20 Workers Comp Issues To Watch in 2023

1. 2022 Elections

With a narrow Republican majority in the House, a Democratic majority in the Senate, and minimal compromise to be made, there likely will not be significant federal legislation passed in the next 2 years. Statewide, Democrats gained gubernatorial and legislative branch control in Maryland, Massachusetts, Michigan, and Minnesota, making it easier to pursue legislative agendas. Maryland and Massachusetts could face more significant impacts, with both states flipping gubernatorial parties.

Florida's recent special legislative session passed a reform bill addressing litigation abuses in their property marketplace that led to insurer insolvencies and significantly limited consumer choice. There will be further litigation over this bill, so the intended savings may or may not be realized. Nonetheless, this was a significant reform bill pursued for many years.

In California, there is much discussion around workers compensation reforms. Their prior reform bill's cost-saving measures have run their course, and costs are rising again. Large employers are requesting cost-savings focused on the litigation process, while labor is pushing for higher indemnity benefits.

Finally, legislation allowing post-traumatic stress disorder (PTSD) benefits for first responders has been passed in many states over the last few years. For many of these states, this legislation benefits first responders only. With an increasing focus on mental health in the workplace, many more states may take steps to include "mental-mental" injuries as part of their workers compensation.

2. Healthcare Industry Challenges

The talent crunch is a primary concern for the healthcare industry, with continuously worsening statistics. The American Medical Association reports that 35 percent of the physician workforce will be within retirement age over the next 5 years. A recent study from the journal Health Affairs found that the supply of registered nurses decreased by more than 100,000 between 2020 and 2021. That is the largest drop observed over the last 4 decades.

Technology will be a priority for the industry this year, whether digital patient health management tools, artificial intelligence (AI), or machine learning for treatment protocols. Telehealth continues to expand, providing virtual primary care for managing chronic conditions and growth through mental health services. Startups and venture capitalists aim to further health technology services to tackle the challenge of fragmentation in health care. With the vision for more specialist tech-enabled care, AI and machine learning are primed for cancer care, neurology, and primary care.

Retail health also continues to expand offerings in local communities to bring health care closer to where people live and work. Amazon and Walgreens have announced significant primary care clinic deals while Walmart Health continues to expand locations. CVS is focusing on its retail health hubs within existing sites while continuing to look for a meaningful primary care acquisition.

3. Extreme Weather and Climate Risk

Risk managers and brokers experienced a challenging year for property insurance renewal negotiations, with over 30 $1 billion property insurance events occurring, including droughts, floods, hurricanes, windstorms, and severe thunderstorms. Recent winter storms are projected to cost insurers over $5.4 billion, and Hurricane Ian's losses will be the second costliest insured loss on record, with damages between $50–65 billion.

Some estimate climate change as the reason behind these increasingly large natural disasters, but many experts point to the development of more disaster-prone areas as the most significant factor. Cities to the west continue to expand into forested areas, increasing the risk of wildfire damage to the property.

The Federal Emergency Management Agency (FEMA) flood maps are considered to be outdated by many due to risks being based on previous floods and not the impending threats of stronger storms and population shifts. Property insurers and reinsurers are working to develop new models that take these increased risks into account, leading to higher rates for impacted individuals and businesses.

4. Inflation and Recession

Inflation hit a 40-year high in 2022, with interest rates surging. Low unemployment rates have supported wage increases, but inflation has drastically increased the prices of food, energy, housing, and most goods. The Federal Reserve had seven consecutive rate hikes in 2022, with more expected this year. Expect increases by 25–50 basis points through at least June 2023 and for interest rates to hold at 5–5.25 percent.

Weak growth is anticipated worldwide, at 1.4–1.6 percent, with many economists predicting a mild recession by the end of the year. With expected job losses, households will focus on tightening spending while businesses are evaluating cost control measures. The Federal Reserve's inflation target is 2 percent, but with current rates at 5.9 percent, it will likely take 2–3 years to meet that goal.

5. Social Inflation

With widespread public distrust of large corporations and public entities, jury awards are continuously increasing, which is heavily impacting businesses and insurers. Insurance pricing models are constantly trying to catch up to these experiences to help forecast the future as it becomes the new normal.

Litigation financing also contributes to this trend since this niche industry discourages settlements in an attempt to gain a significant jury award. This increases defense costs, which can exceed hundreds of thousands of dollars in many cases. Unfortunately, this trend shows no signs of changing, with larger jury awards occurring in more jurisdictions each year.

6. Geopolitical Risks

Does your organization understand the potential impact of current geopolitical risks on its operations or brand? With the frequency of national and international threats, risk managers should have a plan to mitigate potential risks and identify how best to approach them. The following geopolitical risks should be on your radar for the year.

• A worsening of the European energy crisis
• The war in Ukraine
• China's zero-COVID-19 policy
• A conflict between China and Taiwan
• Trade tensions
• Social unrest, worsening with a downturn in the economy
• Climate change and water stress
• Global inflation
• Major cyber attacks

7. Public Entity Challenges

Public entities face various challenges and risks beyond those in the private sector. Between expanded workers compensation presumptions for first responders to the impacts of social inflation, public entities are struggling with increasing costs and the ability to secure insurance coverage.

