kill workers in the course of their employment was no longer an unknown risk.

“Known unknowns”

The idea that a new work-related disease could emerge was proven out when in other serious outbreaks less deadly than the Spanish influenza pandemic.   The 1957-58 “Asian flu”, for example,  infected 20% to 40% of the population but the death rate was much lower (excess deaths estimated at 66,000 in the US).  Other influenza viruses have spread quickly around the world, often resulting in harm to workers particularly those in the medical field where close contact lead to transmission and illness.  These include the “Hong Kong flu” of 1968, various strains of “Avian flu” and “Swine flu”.
[I've included a list of notable pandemics from Madhav N, Oppenheim B, Gallivan M, et al. Pandemics: Risks, Impacts, and Mitigation. In: Jamison DT, Gelband H, Horton S, et al., editors. Disease Control Priorities: Improving Health and Reducing Poverty. 3rd edition. Washington (DC): The International Bank for Reconstruction and Development / The World Bank; 2017 Nov 27. -Table 17.1, Chapter 17] 

Serious illness from pandemic virus became a serious topic in “business continuity” and “disaster management” in the corporate and government world in the late 1990s.  Concern over Y2K, increasingly serious natural disasters such as hurricanes, and disruptions through terrorism such as the September 11th attacks pushed the evaluation of risk from the academic classroom and actuarial backrooms to corporate boardrooms.  Annual reviews of risks and business continuity plan testing became part of the corporate culture.  In hospitals and government offices, contingency plans were developed for many risks but one epidemic helped spur some workers’ compensation systems to take specific action to prepare for the “know unknown”:  the emergence Severe acute respiratory syndrome (SARS).

The 2003 SARS outbreaks in Ontario and British Columbia in particular provide hard lessons on the human and financial cost of work-related disease.  I attended a policy conference a few years later where one presenter noted that more than 400 claims were received by the WSIB for SARS exposure,  more than 160 for SARS illness, and two fatalities.  In a reflection of the risks associated with working at the front lines of medicine,  98% of accepted claims were from women in healthcare.  If you are unfamiliar with what happened during the SARS outbreak, you may find the following reference informative:
Low DE. SARS: LESSONS FROM TORONTO. In: Institute of Medicine (US) Forum on Microbial Threats; Knobler S, Mahmoud A, Lemon S, et al., editors. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington (DC): National Academies Press (US); 2004. Available from:
Anticipating the next pandemic

Workers’ compensation insurers were certainly aware of the risk of pandemics.  The risk was publicly acknowledged and actively planned for.  One annual report noted:
In 2003, Canadians saw Severe Acute Respiratory Syndrome (SARS) strike with devastating human economic costs. In 2004, the avian influenza virus put workers at risk and resulted in millions of birds being destroyed. In both cases, the original source of human infection was an animal. The potential threat posed by diseases crossing over from animals has been identified as a serious risk to humans by the World Health Organization. These “zoonotic” diseases have had very limited health impact on B.C.workers to date; however, in the event of an outbreak of a highly contagious disease, front-line caregivers may be at increased risk. These diseases are within the scope of coverage by the Workers Compensation Act if the worker contracts the disease in the course of, and arising out of, duties related to his or her employment.
WorkSafeBC,  2004 Annual Report and 2005-2007 Service Plan

In corporate planning and business continuity departments, pandemic planning was on the agenda.  Those charged with these tasks amplified the messages from experts.  The many public appearances and analysis of Michael T. Osterholm over the last twenty years, the assessments of the World Health Organization, and the rankings of the World Economic Forum may not have been on everyone’s reading list but business continuity planners and disaster management professionals certainly understood the risk.   “Team sites” were prepared, operational impacts and costs were estimated in some workers’ compensation systems.  Risk ranking exercises in finance departments often included the pandemic risks and actions were taken in many workers’ compensation insurers to operationally and financially manage (or at least buffer) the impact of the known pandemic risk with an unknown arrival date. 

A Current Risk

To be clear, pandemic risk has been on the agenda for years.  Researchers have raised the alarms but not every government or insurer was listening.  In hindsight, these warnings seem eerily prescient.  For example, this top finding from the Global Health Security Index [October 24, 2019] was alarming—at least to those who read them:

Countries are not prepared for a globally catastrophic biological event, including those that could be caused by the international spread of a new or emerging pathogen or by the deliberate or accidental release of a dangerous or engineered agent or organism

The World Economic Forum noted the risk of pandemic in many of its reports over the last fifteen years. Most recently, its Global Risk Report 2020 placed infectious diseases among the top ten impacts and noted:

Global health security risks. Considerable progress has been made since the Ebola epidemic in West Africa in 2014–2016, but health systems worldwide are still under-prepared for significant outbreaks of other emerging infectious diseases, such as SARS, Zika and MERS. [P. 76]

Major reinsurers like MunichRe  and SwissRe identified the risks and set up their own units or plans for pandemics and cooperated with the World Bank to launch the Pandemic Emergency Funding Facility in 2016.  Other large reinsurers certainly identified the risk.  The consequences of higher death rates across all demographics during a largescale pandemic on life insurance underwriters and government social insurance as well as on workers’ compensation insurers. Reinsurers and large insurers often provided tools and assessments to help insurers identify the risk and make plans accordingly.  [see Aon’s for example].
For any insurer, these assessments made the risk clear.  How each prepared in light of this information will determine how well they will weather the consequences during of the current pandemic. 

