While the potential cost of relaxing a tenet of the workers compensation system to deal with extraordinary circumstances of COVID-19 could top $50 billion, it’s more likely to be one-fifth of that, an analyst reported last week.

States like Michigan and Minnesota have moved to allow first responders and health care workers submitting COVID-19 workers comp claims to receive benefits without having to prove they were exposed to the virus during the course of their employment, according to reports from our sister publication, Claims Journal. In Illinois and Kentucky, new rules are more expansive, including workers from grocery stores, laundries, banks, hardware stores, child care centers and domestic violence shelters under the COVID-19 presumptions.

As the states of California, Louisiana, New York, New Jersey, Pennsylvania, Ohio and Utah mull the idea of similar legislation, and as some industry groups protest the coverage expansions, analysts have started to fire up their spreadsheets to estimate the costs.

William Wilt, president of Assured Research, a proponent of the presumption standard for essential employees as a matter of fairness, puts a preliminary estimate of the cost at roughly $10 billion. And while that sounds like a big number, considering annual premium for the industry is about $63 billion, the dollar-amount translates into 16 loss ratio points. To put that in perspective, Wilt notes that the estimated loss ratio increase is less than the industrywide loss ratio decline for the workers comp line over the last five years.

Wilt shared preliminary results of analysis that he and Assured Research Managing Director Alan Zimmermann are still fine-tuning, a few days after the Workers Compensation Insurance Rating Bureau of California came up with a range of estimates, reporting a whopping mid-range cost of $11.2 billion for just that state.

In its analysis, the WCIRB noted that costs will “vary significantly based on the number of workers covered by a presumption, the proportion of these workers that have COVID-19 and the number of workers compensation claims that are filed as a result.” The WCIRB report displays costs estimates for two categories of workers with COVID-19 claims: essential critical infrastructure (ECI) workers involved in health care, rescue, firefighting and front line law enforcement, or ECI Group 1, and other ECI workers defined by Governor. Gavin Newsom’s Mar. 19, 2020 Executive Order N-33-20, or ECI Group 2.

Using a wide range of assumptions for the percentage in each group with COVID-19, the WCIRB’s cost estimates extend from $2.2 billion to $33.6 billion. The $11.2 billion mid-range estimate assumes that 20 percent of ECI Group 1 workers have COVID-19 claims and that 4 percent of ECI Group 2 workers do, driving costs of $6.0 billion and $5.2 billion respectively.

Prior to the impact of COVID-19 claims, the WCIRB estimated that the total cost of losses and loss adjustments in the California workers compensation system for 2020 amounted to $18.3 billion, the WCIRB report said, noting that the $11.2 billion COVID-19 estimate is 61 percent of that total.

In addition, if that estimate is in the ballpark of the true California cost of a COVID-19 presumption, since California comp premiums represent 20 percent of the total, that would mean the overall cost could be $55 billion for the nation, Wilt said, noting that some analysts are doing that type of extrapolation. But Wilt believes the WCIRB figure is so high because it differs from the Assured Research analysis in one key assumption: “The WCIRB estimate assumes presumptive coverage for an entire year whereas we, and some other state legislators and insurers, have called for presumptive coverage to last only during the state lockdown period.”

While the California state assembly has not yet acted to put a conclusive presumption in place for essential workers, California’s State Compensation Insurance Fund announced on April 20 that it is now accepting any claim by any essential worker—as defined by Gov. Newsom’s Executive Order N-33-20—for a diagnosed case of COVID-19, regardless of whether that worker can demonstrate the virus was contracted during the course of employment. SCIF estimated a total cost of about $115 million or roughly 10 loss ratio points on its premium base.

Wilt notes that SCIF has roughly 10 percent of the workers comp market in California.

Wilt and Zimmermann are going to use the WCIRB study to revisit parameters of their own model, and plan to publish the results in a May Assured Research Briefing early next month.

(Bloomberg Photo Photographer: Angel Garcia/Bloomberg)