There has been discussion over the years about taxation and various perspectives of "fairness." When is a tax fair or unfair? The answer from a particular person may be influenced by personal perspective. I once heard a radio show personality pontificate "a fair tax is one I don't have to pay." I have been unable to find that attributed on the Internet.
Taxes come in many descriptions, income, sales, excise, and more. But, regardless of their title, some contend that all taxes can be categorized as either "progressive" or "regressive." A regressive tax, according to Investopedia, is "a tax applied uniformly, taking a larger percentage of income from low-income earners than from high-income earners." In contrast, a progressive tax "imposes a lower tax rate on low-income earners . . . making it based on the taxpayer's ability to pay." There have been sound arguments voiced in favor and in opposition of each.
The recent discussions of COVID-19/Wuhan/SARS-CoV-2 has brought the topic of taxation to the fore for discussion in the context of workers' compensation. COVID-19 potentially impacts workers' compensation. See A Frank Conversation of COVID-19, COVID and Workers' Compensation (May 2020), and COVID-19 Again, a New Week (May 2020). An underlying theme of these discussions is the attribution of COVID causation to the workplace. When an employee is stricken with such a viral event, there are immediate, intermediate, and long-term financial potentials that bear consideration. However, ultimately, Someone has to Pay (May 2016) for all of the costs.
Will that cost be borne by individuals (those who are infected)? Will that cost be borne by health insurance, society (social safety nets like Medicaid), or taxpayers more generally? Is it logical to have that cost borne (in any part) by workers' compensation? I often have to remind myself in lectures that:
"the fundamental purpose of workmen's compensation is to relieve society of the burden of caring for an injured employee by placing the burden on the industry involved." Sullivan v. Mayo, 121 So. 2d 424, 430 (Fla. 1960).
This foundational premise is why only injuries that "arise out of" and in "the course and scope of" employment are compensable in workers' compensation. Workers' compensation is a socialization of the cost of workplace injury, not a socialization of all of everyone's illnesses, injuries, and maladies.
California, by executive order, has altered its workers' compensation law recently in response to COVID-19. Seemingly rejecting the foundational premise focused on "the industry involved," that state has decided to socialize the cost of COVID-19 (in part, keep reading) through workers' compensation. The Workers' Compensation Insurance Rating Bureau ("WCIRB") recently published its predictions regarding the potential costs of this expansion of workers' compensation through a rebuttable presumption of COVID-19 compensability for many California workers. According to WorkCompCentral (pay site) the cost may be between $600 million and $1.8 billion.
California is (1) the largest U.S. state by population; (2) the broadest example of the executive retroactive expansion of workers' compensation coverage in response to COVID-19; (3) The most expensive workers' compensation premium state in the 2016 Oregon Study, and (4) the second most expensive workers' compensation premium state in 2018 (the latest year analysis available, at the same link above). It is therefore possible that the impact of such a broad expansion of workers' compensation coverage would be different in other jurisdictions. It is notable that Hawaii has one of the more liberal standards for compensability of occupational illness and ranked only 13th in the 2018 Oregon Study. Hawaii is discussed further in COVID-19 Again, a New Week (May 2020).
In analyzing the impact of summarily including COVID-19 in workers' compensation, it is perhaps important to understand that the "costs" associated with COVID-19 may fall into various categories. I describe these as "immediate," "intermediate," and "long term" (which includes permanent). Some may fall within the parameters outlined for coverage in workers' compensation, but other expenses may fall without such coverage, despite the generous California parameters.
Upon even suspicion of infection, there is the Center for Disease Control (CDC) recommendation for "self-quarantine" or "isolation." Either one calls upon the individual to "stay home" and thus for many workers unable to telecommute to miss work. Potentially, one is fortunate and has paid sick leave, but according to Pew Research, about 24% (33.6 million) of American workers do not. Even those that do may have a minimal balance at any time due to their prior sick leave use in that year. Thus, even suspicion of infection could lead to (immediate) economic loss (for the employee off work and/or the employer who loses productivity). And, if that person is ultimately not diagnosed, then even the most liberal workers' compensation interpretations like California would seemingly provide no recompense.
Once there is a positive diagnosis, the intermediate costs come into focus. There may be testing to be performed, medications to take (likely symptom relief), physician bills (initial visit $100-$200, emergency room perhaps as high as $500), and missed work (two weeks [$8.46 minimum wage x 80 hours = $676.80] or more). It is possible that some of the medical costs would fall within the "immediate" category depending on test availability and other variables. These costs could easily reach $1,000.00 or more. Of note, the California executive order proclaims there will be no "waiting period" before lost wage benefits (a distinction from other work injuries there). It is likely a great many cases would be limited to the "intermediate" costs.
