Socialization of Risk and What it Means for Workers' Compensation

Workers’ compensation began as a system for injured workers in the early 1900s. In order to receive workers’ compensation benefits, an injured employee must only establish that their injury arose out of and in the course of their employment. With caps on liability for the employer and with guaranteed benefits for the employee, the workers’ compensation system is sometimes characterized as the “Grand Bargain.”  As such, there are three notable aspects as to workers’ compensation: a cap on damages for employers; a guaranteed benefit structure for employees; and the commitment of responsibility and the attendant expectation placed on the employer to promote a safe work environment and control the risks associated with workplace injuries.

Every state has its own unique workers’ compensation landscape and therefore its own nuances and idiosyncrasies applicable to its regulations and statutes. Each state, as the author of its respective workers’ compensation program, routinely attempts to address opportunities and or inadequacies vocalized by their constituents to maintain their variation of the Grand Bargain. 

The COVID-19 environment has generated a renewed effort for utilization of compensability presumptions.   Historically, ordinary diseases of life, such as COVID-19, were not included in any list of occupational diseases in any jurisdiction. The hesitation for inclusion of such ordinary diseases of life seems to focus on the generalized aspect of the disease – one that has widespread exposure in the public and can easily be contracted outside the workplace, manifesting a questionable link to the work environment. 

The common element to explore rests on the relationship between the ordinary communicable disease to the nature of the employment in contrast to the exposure present in everyday life. With compensability presumptions around occupational diseases, legislators and Governors with regard to COVID-19 have determined that the employment relationship exists to the exclusion of everyday life exposure. This could be interpreted as a significant shift or new “era” in workers’ compensation coverage similar to what was experienced in the 1940s and 1950s when workers’ compensation statutes were expanded to include selected occupational diseases.

Without oversimplifying, workers’ compensation was established to provide benefits in the form of medical treatment and wage loss to those injured while working. The primary parties to this agreement are the employer and the employee. Aside from providing benefits through workers’ compensation insurance, employers recognized the need to place extensive focus on ensuring a safe, healthy and productive work environment for their employees and have largely been successful with this focus. The U.S. Bureau of Labor Statistics incidence rates for non-fatal occupational injury and illnesses have declined over 40% since 2003.

Some argue that broadening workers’ compensation coverage beyond what are employment related risks for which employers have no ability to control or prevent, would seem not only counter-productive but counter intuitive as well. Such broadening could generate the perception that we are entering a new era through presumptions where the focus is moving towards “socialization of risks” and less on the distinctions of work-related risk and its attendant focus on a safe and productive work environment.

As to the “socialization of risk”, It has been proposed that society is a third interested party to this Grand Bargain, with the role of balancing protections for the employee with the critical role of business to a well-functioning economy. With all losses, whether work-related or not, someone must pay the cost. With the current pandemic, state governments began evaluating what the balance should be between the interest of business / employers, employees, and society as to the cost of the losses associated with COVID-19. As a result of those evaluations, 15 states determined the need for presumptions, effectively “socializing the risk”, shifting it to employers.           

The workers’ compensation industry operates best in an environment of forthrightness and transparency.  Clear delineation of what workers’ compensation covers allows employers to promote and ensure a safe work environment, employees to know what conditions, injuries and diseases for which they can attain workers’ compensation benefits, and carriers to determine in a fair manner what insurance coverage is needed at an appropriate rate.  For workers’ compensation, the insurance industry and employers are looking for predictability related to risks and costs, while injured workers seek fairness and equity as they recover from their accidents and diseases 

Long term, states, employers, employees and carriers will continue to confront the challenge of what the Grand Bargain represents in the current employment, cultural, and political environment. Questions all stakeholders may want to consider: 

• Have we entered a new era of workers’ compensation as a result of the expanded use of presumptions and evolving expectations regarding openly infectious diseases?
• Where should the line be drawn as to the relationship between employment and any communicable disease? 
• Have the intentions for workers’ compensation been modified in a permanent fashion? 
• Do we sufficiently understand the full implications of presumption expansion?

It remains to be seen if this is a true shift representing a new era moving to a greater degree towards socialization of risks.

By K. Max Koonce

Mr. Koonce is the Chief Claims Officer, for Sedgwick’s Casualty Division. In this role, Koonce is responsible for product development and innovation, industry analysis and thought leadership, best practices and compliance standards, legislative and regulatory relationships, and continued involvement in client programs for Sedgwick’s U.S. workers’ compensation and liability lines of business.

Prior to his current role, Koonce was the Managing Director responsible for Sedgwick’s casualty retail business unit. Prior to joining Sedgwick, Koonce was senior director of risk management for Walmart Stores, Inc., where he managed the retailer’s domestic property and casualty claims program. He simultaneously served as president of Claims Management, Inc., Walmart’s wholly owned third party administrator.

An attorney by trade, Koonce was previously an administrative law judge for the Arkansas Workers’ Compensation Commission and an appellate court justice for the Arkansas Court of Appeals. 

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