Preparing for the inevitable…

Operational contingency plans often included building system access and redundancies.  If one office or headquarters was quarantined or significant numbers of staff were disabled in a particular centre, operations could continue elsewhere.  The ability of workers’ compensation insurers to shift to work-from-home models were developed and tested.  These operational contingencies were not necessarily in anticipation of pandemic or local outbreak but based on more generally on the availability of staff and facilities after or as a disruptive event unfolds.  Scenario planning included a variety of possible disruptions from earthquakes to an outbreak and even scenarios that may have sounded farfetched at the time:
Due to the cruise ship, cargo and air traffic through Vancouver, it is possible that emerging diseases will be identified here in BC and that workers in health care, transport and hospitality will develop compensable disease.
[WCB of BC,  “Future Risks: Issue specific environmental scan” 1998].

As with most insurers, workers’ compensation insurers create “reserves” for risks like these.  Occupational disease reserves and disaster reserves are commonly developed and funded.  The robust market returns and extended economic growth cycle since the Great recession (2007-2009) have allowed reserves to be built up for many insurers.  Whether present reserves will be sufficient is an open question.  No one yet knows the extent to which work-related COVID-19 will result in workers’ compensation claims but injury, illness and fatality claims arising from this pandemic are already entering workers’ compensation systems world wide.

Aside from reserves, funding strategies may include reinsurance. Reinsurance is a way for a firm or insurer to share the financial risk of large losses.  You can think about it as insurance for insurers.  As a strategy, it may insulate any one insurer but that assurance comes at a cost.  Premiums and deductibles may be high.  Just how each insurer manages its pandemic risk will vary.  Whether to establish reserve, reinsure, do both… or neither, is a choice for any risk.  Now that this particular eventuality risk has become manifest, the consequences of those choices will begin to be reflected in financial statements. 

Enter the Pandemic and the need to adapt

The COVID-19 pandemic is still unfolding and its impact on the economy and insurers is uncertain at best.  The impact on workers battling the pandemic, supporting the ill, and keeping the essentials of society running is unknown. 

In this pandemic, quarantine is becoming a bigger issue.  The lag in disease development and the potential for asymptomatic and pre-symptomatic individuals make quarantine and isolation a priority especially for first responder, healthcare workers and others providing direct care to those who are ill or vulnerable particularly the elderly.  Large numbers of first responders and healthcare workers are being sidelined because of work exposures.  Quarantine is for the well exposed but not infected.  The period of quarantine may mean lost wages and psychological pressure on workers and their families. 

As I noted in my last post, quarantine is not typically compensated by workers’ compensation legislation.  This may be changing. Washington state “is taking steps to ensure Workers’ Compensation protections for health care workers and first responders who are on the front lines of the COVID-19 (coronavirus) outbreak.”  The news release states:

L&I [Washington State’s Department of Labor and Industries is immediately changing its policy around workers’ compensation coverage for health care workers and first responders who are quarantined by a physician or public health officer. Under the clarified policy, L&I will provide benefits to these workers during the time they’re quarantined after being exposed to COVID-19 on the job. 
Workers’ compensation systems have expanded their coverage over the last century to include more occupational disease.  Science has led us to better understand the work-relatedness of occupational illnesses and workers’ compensation systems have adapted to the benefit of both workers and employers.  Their varying degrees of preparedness for this pandemic will be revealed over time but workers and employers will undoubtedly be relying on workers’ compensation systems well after the pandemic peaks. Any shortcomings in their preparation should not jeopardize the benefits and supports promised by workers’ compensation laws. Those with work-related illness and first responders forced into quarantine by medical order need to be supported financially regardless of past decisions or policies.   

Will there be a significant cost?  Of course. Medically ordered quarantine, however, is necessary to protect others on the front line and the rest of us.  These workers and their families are already sacrificing so much; they should not have to suffer lost wages, use vacation time or consume sick leave because of their dedication in spite of the risk.  It is not as if they can quit their jobs and be free of the quarantine.  They are, for all intents and purposes, totally disabled from work by virtue of their exposure and the medical risk that carries for everyone.

Workers’ compensation has evolved its coverage in the past.  Perhaps now is the time for a further evolution along the lines proposed in Washington state.

Saturday, March 7, 2020

Can a worker claim workers’ compensation for COVID-19 exposure, illness or quarantine?

[The following is a general response to questions from students in workers’ compensation, disability management, and workplace insurance courses.  The law and policy will vary by specific jurisdiction].

The emergence of the novel coronavirus (COVID-19), has prompted concerns around the world.  While prevention, control, and treatment questions top the list, workers’ compensation questions are being raised.  The most common question: Can a worker with a confirmed case of COVID-19 illness successfully claim workers’ compensation?  The short answer is “Yes”.  Getting to that short answer, however, takes some explanation, beginning with the determination of the work-relatedness of the disease.   

Work-relatedness of disease

For COVID-19 or any other disease-causing virus, the possibility of a workers’ compensation claim depends on the wording of law and policy in the jurisdiction.  Many diseases are scheduled as “occupational diseases” in workers’ compensation law or defined in policy.  Occupational, work-process, or industrial exposure to known, biologically-active agents including viruses may be defined as the presumed cause of specific disease (lead poisoning in smelter workers, chicken pox contracted by a teacher from a student in their care, for example).  The presence of disease and the history of exposure in the occupation or industry defined typically establishes a presumptive (although rebuttable) work-related cause, opening the door to workers’ compensation claims for medical costs, rehabilitation, financial compensation, survivor benefits, and death benefits. 

A novel disease will not have been previously scheduled as an occupational disease in legislation or listed in policy. In such cases, it must be determined whether the disease is work.  If the nexus between work and resulting health impact can be shown, then the basis for a workers’ compensation claim can be established.