Staffing budgets for risk management and industry regulators are not keeping pace with the private sector, making attracting and retaining talent more challenging. Budget constraints also decrease available technology upgrades to prevent cyber attacks, making it harder to obtain cyber insurance. Additionally, the increase in pension liabilities in many states and large cities is an ongoing issue, with billions in unfunded liabilities.

8. COVID Continues

Overall, workers compensation trends related to COVID-19 have remained consistent. Some of the key findings across 195,000 claims were the following.

• About 95 percent of claims involve minimal medical treatment and time away from work.
• Fatality claims remain at approximately 0.5 percent, most of which occurred during the early variants.
• Health care remains the industry most impacted, accounting for roughly 45 percent of claims. The following two most affected industries are public entities (22 percent) and retail (16 percent).
• Roughly 97 percent of the claims are closed, with only 3 percent open.
• The average cost for closed claims is less than $2,000, excluding zero-dollar paid claims.
• Litigation remains very low, which is only slightly above 1 percent.
• Data indicates that long COVID, defined as claims with medical treatment beyond 90 days, represents 1.5 percent of the claims. These claims are complex and require advanced strategy and support for the claims team via medical directors, pharmacists, and behavioral health specialists.

9. Cyber Risk

The frequency and costs associated with cyber risks continue to grow. According to the Cost of a Data Breach 2022 report from IBM, the average price of a data breach in the United States is $9.44 million, which is more than double the global average for a data breach. The healthcare industry faces the highest costs, averaging $10.1 million per breach, which is a 42 percent increase since 2020. The report also indicates the share of breaches caused by ransomware grew by 41 percent in the last year and took 49 days longer to identify and contain.

State-sponsored cyber attacks from Russia, North Korea, and China are a growing concern, and insurers and reinsurers are attempting to classify these as "acts of war." Still, courts have not consistently supported these exclusions, leading insurers and reinsurers to try and tighten up the language in their policies.

10. Technology Transformation

The most innovative companies are discussing automation opportunities, live chat use case scenarios, and using customer sentiment to build resilience within the claims team and improve customer service. These companies have also expanded their data science capabilities due to the massive benefits of large data sets and the integration of data science in technology solutions. Organizations must get comfortable with uncomfortable conversations around technology innovation to avoid delays in driving their business forward.

Adjusters and nurses want to focus on helping workers, physicians, employers, and claimants and avoid duplicative documentation and repetitive tasks within their claims and case management systems. Digital solutions that expedite policy verification, eligibility, claims intake and reporting, document validation, rules-based decision-making, and the automation of simple, low-dollar claims should all be considered.

11. Workplace Safety

Workplace safety gaps can result in massive costs, injuries, and even loss of life. The continued escalation of workplace violence is heavily impacting businesses, with the Bureau of Labor Statistics reporting that more than 20,000 workers experience physical trauma in the workplace each year. An October 2022 report from Zippa indicated that workplace violence causes American businesses to lose $250–$330 billion yearly. And 85 percent of workplace violence deaths are due to robberies, with national crime statistics showing an increase in the frequency of thefts in major cities across the United States.

According to the National Fraternal Order of Police, in 2022, 331 police officers were shot, and 62 were killed, with deaths representing a 32 percent increase from 2020. Most workplace violence occurs in the healthcare industry, accounting for roughly 75 percent of all incidents each year. However, the frequency of workplace violence has been increasing in any industry that interacts with the general public, including teachers, transportation workers, delivery drivers, retail employees, and restaurant workers.

12. Growth Mindset

Mindset matters to innovations—throughout organizations and their business partners. Customers want solutions to drive improved outcomes, and companies must innovate to stay relevant. Companies that are slow to embrace change will not meet customers' needs, and products will not be aligned with needs within a short period.

Where might a growth mindset drive innovation? Consider opportunities in the following areas.

• Assessing traditional claims administration models
• Advancing case management products and services
• Evaluating the underwriting processes
• Revising adjuster caseloads to work effort and outcomes
• Reviewing and modifying education requirements for select positions
• Eliminating redundant processes
• Exploring and agreeing to new pricing models
• Considering new ways of doing business to deliver a better service to injured workers
• Offering a professional career to claims and clinical professionals
• Improving the outcomes for your customer and company

13. Rising Medical Costs of Catastrophic Claims

Workers compensation tends to be shielded from medical inflation due to fee schedules tied to Medicare reimbursement rates, helping to stop surges in fees for service items. However, there are rising medical costs in the treatment of catastrophic injuries due to a few key factors, including the following.

• Accident survivability. Severely injured individuals are more likely to live due to better care on the scene, air ambulances, and the care provided by Level 1 trauma centers.
• Life expectancy. Catastrophically injured workers are living longer due to the improved medical science used to prevent complications associated with severe burns or quadriplegia.
• Costs not covered by fee schedules. This includes extended intensive care unit (ICU) hospitalizations, extensive durable medical equipment (DME), newer state-of-the-art care, and attendant care. The costs of these services are increasing at rates far more significant than average medical inflation.

