Flash Report: Presumption Estimates Slashed for Workers’ Comp

Gov. Gavin Newsom’s decision to issue a limited-term workers’ comp presumption for claims related to Coronavirus has California’s rating agency planning to drastically cuts its cost estimate for the presumption to just one-tenth its previous best estimate. The Workers’ Compensation Insurance Rating Bureau’s initial set of cost estimates ranged from $2.2 billion to $33.6 billion systemwide with its best estimate at $11.2 billion.

The new mid-range estimate is likely to come in the $1.1 billion to $1.2 billion range. The difference between the two estimates is the length of the exposure. The first set of estimates was for a full year while the latest only covers claims from March 19 through July 5.

An extension of the executive order or the likely enactment of a legislative presumption increase the estimates. Additionally, the Bureau warns that an uptick in claims tied to reopening the economy or a second wave of the virus could also boost costs higher than currently anticipated.

Claims for the recent period are significantly down however in both frequency and severity.

The Bureau is a private organization with quasi-governmental responsibility. It is financially supported exclusively by insurance carriers in whose interests it operates.

The WCIRB’s actuarial committee and its claims working group spent roughly 3.5 hours reviewing the Bureau’s latest cost estimates. WCIRB staff is now refining its estimates based on the industry’s input and will be issuing a revised estimate later this week. Currently, its cost estimates range from $600 million on the low end to $1.8 billion at the upper end (see chart 1).

These are systemwide cost estimates that cover both the insured and self-insured markets.

Cost Estimate Range 1

Estimated RangeHealth Care/First RespondersOthers Working Outside Their HomesPreliminary Cost Estimate $Billions
# Claims$Billions# Claims$Billions
Low11,900$0.3011,700$0.30$0.60
Mid29,800$0.7016,800$0.40$1.10
High46,500$1.1026,200$0.70$1.80

Most of the costs are still estimated to come from claims for workers who succumb to the disease. In addition to death benefits for their dependents these severe cases also will have incurred significant medical and hospitalization costs. The Bureau is projecting that there will be 1,300 death benefit claims filed during the period covered by the executive order and estimates that these would account for $490 million in systemwide costs in its mid-range estimate (see chart 2).

Cost Estimate Range 2

Claim Type# ClaimsTD Benefits $MillionsPD Benefits $MillionsDeath Benefits $MillionsMedical Costs $MillionsLAE $MillionsTotal Costs $Millions
Mild41,200$70--$20$30$120
Severe3,200$10$20-$200$80$320
Critical800$10$20-$120$50$200
Death1,300$2-$210$140$130$490
All46,600$90$40$210$490$300$1,120

Overall, the Bureau’s preliminary mid-range forecast is for 46,600 covered claims during the period the executive order is in effect. Officials say this estimate of total claim is likely to come down somewhat in its final evaluation. Committee members indicated a belief that many mild COVID-19 infections will not result in the filing of a claim. The overall cost estimate, however, is likely to go up as the members also indicated that it is a very high bar to actually rebut any claims that are filed. The Bureau’s initial estimates included some potential savings from employers being able to successfully refute some of the claims.

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