The test to establish work-relatedness, or causation, of a disease varies across jurisdictions. For example, in British Columbia, the test for work-relatedness is “causative significance”, meaning the worker’s employment must have been of causative significance in producing the disease. To satisfy the causative significance test, the worker’s employment must have been more than a trivial or insignificant aspect.

A few workers’ compensation jurisdictions have a more stringent test, often referred to as “predominant” or “major contributing cause”.  In Oregon, the condition that stems from the injury or disease rather than on-the-job injury or exposure is the basis making a claim; work has to be a “a major contributing cause” of a condition, defined as a cause contributing more than 50 percent to an injured worker's disability or need for treatment. 

COVID-19 appears to spread most easily to those who come into “close contact” with the virus.  The US CDC defines close contact for healthcare workers as follows (see footnote 2 in CDC’s FAQs for  Coronavirus Disease 2019 (COVID-19):

a) being within approximately 6 feet (2 meters) of a COVID-19 case for a prolonged period of time; close contact can occur while caring for, living with, visiting, or sharing a health care waiting area or room with a COVID-19 case, or

b) having direct contact with infectious secretions of a COVID-19 case (e.g., being coughed on)
For healthcare workers, ambulance drivers, physicians treating COVID-19 patients, the applicable work-relatedness test may be more easily established given the increased likelihood of exposure

Less obvious but still likely to meet the work-relatedness test, are bus drivers transporting quarantined travelers, cleaners brought in to disinfect facilities, or morticians dealing with the fatalities of the disease.  Beyond occupations and industries that make the likelihood of exposure and infection higher than that of the general public, establishing work-relatedness may be difficult once the virus is not traceable from person to person. 

Standard of proof

Workers’ compensation jurisdictions vary regarding the standard of proof necessary to establish the issues in question, such as causation.  Unlike criminal law where the standard of proof is “beyond a reasonable doubt”, most workers’ compensation statutes rely on a “balance of probabilities” standard:  if it is more likely than not that the disease is work-related, then the claim is accepted for workers’ compensation purposes.

Some workers’ compensation jurisdictions, like British Columbia, have a slightly lower “evenly weighted” standard: if the evidence on an issue is evenly weighted, the finding must favour the worker. This means that a claim is accepted if it is at least as likely as not that the disease is work-related.

Establishing work-relatedness of disease

Note that evidence a worker has the disease is not evidence the disease is work-related.  A valid, accurate lab test may well confirm the presence of COVID-19 but not it’s work-relatedness.

In the early stages of epidemiological investigation, the connection between work and the diagnosis may be established by public health officials and epidemiologists tracing the source of the infection and those who came in contact with the disease.  In the case of a public health worker contracting the virus after exposure to infected individuals, that work-related connection is pretty obvious in the early stages of an outbreak.  On the face of it, the public health authority’s epidemiological reports would likely be sufficient evidence for satisfying the work-relatedness test.  Scheduled occupational disease provisions or statements in policy may allow the presumption of work-relatedness in the absence of information to the contrary without need for detailed investigation in every single instance. 

The challenge for many workers outside scheduled or policy-defined industries or occupations is to establish that work-relatedness.  Once the disease is more generally spread in the community, establishing the work-relatedness may be much harder to do.  Is the worker ill with an infection confirmed as COVID-19?  Did the exposure resulting to the infection arise in the course of employment and out of the duties associated with that work, or was the exposure from the use a surface on public transit, an unshielded cough of passerby on a street, or from another vector of disease (including our own children)? 

The adjudicative decision for a workers’ compensation claim will become more complex as the risk differential between work and non-work exposures equalize. The onus of proof in inquiry-based workers’ compensation systems (such as British Columbia and Ontario) remains with the insurer; in adversarial systems (most US jurisdictions), the onus may fall more heavily on the worker.  In either case, the complexity of determining the work-relatedness question can mean extensive investigation, cost and delay in reaching a decision.

Exposure is not disease…  Or disability

All of us are exposed to agents of illness and disease in our lives and work but exposure does not necessary lead to disease.   A healthcare worker attending patients with an active case of COVID-19 disease, for example, may be in close contact for varying durations of exposure but never develop the disease.   Personal protective equipment (PPE), training, and adherence to protocols are specifically designed to counter the increased risk in clinical settings where healthcare workers are exposed to severely ill patients.  

Not all those exposed to the COVID-19, even in close contact such as a quarantined residence, will not necessarily become infected with the COVID-19 virus.  Reportedly, a couple confined to the same cruise ship cabin, one partner can test positive for the disease while the other does not.  For COVID-19, as for many other agents of illness and disease, exposure alone does not guarantee disease and/or disability.   

Even in cases where exposure results in a positive test for COVID-19, not everyone develops disabling symptoms. It is not clear yet why some people who test positive seem unaffected by COVID-19.  Children and some adults have tested positive for COVID-19 but show no signs of illness or disease.  In others, the symptoms may be mild and dismissed as a minor cold.

From a workers’ compensation perspective, this is an important point:  exposure is not disability.  Exposure may lead to disease and disease may be disabling.  Where exposure is not followed by disease, and or disability, a claim for any workers’ compensation because of COVID-19 exposure would unlikely succeed; no medical treatment would be required and there is no impairment that makes the worker incapable of work.  Documentation of the exposure is always important but unless the disease develops, it is unlikely any claim filed would be accepted by the workers’ compensation insurer. 