The "long-term" potential may include hospital inpatient treatment (about $10,700 per night; intensive care is more expensive; "mechanical ventilation" alone may be as high as an additional $1,522 per day). Data varies, but hospitalization might average 8 days, according to the Daily and Sunday Express. Complications such as ventilation might extend that to 16 days (remembering that in any average there may be examples much lower or much higher than that mean). It is practical to suspect that a hospitalization and work absence for COVID care might easily equal or exceed $100,000.00. Of note, the WCIRB report expresses different estimates for both physician and hospital care, likely based upon fee schedules specific to workers' compensation).
The "long term" potential has to also contemplate that there is a risk of the ultimate cost. Though the percentages are small, some people are killed by this disease and by the side effects that accompany it. Evaluating the financial impact of death is impractical without specific facts. Of course, all death is regrettable and tragic. lawyers and others struggle to calculate financial recompense to compensate for such loss. For the purpose of this example, however, workers' compensation in California provides up to $10,000 for "actual funeral expenses, and up to $320,000 in benefits to dependent survivors. Death benefits vary from state to state, but in workers' compensation, the benefits are likely to be defined and readily determinable in any particular case (often calculated based on the number of dependents). For a serious case involving extended hospital intensive care and ultimately ending in death, a single case valuation of one million dollars is not unimaginable.
Who would pay these costs? Does the answer have to be the same for immediate, intermediate, and long-term? The obvious distinction is the "quarantine" period suffered by someone not ultimately diagnosed. The presumption covers only those "who contract COVID-19." That quarantine person who is ultimately negative may be left to cover that immediate cost in any jurisdiction, or in some instances, it might be paid by Family Medical Leave Act ("FMLA") safety-net expansions rapidly passed by Congress. The intermediate costs might be more likely to be paid by workers' compensation when proven or in jurisdictions that presume compensability. The long term might be paid by workers' compensation or again begin to be excluded upon arguments of causation of need for care as between the treatment of COVID and the causative contribution of other co-morbidities like heart disease, asthma, lung disease, obesity, diabetes, and more. A question may be raised as to actual cause of death in any jurisdiction, as opposed to coincidence of death with diagnosis.
I was recently asked why these workers' compensation compensability questions are here and now, rather than long-resolved. Workers' compensation, after all, has been around for over a century in various jurisdictions. The premise of the question is that COVID-19 is somehow different. Back to perspectives, some would contend it is a virus and that is nothing new. But, the other perspective is that it is a virus without vaccine (currently), and for which there were initial predictions that were alarming. The 1918 influenza pandemic was significant and expensive, but occurred in the infancy of workers' compensation when it was more predominantly an "accident" construct that did not include occupational disease as a subset. Thus, it is arguable that COVID is the first real viral pandemic in the age of modern workers' compensation.
As to the potential effects, some scientists predicted "2.2 million deaths in the U.S.," according to Business Insider. Whether those predictions were merely misguided, or maladjusted, some of their predictions were simply wrong. Thus, on the predicate of those huge infection and death predictions, the government reacted forcefully and expeditiously. Science has been lauded in the news, but some have been disappointed in the various opinions (it can't be transmitted by human contact, it can be, wear masks, don't wear masks, take this supplement, try this medication, etc.). Some seem to have developed doubts regarding the experts and their recommendations as this pandemic has evolved. Neither science nor scientists have been infallible in their advice or predictions.
The other reason these questions are here and now is the latency of this particular viral assault. One may be a viral carrier without any idea that she/he is infected. Healthline predicts perhaps 50 percent of People with COVID-19 Aren't Aware They Have the Virus. The New England Journal of Medicine contends that "asymptomatic transmission" is the "Achilles' Heel of Current Strategies" against the virus. Those who do have symptoms may suffer some or all of a variety of potentials. In short, it is difficult to know if you have it, when you got it, or how it will affect you (though some expensive processes exist to prove source if you could obtain the necessary samples, see COVID-19 Again, a New Week (May 2020). There are many unknowns, and those are likely making it feared, us anxious, and thus more reason for debate here and now.
Thus, states are reacting legislatively and through executive or regulatory actions, as discussed in COVID and Workers' Compensation (May 2020). And, those reactions are about who will pay the cost of this pandemic. Remember, the costs above are either borne by the person infected or they are socialized in some manner (group health, sick days, short-term disability, workers' compensation, Medicare, Medicaid, etc.). No government or scientific effort will eliminate that there is cost (human and/or financial). The efforts regarding COVID-19 and workers' compensation are not as to the "what" of costs, but merely the "who" will bear them. Some will argue that the involvement of workers' compensation is in fulfillment of the "placing the burden" mandate, while others will find it the opposite.
