When the COVID-19 pandemic struck California five years ago, it massively impacted California families not only medically but economically.
As the state forced many businesses to close their doors, 3 million Californians lost their jobs, shooting the state’s unemployment rate up to more than 16%. In turn, two state programs that are supposed to cushion employees from the effects of workplace disruption were hard-hit.
The most obvious impact is what happened to the state’s unemployment insurance program.
As workers were laid off, they filed claims for weekly benefits from the Unemployment Insurance Fund, which is financed by employers through payroll taxes.
However the fund, which had been struggling to pay claims prior to the pandemic, was soon exhausted, and the state borrowed about $20 billion from the federal government to keep benefits flowing.
The Employment Development Department also suffered a managerial implosion, leading to not only the blockage of payments to legitimate claimants, but billions of dollars in payments, mostly out of federal funds, going to fraudsters.
Five years later, not only has the state been unable to claw back the billions in fraudulent payments, but the state’s unemployment fund’s debt to the federal government has continued to grow. Interest charges are piling up, and there’s still a gap between income and outgo even though the state’s unemployment rate today of 5.3% is about a third of what it was in 2020.
The Employment Development Department estimates that the debt will rise to $23.7 billionby the end of 2026, even though federal officials have raised their payroll taxes in California to chip away at the debt. Underlying the issue is a decades-long political stalemate over unemployment insurance benefits and taxes.
The other safety net program affected by the pandemic is workers’ compensation, which provides medical treatment and support payments to employees suffering job-related illnesses and injuries.
Most employers purchase insurance either from private insurers or from the quasi-public State Compensation Insurance Fund to cover employee claims. Some big employers, including state and local governments, self-insure for “work comp,” as it’s dubbed.
An estimated 200,000 work comp claims were filed by COVID-19 victims, even though a connection between the disease and the workplace is tenuous at best.
Nevertheless, those claims and sharp increases in medical costs are being cited by the insurance industry’s Workers’ Compensation Insurance Rating Bureau in seeking an 11.2% increase in employer-paid insurance premiums, tentatively approved by the state Department of Insurance to take effect on Sept. 1.
It’s the latest chapter in the long-running political friction over work comp costs and benefits, which collectively approach $20 billion a year.
Roughly once a decade, the major players in the work comp system — employers, insurers, unions, work comp attorneys and medical care providers — clash over the issue. The last time was in 2012, when then-Gov. Jerry Brown negotiated a compromise that raised benefits but imposed new rules on eligibility for benefits and medical care to save enough money to pay for the increases.
Although opposed by medical providers and attorneys, the deal had the desired impact, including a sharp reduction in insurance costs vis-à-vis payrolls. However, California’s insurance costs, 1.86% of payroll, remain among the highest in the nation, according to a biennial survey by the Oregon Department of Consumer and Business Services, widely considered the most authoritative source of work comp premium data.
The stage would seem to be set for another of the Capitol’s periodic work comp clashes. However, legislation that would have increased cash benefits to disabled workers never made it through the first committee this year, so the contending forces will face off sometime in the future.
Dan Walters is a CalMatters columnist.
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