At this point, testing for COVID-19 is a public health issue.  At some point, credible diagnostic tests may be offered through medical labs.  Diagnostic tests are generally not considered as medical expenses under a workers’ compensation claim.  At present, there is no vaccine against this disease.  When one is available, the cost would not normally be covered by workers’ compensation. 

What about asymptomatic disease cases?

A case of COVID-19 may be detected in an asymptomatic person.  The person may or may or may not develop symptoms but may be able spread the disease to others.  A confirmed case in an asymptomatic person may be subject to quarantine or isolation. 

Let’s clarify those terms:  Quarantine restricts the movement of well persons who may have been exposed to a communicable disease.  Isolation separates an ill person from those who are healthy. 
In a confirmed work-related COVID-19 exposure where the worker tests positive for the virus, the worker would likely be isolated and monitored in isolation.  Once the virus is no longer detected, the individual is no longer infectious.  Barring any necessary recovery time, the worker can safely return to work.

In this case, all the necessary elements of a claim may be present: the person is a worker, the exposure is work-related, and disease is confirmed.  Work is causative of harm.  The body reacts but at a level that is asymptomatic.  But for the infectious nature of the disease, there is no impairment.  With no symptoms, there are no medical expenses.  There is no treatment for COVID-19, so no medical treatment expenses are incurred.  

Assuming there is no work the worker could do while in isolation, the period where the worker is unable to earn because of the illness (continued detection of the virus) may result in earnings loss.  A workers’ compensation claim for lost earnings may be defensible for an asymptomatic worker with work-related COVID-19.

Suppose a treatment is developed that hastens the ability of the body to fight off the virus and shorten the course of illness.  If such a treatment existed, its cost might be accepted as a medical expense in an accepted workers’ compensation claim made by a worker with test-confirmed COVID-19 but no symptoms.   

Accepted COVID-19 workers’ compensation claim:  what is covered?

An accepted workers’ compensation claim opens the door to payment for medical expenses, hospital costs, prescriptions, rehabilitation and compensation for lost wages. In some cases, recovery will be protracted.  It is not clear if permanent disability results but past experience with SARS would suggest that permanent disability may occur and compensation may be payable.

If the disease is work-related and COVID-19 results in death, workers’ compensation may provide payments to survivors and dependents as well as funeral or burial costs.

What about quarantine?

According to news coverage, some workers have been quarantined due to exposure to COVID-19 in the course of their employment.  Some workers caught in a quarantine of a ship, hotel, or other facility may continue in their employment duties and receive wages for their work; others such as the flight crew of an evacuation mission may be quarantined with their passengers for the duration of the quarantine period.  Can quarantined workers claim workers’ compensation for their lost wages?

Workers’ compensation claims are generally based on disability not exposure.  In most cases, lost wages due to quarantine would not be considered compensable under a workers’ compensation claim.  Employer HR policies or collective agreements may have provisions to use sick leave or vacation time for quarantine cases.  Employers may also continue to pay workers either on the basis that adhering to the quarantine is an implicit work-related assignment or in recognition of on-line work they may be able to do during the quarantine.

Quarantine duration periods imposed for COVID-19 are typically around the 14-day time frame.  Quarantines may be recommended or imposed on persons with exposure.  Given the possibility of spreading the disease while asymptomatic, the 14-day time frame following exposure is intended to contain the disease.  Not every employer offers sick leave and even if sick leave is a provision, not all employees will have sufficient sick leave to cover a 14-day absence.  Even if the quarantine is work-related, there is no typically no basis for a workers’ compensation claim.

Psychological impacts?

Think of the dedicated health care workers coping with the onslaught of sick patients or the field workers in public health visiting the ill or dying in the community during a pandemic.  Consider a crew member responsible for serving quarantined guests, some of whom eventually test positive for COVID-19 and are removed to a hospital for treatment.  The psychological impact might be significant even if these workers do not contract the particular virus themselves.  It is conceivable that workers may file claims related to COVID-19 based on mental injuries despite the absence of the disease itself. 

Jurisdictions vary in how mental injuries are adjudicated within the workers’ compensation framework. Most accept mental injury that is the sequelae or consequence of a compensable work-related injury or disease.  Workers’ compensation jurisdictions may also accept a claim for a work-related mental injury as the primary condition, provided certain requirements set out in each jurisdictions’ law and policy has been met.

Mental injury may arise independent of direct physical harm and may take months to develop and be diagnosed.  The stress of being confined with others particularly if others in the group develop the disease may contribute to anxiety and depression of others in quarantine.  The longer-term impacts may include Post Traumatic Stress Disorder (PTSD).  A recent review found quarantine could have negative consequences [see Samantha KBrooks, Rebecca K Webster, Louise E Smith, Lisa Woodland, Simon Wessely, NeilGreenberg’ Gideon James Rubin, “The psychological impact of quarantine and howto reduce it: rapid review of the evidence”, The Lancet, OnLine First,February 26, 202].   To date, there are no published reports of workers’ compensation claims for mental injury being accepted.

Employer responsibilities

Employers are responsible for the health and safety of their workers.  That general duty does not diminish in the event of an outbreak or pandemic.  The duty to plan for and protect workers is not limited to the healthcare system.  Retail, factories, banks, arenas, restaurants and offices need procedures and plans in place.  Supplying a box of face masks and a container of disinfecting wipes may be appropriate but are insufficient in most cases to discharge an employer’s duty.

Employers need to ask fundamental questions about what will happen in the event of an infectious disease outbreak.  Will workers be able to work from home?  If certain workers are quarantined, who will do their necessary work?  Have they been trained?  Is their safety likely to be at risk?  These questions are just as valid for small businesses as they are for large ones.  The prospects of a widening prevalence in the community increases the urgency to plan, acquire protective equipment, establish procedures, and prepare.   