Medical care advances vastly improve the quality of life and independence for these injured workers, but these technologies come at a price. Looking at Safety National's catastrophic claims data over the last 3 years, there has been a 30 percent increase in claims incurred over $10 million and increases in claims incurred of $5 million to $10 million. Although these large claims are infrequent, they cost much more and continue escalating.

14. Insurance Industry Gig Work

The insurance industry needs to broadly consider gig work opportunities to expand the talent pool and retain experienced workers. Deploying a gig environment allows 24/7 adjusting and case management, expediting claims, clinical decisions, and claims processing. While auto or field adjusters work in an environment that allows for select assignments, the adjuster and nurse environment would remain a part-time, full-time, or agreed-upon hours-per-week scenario.

Creating a credentialed program for your gig workers can certify their experience and capability through a professional standards framework. Providing opportunities for credentialed gig workers to sign in to a secure assignment app allows them to view and accept work, report availability via a personalized calendar, view quality scores, and access links to continued education and training.

15. Supply Chain Challenges

Continuing supply chain issues are extending beyond operational problems, impacting risk management. Inadequate inventories of supplies are forcing a shift in standard business processes, requiring a review of procedures and safety protocols necessary to accommodate these changes. Vendor changes also require risk managers to track the insurance agreements and contracts associated with these vendors. Excessive inventory is also challenging, with risk managers questioning where to store it and working with operations teams to ensure company assets are appropriately insured against loss.

16. Employee Benefits

Health benefits experts predict medical plan cost increases of 6–10 percent in 2023 due to rising labor costs, healthcare costs, prescription drugs, and supply chain issues. Employers are offering holistic leave, flexibility for caregivers, backup childcare services, personalized work schedules, and expanded opportunities to meet family obligations.

Fertility and family planning services are increasingly popular, with employers offering fertility, adoption, foster placement, and surrogacy programs to support diversity, equity, and inclusion (DEI) goals and meet the needs of their workforce. These programs are increasingly gender-neutral and inclusive of employees' family planning situations.

City- and statewide-mandated paid leave programs are anticipated to expand. Currently, 12 states mandate paid leave, with the additions of Oregon in 2023, Colorado in 2024, Maryland in 2025, and Delaware in 2026. Additionally, plan administrators must be mindful of surprise billing and comply with the ban on such billing for emergency services, air ambulances, and specific medical treatments.

17. Employee/Independent Contractor Classification

States and the federal government have debated the definition of employee versus independent contractor for years. The definition within employment and tax laws may be different than it is under workers compensation, creating a confusing situation for employers and workers.

In October 2022, the US Department of Labor announced proposed rules to correctly classify workers, intending to significantly reduce the number of workers classified as independent contractors and reverse a previous ruling by President Donald Trump's administration. The October proposed rules were an extensive, multiprong test focused on the control of the work, the worker's skill, and whether the work performed was integral to the principal's business. The final rules are expected to be issued in early 2023.

Regardless of these rules, it will ultimately be the court's interpretation of them that determines whether someone is classified as an employee or independent contractor. Employers could be subject to litigation that may eventually change their current classifications. Risk managers should continue to pay special attention to the agreements and insurance certificates affiliated with their independent contractors.

18. Talent

With more job openings than unemployed workers, the labor market has been a hotbed of opportunities for workers, driving higher pay and better positions. However, economists report the job market is likely to slow in 2023, with lower inflation and higher unemployment later in the year. As of the beginning of 2023, four jurisdictions in the United States have legislation requiring disclosure of salary in their open job postings, which may pressure organizations to improve pay transparency across their business.

With job openings surpassing the pool of applicants, now is the time to rethink hiring practices. Human resource teams should review job descriptions, education, and years of required experience to ensure they align with the necessary skill sets. Lived experiences should be considered, as they are critical to having empathy and patience, active listening, fact-finding, problem-solving, and negotiation.

Risk and claims managers should be mindful of safety programs and worker training since some employers are experiencing an uptick in injuries for younger employees and those with less than a year of experience.

19. Forever Chemicals (PFAS)

A rapidly emerging risk management challenge revolves around perfluoroalkyl and polyfluoroalkyl substances (PFAS), which are more widely known as forever chemicals. These chemicals have been used in manufacturing hundreds of thousands of products for years and are typically used to make products water-, stain-, and heat-resistant. They do not naturally break down, so they are found long-term in the soil, water, and body tissues. They are linked to cancer, kidney disease, liver problems, immune disorders, birth defects, and other serious health problems.

Litigation over these forever chemicals is only beginning, and several states recently filed lawsuits against 3M for environmental damage caused by these chemicals. In response, 3M has set a 2025 deadline to stop manufacturing the chemicals. Risk managers need to ensure they keep track of older insurance policies because, with the length of this type of litigation, they will likely be referring to them for years.

20. Workplace Well-Being

Corporate culture, collaborative work environments, communication, inclusivity, reasonable workloads, recognition, and employee resource groups all impact workplace well-being. Many organizations include workplace well-being questions in employee surveys to understand their areas of opportunities. Leadership training focused on creating safe and inclusive environments can inspire leaders, helping them to understand the impact that an inclusive team has on performance and employee satisfaction.