This brings us back to the "progressive" and "regressive" discussion at the inception. It is a familiar discussion as regards taxation. But, in most contexts, workers' compensation is not popularly regarded as a "tax," although some states are "monopolistic" and thus liability for benefits may ultimately fall to the state's taxpayers. These include "North Dakota, Ohio, Wyoming, and Washington" according to Investopedia. Even in those models, there is effort focused on the businesses each paying "premium" rather than broad taxpayer funding of the paradigm.
Consider a simple business model. The product is frozen peas. peas are grown, harvested, and delivered to a packager/distributor, and ultimately to a retailer where we purchase. For simplicity of math, the "costs" of this product are $1.00 per unit (bag), which sells to the market (distributor or retailer) at $2.00 per unit, and then retails for $3.00. We, as consumers, pay the $3.00 and feed our families. Built into that price are the costs (fuel, equipment, payroll, marketing) and profit for each of the growers, distributors, and retailers.
If the price of fuel changes, it should be obvious that math can change. The change may be internal or external. That is an upward trend in the cost of fuel might result in less profit (price unchanged), or a corresponding upward change in price (profit unchanged), or a combination of the two. In this example, three entities each face the choice of absorbing a cost increase (decrease profit) or passing that increase to their respective customer (maintain profit).
What few seem to consider, however, is that in any enterprise that engages human employees, workers' compensation is another of those costs (at this point some might suggest that agriculture is often excluded from workers' compensation, but for this example presume our grower is in a covered state). No difference from the payroll upon which the premium is based, or fuel cost, rent cost, equipment, taxes, and more. Those costs are all faced by each business (grower, distributor, retailer) in the chain that leads to the retail consumer. As workers' compensation premiums increase on any of those entities, the same choices of price and profit are faced.
Note that this is a very simple example. Imagine instead that the ultimate product is a jet airliner. That may contain literally thousands of parts and components each produced by some initiating enterprise like the grower above. Parts are made and shipped to component producers; components are conglomerated from parts and shipped, small components become larger components, and ultimately they all combine to be the aircraft. For example, "The (Boeing) 737 . . . is made up of 367,000 parts" according to NBC News. And, it is likely that there were workers' compensation premiums included in the charges for each one of those parts.
Returning though to our bag of peas, a state might collect sales tax when the retailer sells us that bag. If that sales tax is 5%, then the $3.00 bag of peas we purchase cost us $3.15. That $.15 is a "regressive" tax because it is the same tax regardless of the income of the purchaser. Whether I buy the peas or Warren Buffet buys the peas, the tax remains $.15. Thus, the lower the income or wealth of the purchaser, the more impactful that tax (notably, of course, some states do not charge sales tax on groceries, thank you Florida! But, some states do; and, this is an example in which the peas could as easily be ink pins, playing cards, thumbtacks, or any other item).
Similarly, when the costs of inputs to the bag of corn change (equipment, fuel, seed, etc.) change, any resulting increase in the retail purchase price of the corn is likewise regressive. If fuel prices drive that $3.00 bag of corn up by $1.00, the impact is on the consumer, regardless of her or his wealth or income. And, considering the sales tax, the increase might be exacerbated (now $4.00 bag of corn, with tax is now $4.20 instead of the previous $3.15). Similarly, if workers' compensation rates increase that may impact the cost of grower, distributor, and retailer. That impact might be seen on the payroll of laborers, marketers, truck drivers, packagers, loaders, shelf-stockers, and more.
Thus, workers' compensation directly impacts the price of product (or service) or profitability. Any price impact is likely to be regressive, affecting all product/service consumers identically in amount but disproportionately in effect. Ultimately the inclusion of COVID-19 in workers' compensation is likely to expand the risk/cost, and that cost will be integrated into the prices of goods and services.
There is no doubt that federal action regarding COVID-19 like the unprecedented FMLA expansion, or broader-context state action may also be socialized. That, however, is more likely to be through the power of government to tax and spend. According to Investopedia, only 9 of 50 states do not have income taxes. Thus, COVID response outside of workers' compensation is more likely to be funded by income taxation, and by taxation (as a percentage of income) that is more likely progressive than regressive.
Thus, any government response (national or state) is likely to impact the price of goods and services. The inclusion of COVID-19 in workers' compensation is predicted to be significant and perhaps more likely to result in a regressive effect more profoundly affecting the least affluent in American society. Similarly, the potential exists that the COVID-19 impact on employment opportunities might similarly be more pervasive in lower-wage positions.