So, in addition to “wash your hands, wash your hands” and “don’t touch your face”, take the time to think about the implications an infectious disease like COVID-19 might have in your workplace.  If you are an employer,  work in human resources, or serve on a joint health and safety committee, look at your plans, update your policies, check with your workers’ compensation and disability insurance providers—they will likely have resources to help you plan and prepare.  Whether COVID-19 or a future virus spawns a pandemic, your preparation will be worth it.

Practical Definition for Workers’ Compensation COVID-19 Claims Purposes
Not having or showing signs of illness
An instance of COVID-19 infection (not the person)
Direct or close contact with an infectious agent (such as bodily fluids from a person with active viral disease)
Separation of an ill person or persons with a communicable disease from those who are healthy with the purpose of limiting the spread of the disease
Separation and restriction of movement of a well person or persons who may have been exposed to a communicable disease with the purpose of limiting the spread of the disease (and detect if illness develops).
Having or showing signs of illness

Friday, December 27, 2019

How much will I get while on workers’ compensation?

If you are injured in a work-related incident or suffer a work-related illness or disease, you are very likely entitled to workers’ compensation.  How much financial compensation you will actually receive while you are temporarily totally disabled from work depends on two main factors:
  • Your average earnings prior to the injury or illness
  • The jurisdiction accepting your claim

As noted in my previous posts, workers’ compensation benefits while you are off work may provide income far short of your usual take-home pay.  Both higher and lower earners may find the shortfall in income jeopardizes their own (and their family’s) financial security—a further burden on top of the physical and psychological impact of the injury itself.

Workers’ compensation for temporary total disability is calculated in one of two may ways in North America:
  • As a percentage of Gross average earnings
  • As a percentage of Net or Spendable average earnings

Although the Gross basis is still the most prevalent in the US, several states now provide workers’ compensation for temporary total disability as a percentage of Spendable earnings.  In Canada, all but one jurisdiction have adopted the Net basis to calculate workers’ compensation payments for temporary disability.   Let’s examine these two compensation methods and some of their variations.

Gross Average Earnings

In North America, jurisdictions using the Gross basis vary from a rate of 60% to 75% of average earnings to calculating workers’ compensation.  The most common compensation rate in the US is “two -thirds” (66.67%) of gross earnings.  As shown in my previous two posts, this method leads to lower wage earners receiving far less spendable wage replacement than higher wage earners.  The following table demonstrates how weekly compensation amounts vary with income and the percentage of Gross average earnings applied:

As noted, the most common compensation rate used in the US is “two-thirds” [66.7%] of Gross average earnings.   This table is not specific to a particular state or province but examples of jurisdictions that use the compensation rates (60% to 75%) noted.  Caution:  actual compensation in any state may be limited by statutory maximum insurable average earnings or maximum weekly benefit provisions.

The inequity of the “two-thirds” of average earnings compensation rate was highlighted in the National Commission on State Workmen’s Compensation Laws (1972) report. The Commission, chaired by John F. Burton, Jr., noted that gross pay results in inequities—uneven results for workers due to tax factors and number of dependents, concluding 

“...spendable earnings would better reflect the workers’ pre-injury circumstances.”

The National Commission did not prescribe an exact formula or methodology to achieve its recommendation of a compensation rate of at least 80% of spendable average weekly earnings.  Policy makers and legislatures in at least a few North American jurisdictions have implemented rules to overcome the inherent inequities in “two-thirds” standard common to most US states.  For example, Washington state varies the percentage of its compensation rate depending on family compositions.  Under this system, a single earner receives just 60% of their Gross average weekly earnings while a worker with a spouse would qualify for 65%.  The amount increases by 2% with each dependent child to a maximum of 75%.  This method does achieve the National Commission recommendation in some specific earnings and dependent combinations. 

Although all Canadian systems once used Gross average weekly earnings as the basis for calculating workers’ compensation, only the Yukon retains a 75% of gross average earnings as its basis.

The advantages of the gross system relate to its simplicity.  It is pretty easy to calculate two-thirds of a value.  The main disadvantage is the “rough justice” nature of its application.  The method tends to overcompensate higher wage earners and under-compensate lower wage earners relative to their usual weekly take-home pay primarily because what you take home is ultimately mediated by deductions from your gross pay for income taxes, social security and unemployment insurance.  Aside from Washington states graduated scale of gross compensation percentages, no other state or province using the Gross method adjusts compensation rates for temporary total disability to reflect the impact of statutory deductions.

Net or Spendable Average Earnings

The main alternative to using gross average earnings as the base for calculating temporary total disability payments is to apply the compensation rate to Net average earnings, sometimes called “Spendable” average earnings . 

Only four states use a percentage of “spendable”  earnings.  Rhode Island, Alaska and Connecticut use 75% while Iowa uses 80% of spendable—the only state to explicitly match the minimum recommendation of the National Commission.  As noted above and  in earlier posts, the National Commission on State Workmen’s Compensation Laws (1972) recommended a compensation rate moving to at  least 80% of spendable earnings.  

The calculation can be complex and depends largely on the taxation rate, number of exemptions, and contribution or premium rates for social insurance and other mandatory deductions.  To simplify administration of this policy, most jurisdictions using Net or Spendable earnings use detailed tables or calculators to determine net earnings that will be subject to the compensation rate. 

Ever jurisdiction will be different because the interplay between federal and state taxation regimes will vary.  To illustrate the method, let’s look at Rhode Island.  The following table summarizes select categories of earnings and exemptions to derive Spendable earnings and then applies the compensation rate to those earnings: 

Note that “exemptions” are not “dependents” but are declared categories along with marital status that are typically used by employers to calculate tax withholding for payroll purposes.   Employees inform their employers by completing an Internal Revenue Services (IRS) Form W-4.
Rhode Island mandates a 75% of spendable compensation rate.  It also has a weekly benefit maximum of $1275 as of October 1, 2019.  The following table shows the net weekly amounts for selected income and exemption combinations shown in the table above:

Rhode Island offers a dependent amount of an additional $15 per week per dependent while the worker is temporarily totally disabled.  The additional benefit, however, is limited by the maximum weekly amount. 

As noted earlier, all but one Canadian jurisdiction has moved to Net average earnings as the basis for the calculation of workers’ compensation for temporary disability.  Net is essentially the same as Spendable from a calculation perspective.  Both share the basic formula of:

Net Average Earnings =  Gross Average Earnings – (Taxes + mandatory premiums for social insurances)

There are a variety of approaches to implementing workers’ compensation on the basis of net or spendable earnings because of the challenges in determining precise figures for deductions.  Most approaches rely on information provided by the employer.   Workers may choose to not inform their employer regarding possible tax exemptions (or simply fail to take advantage of provisions regarding tax withholding), preferring to receive a tax refund after tax filing.  Privacy concerns may be another reason for not wishing to disclose information. 

Most workers’ compensation insurers will depend directly on employer-provided payroll data for gross earnings and deduction levels.  WSIB (Workplace Safety and Insurance Board of Ontario), for example, requires employers to include tax deduction codes on the report of injury form.  These codes refer to Revenue Canada’s Payroll Deduction code tables (the current year table is available at  There is a common table for federal taxes and a separate one for each province’s taxes because each level of government has its own taxation authority and rules.  Workers complete a Federal TD-1 and a similar provincial form (TD-1 ONT in this example).  The total exemption figure on each form is then compared to the appropriate tables to get the Federal and Provincial tax “claim” codes.  Failing to complete these forms results in the employer having to withhold tax but the worker maintains the right to claim the same amounts on their yearly tax filings.  Those that complete the tax forms allow the employer to withhold less tax and increase Net income on each paycheque. 

For the purposes of this example, a typical married couple with one income earner declared to the employer would have a Federal Code 7 and Provincial Code 5 entry.  WSIB publishes an Excel based tool to allow for the calculation of Net average earnings for each year.  Applying the aforementioned codes to various gross income levels in the  WSIB 2019 Net Average Earnings Calculator (XLS)then applying Ontario’s 85% of Net rate results in the following:

WorkSafeBC, (the Workers’ Compensation Board of British Columbia) takes a simplified approach for claims up to 10 weeks duration.  It applies federal and provincial income tax amounts based on a presumed 1.5 times the personal exemption rate.  This results in a higher estimation of tax and therefore lower workers’ compensation amount for those who might qualify for greater exemptions (workers over the age of 65, those with disabled partners or dependents, for example).  The method also results in greater tax deductions and higher workers’ compensation payments for single workers.  A long-term rate is established after the 10 week frame and takes into account the individual tax circumstances.

WorkSafeBC publishes an annual table to show the details of the presumed deduction and the compensation payable on a weekly basis.  The following has been extracted from the WorkSafeBC 2019 Net Compensation Table for selected values up to the maximum weekly benefit payable:

Spendable and Net calculations are more cumbersome than gross but they provide greater equity across income levels, at least up to a maximum.  Elimination of the maximum insurable or maximum weekly compensation amount would provide a standard expectation of income replacement at the compensation rate across all income levels—precisely what the National Commission recommended nearly half a century ago. 

Compensation on the basis of Net or Spendable as an additional complication.  Changes to income tax rules can increase compensation payments.  Both Canadian and the US federal governments have proposed or made middle-class tax cuts.  By exempting more income from taxation or lowering the percentage of income tax payable, the Net pay goes up—that’s the whole point!   The consequence, however, is an increase in actual compensation payable across all income ranges—something that may not be anticipated in premium rate setting. 

Concluding Comment

No system of compensation is perfect.  Very few states compensating on a percentage of Gross average earnings can claim to come close to the National Commission’s recommendation of at least 80% of spendable average earnings across all earning levels.  While the current Net and Spendable jurisdictions come closest to meeting the National Commission’s minimum recommendation, many of these also fall short of that threshold.  When coupled with policies on maximum insurable earnings and maximum weekly benefits (which limit the compensation payable), many workers will discover the inadequacy of their jurisdiction’s workers’ compensation temporary disability coverage only after a serious work-related injury.  Employers may also fail to realize their employees may have far less coverage than they expect. 

For very short-term periods of disability, a financial hit of ten, fifteen or twenty-five percent (or more) to spendable earnings might be bearable but for injuries resulting in longer duration, even the National Commission’s minimum standard will result in the loss of a week’s take-home pay every five weeks of disability and about a month’s less spendable income after five months off work.  Workers, employers, and policy makers need to understand how large a gulf in spendable income an injury creates.  

Friday, November 22, 2019

Are low wage earners adequately covered by workers’ compensation?

Many workers live paycheck to paycheck and struggle to support their families on lower-than-average earnings.  The median usual weekly earnings for women aged 25 and older with high school graduation  only was about $622 per week  in Q4 2018 according to the US Bureau of Labor Statistics ( Series Id:           LEU0252925300).  A work-related injury can have a huge impact on their ability to make ends meet.

Consider this hypothetical: 

Aidy is a 33-year-old cook working in a resort community.  The local hotel where she has worked for most of the last decade is busy all season long but slows in the off season.  Demand for her skills is variable in the off season and dependent on corporate conferences the hotel can attract.  Her employment provides 42 weeks of work most years.  There are not a lot of other job opportunities in the area.  Tourists come to enjoy the relative isolation—just thirty miles off the interstate.  Like a lot of workers in the tourism sector, she relies on unemployment insurance when there is no work.  Aidy is married with three kids, two in elementary school and one preschooler.  Her husband, Raj, worked in the resource sector until the jobs dried up.  He is now the primary care-giver.  The family is dependent on Aidy’s income.  Aidy and Raj live in a rental property with a large lot that allows them to augment their food budget with some home-grown produce.  Aidy’s usual weekly earnings average $600 when she is working or about $483.31 per week if averaged over the whole year (600*42/52.14).  In December 2018, a kitchen helper accidently dropped a heavy pot from an upper shelf on to the cutting surface, flipping a deboning knife off the counter and into Aidy’s right foot.  The knife skewered her foot, severing a tendon.  Aidy’s surgeon has conducted two surgeries and is hopeful Aidy will be on her feet able to work in about six to nine months.  Aidy’s claim for temporary total disability was accepted by the workers’ compensation insurer. 

Aidy’s workers’ compensation will be the only income for this family of five until she is able to return to work.  While she and her employer might expect workers’ compensation to fully cover her earnings, what she will actually receive to cover her earnings loss depends greatly on where she lives. 

The following chart represents Aidy’s case and her workers’ compensation payable in each state using a weekly pay calculation as of Dec 1, 2018.  (With three dependent children and filing as married, Aidy would have 5 federal allowances.)  The data have been ordered from largest workers’ compensation payable as a percentage of Net earnings to the lowest.  

Most states have the same compensation rate:  two-thirds of Gross but a few use a percentage of spendable or net average earnings.  What really matters to lower wage earnings like Aidy is how much income that will contribute toward the support of her family. 

One state bases the compensation rate applied to gross earnings on family composition rather than a flat 66.7%.  Washington State’s Department of Labor and Industries explains this to injured workers as follows [see form F207-227-000 Calculation of Monthly Wage as a Basis for Time-Loss Compensation 04-2019] :

Time-loss benefits are also based on your marital and dependent status. You will receive 60% of your gross wages if you are single with no dependents. If you are married, an additional 5% will be paid. 2% more is added for each dependent child up to five children, not to exceed the maximum time-loss rate.

For the Washington entry in the table, a compensation rate of 71%  of gross was used [60% + 5% + (3 x 2%)].

Only two states meet the National Commission’s recommendation of at least 80% of spendable (Net) earnings.   [The National Commission on State Workmen’s Compensation Laws (1972) recommended a compensation rate moving to at least 80% of spendable earnings].  As noted in my previous post, the National Commission, chaired by John F. Burton, Jr., highlighted that using gross pay as the basis for applying the compensation rate results in inequities—uneven results for workers due to tax factors and number of dependents.  The National Commission emphasized  “spendable earnings would better reflect the workers’ pre-injury circumstances.”

This low wage earner will receive between 72.2% and 80% of pre-injury net (spendable) earnings, with the states basing workers’ compensation on spendable earnings providing among the highest spendable earnings replacement rate.   Interestingly, many of the states without state income taxes are at the lower end of this array.  While low wage earners may take home more pay before an injury, the two-thirds gross earnings compensation rate results in lower income while on compensation.  Aidy will have between $85 and $124 less income per week to support herself and her family.  This is not a trivial amount when many lower income families have little or no disposable income while working. 

In the Canadian context, workers’ compensation in all but one jurisdiction is based on a percentage of Net average earnings.  As noted in my previous post, Net earnings are subject to the compensation rate of 90% ( BC, Alberta, Saskatchewan, Manitoba, Quebec, Northwest Territories and Nunavut), 85% (Ontario, New Brunswick and Prince Edward Island) or 80% (Newfoundland and Labrador).  Nova Scotia has an initial rate of 75% of net but moves to 80% of net for claims longer than 26 weeks duration. Yukon Territory is the exception with a 75% of gross compensation rate.  Lower wage earners like Aidy in most Canadian jurisdictions will have to bear a 10% of 15% loss of take-home pay while receiving temporary total disability workers’ compensation. 

Minimum Compensation Rules

Many jurisdictions define the minimum amount a worker may receive on a weekly basis.  In the US, that amount ranged from no minimum (e.g., Colorado, Maine) to an average weekly benefit of about $200 per week in 2018.  Pennsylvania normally compensates on a two-thirds of gross basis but has a special provision for low wage earners.  If the average weekly wage is below a yearly minimum, the wage rate is set to 90% of the average weekly wage.  For 2018, that minimum was $524.50.  For Aidy, this rule will mean workers’ compensation benefits will actually exceed average spendable income by about $3.78 per week.  North Dakota has a minimum compensation rule based on  $585, equal to 60% of the statewide average weekly wage (SAWW);  however, it that amount exceeds the worker's NET wages, the worker  receives the 100% of Net wages as a weekly compensation rate.

In Canada, some jurisdictions have similar provisions.  WorkSafeBC’s provision is explained this way [see WorkSafeBC, 2018 Net Compensation Table] :

Earnings between $21,200 - $26,700Where a worker’s gross annual earnings are above statutory minimum, but 90% of the average net earnings falls below the statutory minimum of $21,163.65 (or $405.88 weekly), the worker will receive the statutory minimum.Earnings below minimumWhere the rounded gross annualized earnings is below the minimum of $21,163.65 (or $405.88 weekly), the worker receives 100% gross average earnings. For example, if the worker’s gross average earnings is $280 per week (equating to $14,600 annually), she/he will receive from us $280 for each week of wage loss.

If Aidy were working in British Columbia, this provision would mean her compensation payment will be about 92.8% of her average Net earnings—about $31 less per week than her average take home pay. 

Unemployment Insurance (UI) or Employment Insurance [EI]

As alluded to in the hypothetical, many industries depend on unemployment insurance (called Employment Insurance in Canada) to help maintain a workforce during seasonal variations in employment demand.  For lower earners, like Aidy, that additional income is rarely included in the calculation of average earnings. 

Several jurisdictions do take employment insurance into account.  Again, using WorkSafeBC as an example, Aidy’s ten weeks of employment insurance would be taken into account in the calculation per the following Practice Directive [WorkSafeBC, Practice Directive C9-8  Employment Insurance Payments]:

Section 33(3.2) of the [Workers Compensation] Act recognizes that for certain industries and occupations, EI is considered to be a regular supplement to the worker’s earnings and therefore should be included in the worker’s average earnings. Generally, industries or occupations with recurring seasonal or temporary interruptions will be identifiable by the fact that they result in reduced opportunities of employment at similar times in successive years (e.g. operations cease on an annual basis during the winter months, resulting in a general layoff). The reduction in employment opportunities will be due to inherent operational factors such as weather conditions or the cyclical nature of the business (e.g. teachers and fishers)…  Where it is determined that EI benefits are to be included in the calculation of a worker’s average earnings, the payments received within the 12 months preceding the date of injury are added to the gross average earnings, subject to the statutory maximum.

What’s included and excluded from Earnings

As noted in my post on payroll, there is some variation in what might be included or excluded in the calculation of average earnings.  Most, but not all, jurisdictions will include Aidy’s tips in her income.  Overtime will usually be averaged in but practices vary from jurisdiction to jurisdiction. 

Many low-income workers take additional jobs to augment their income from their primary employment.  As explained in my post on multiple job holders, some jurisdictions will include the income from all employment; if the worker is disabled, all income including income from self-employment may be included.  There are, however, some notable exclusions. 
Adding to the hypothetical:

In the three years leading up to the injury, on her days off from the resort, Aidy regularly accepted relief shifts as a cashier at a local truck stop just across the state line near the interstate exit.  The work coincided with the tourist season and increased her weekly income by about  $100 per week for 40 weeks a year—  income Aidy needs to support her family.

In many, but not all jurisdictions, this extra $4000 per year would be included in the calculation of Aidy’s average earnings and result in a larger weekly compensation payment during total temporary disability.  About 5% of the labour force engages in multiple-job holding but some occupations and sectors experience rates nearing 20%.   In several jurisdictions, wage losses from a second or other subsequent job beyond the accident employment would not be covered by workers’ compensation. 
A 2016 survey [see Terrance J. Bogyo, “Moonlighters Wanted”, Perspectives [magazine], IAIABC November 2016] found that earnings from second or additional employment may be excluded from the calculation of average earnings.  The survey results are summarized as follows: 

  • 38% of responding jurisdictions would include earnings from all employment in a qualifying time frame up to the maximum
  • 14% would base compensation solely on the earnings from the accident employer
  • 43% would possibly include earnings loss from second or subsequent jobs under certain conditions.

Conditions for coverage of concurrent employment included: 

  • Concurrent earnings being reported to taxation authority
  • Accident Employer aware of the concurrent employment
  • Concurrent employment is “similar” to the accident employment
  • Concurrent employment is workers’ compensation insured (and in the same jurisdiction)

Low wage earners like Aidy will have to check with their workers’ compensation insurer about the possible inclusion of earnings from second or other concurrent employment.

Concluding comments

A recent survey [ “Living Paycheck to Paycheck is a Way of Life for Majority of U.S. Workers, According to New CareerBuilder Survey”,, CHICAGO and ATLANTA, Aug. 24, 2017] found more than three-quarters of workers (78 percent) are living paycheck-to-paycheck to make ends meet.  For women in the work force, the situation was even more severe (81%  vs. 75%).  

A Canadian survey also found many workers—particularly those likely to be raising families –need that weekly pay packet to stay afloat (see Canadian Payroll Association's 2017 Survey finds B.C. employees challenged by debt, not saving for retirement, September 6, 2017 ):

...47% of working Canadians report it would be difficult to meet their financial obligations if their pay cheque was delayed by even a single week. The numbers are even higher for millennials in their 30s (55% would have difficulty) and Gen Xs in their 40s (51%).

Every injury damages worker health, erodes their financial security, and limits their options for supporting self and family.  The Temporary Total Disability payments falls far short of what employers, workers and policy makers expect. 

Almost a half century ago, the National Commission provided a threshold—a minimum test for adequacy in workers’ compensation for earnings loss.  It recommended compensation for temporary disability be at least 80% of spendable earnings.  In the case of lower wage earners, few jurisdictions come close to meeting let alone exceeding the minimum level of that recommendation.  Despite the inequity of basing compensation on gross earnings, only a handful of US states have moved to a net earnings or spendable basis for compensation.  

The failure of workers’ compensation to provide adequate compensation for earnings losses due to work-related injuries undermines the social contract of workers’ compensation.  If workers’ compensation was intended to be a substitute for tort, at what point does this gap between benefits payable and actual spendable earnings fail the reasonableness test?