Tuesday, August 9, 2016

What is the connection between Market Failures and Workers’ Compensation?

Everyone has some idea of what an economic “market” is and how it works.  Terms like “supply and demand” are well known. For most goods and services  competitive private markets  work well;  outcomes for all parties concerned are optimized.  When private markets fail to provide expected or intended outcomes, the consequences can be severe for the parties involved and others (including you and me as citizens and taxpayers).
The limitations and failings of markets are precisely the rationale behind government intervention in the form of legislation, regulation  and the introduction of social insurance including workers’ compensation.  As one commentator put it:
The goal of government intervention is to ameliorate these potential market failures by protecting workers against work-related risks and by inducing employers to invest more resources in safety.
(Krallj, Boris, “Occupational Health and Safety: Effectiveness of Economic and Regulatory Mechanisms”,  Workers’ Compensation Foundations for Reform , Edited by  Morley Gunderson and Douglas Hyatt, University of Toronto Press, 2000) 
Government intervention may be motivated by the failure of market to provide optimal economic and/or desired socio-political outcomes.  Governments may intervene to regulate a market to counter the effects of market failures.  Such interventions typically change the information balance, lower information and transaction costs, or alter the incentives of participants in the market.  One economist researcher put it this way:
In theory, regulation is designed to address market failures that would otherwise impair economic performance and reduce social welfare.  The purpose of regulation is to correct market failures, or at least minimize their negative effects, and improve allocative efficiency. …
Insurance markets, including workers' compensation, are subject to several types of market failures that insurance regulators seek to counteract.
(Hunt, H. Allan, and Robert W. Klein. "Workers' Compensation Insurance in North America: Lessons for Victoria?" Upjohn Institute Technical Report No. 96-10. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research, 1996.).
Market failures in the insurance sector (and workers’ compensation in particular) can lead to financial failures such as insurer insolvencies.  The reasons for financial failures are many but here are a few examples: 
  • excess risk-taking,
  • pricing decisions to lower premiums to gain market share without regard to the actuarially required funding level
  • insufficient reserving
  • Excessive costs (administration, monitoring, marketing, etc.)
Even in markets that are subject to some regulation, financial failures can occur and may bring uncertainty or delay to compensation recipients, employers and taxpayers.  The collapse of HIH in Australia is illustrative of these consequences (see Kehl, David, “HIH Insurance Group collapse”, E-Brief, Parliament of Australia, 29 November 2001). . 
Other market failures may occur if the price of insurance is too high or availability of coverage to some or all employers too low.  This is often a consequence of “adverse selection”.  In the case of work-injury insurance, firms will only purchase insurance if they believe there is a cost advantage to doing so.  Firms who perceive the expected cost of insurance to be less than the expected cost of injuries (administration, legal costs, settlements, etc.)  will opt out.  Over repeated insurance cycles, the pool of insured will contain firms with the most risks; the cost of insurance rises, the pool of insured shrinks. To counter this type of market failure, governments intervene and almost universally require all firms to carry workers’ compensation coverage for their employees.
If there are too few insurers willing to insure all employers, competitive pressures prevalent in well-functioning markets may decline;  remaining insurers may refuse to cover all risks and premiums may rise (among other consequences). If work-injury insurance is mandated but unavailable, new businesses may not be able to open.  The state of Maine experienced some of these market failures in the early 1990s:
The new year—1992—was only hours old when five insurance companies representing 40 percent of the private insurance market in Maine surrendered their licenses to sell workers’ compensation insurance in the state. The companies included three well established insurers: Hartford, Travelers, and American Fidelity. In making their announcements, the companies cited the high cost of paying compensation claims in Maine compared to revenues collected from premiums.
Later that year, another seven smaller companies filed plans to leave the workers’ compensation market in Maine. The state’s remaining insurers demanded that Maine provide protection from the potential liability of millions of dollars in workers’ compensation claims from employees covered by the residual pool.
(Gold,  Susan Dudley, MEMIC: A Maine Miracle, Custom Communications:  Saco, Maine, 2013)
Government interventions to deal with market failures may be limited to regulation or reporting requirements but may include creating a workers’ compensation entity ( State Fund in the US, Workers’ Compensation Board in Canada, WorkCover authority in Australia). Such entities may act as competitors in under-served markets or exclusive “monopoly” providers.  In some cases, the State Fund may be the designated insurer for certain classes of industry (government operations, for example) or assigned the role of the “insurer of last resort” (providing coverage when private markets decline the risk). 
Market failures may arise from “information asymmetries” and non-aligned incentives of parties involved in insurance markets.  Workers, for example, may have insufficient information to fully assess the inherent and latent risks they face in the workplace.  Employers struggling to fill jobs may have little incentive to fully assess or communicate those risks to either workers or insurers.  Insurers may have changing priorities motivated by financial market opportunities, market share or state of their balance sheet.  In a totally transparent environment, each party would be fully informed.  The cost to overcome these informational barriers so all parties concerned are fully informed can be impossibly high.
Market failures in work-injury insurance markets include “externalities” –the imposition of costs on third parties (typically taxpayers or other insurance or benefit programs).  Prior to workers’ compensation, the courts were the arbiters of many contested work injury cases.  Decisions favourable to an injured worker would depend on proving fault and overcoming systemic and traditional defenses.  Occasional large wins by injured workers could bankrupt an employer with consequences for many parties outside the injured worker-employer relationship.  Society had to bear the financial (and “congestion") costs of the courts to oversee disputes, the welfare of those displaced by the disruption in the workplace and the lost productivity of other suppliers, providers, and eventual customers of the enterprise concerned.
Markets also fail when transaction costs are disproportionately high relative to the other costs associated with a claim. Note the following comment regarding workers’ compensation:
Is there a strong economic rationale for workers' compensation? We believe there is. Absent some form of no-fault insurance for workplace injuries, a large number of accidents would be handled by the courts using a negligence standard. The joint costs of determining liability under these circumstances would be large, substantially larger than the indemnity and medical costs of most accidents. Only a minority of workers would be compensated for injuries if it were necessary to prove company (or co-worker) negligence, and payment would be received long after most medical expenses occurred and wages were foregone.
(Addison, John T.  and Barry T. Hirsch,  “The Economic Effects of Employment Regulation: What are the Limits?” Government Regulation of the Employment Relationship Bruce E. Kaufman, ed. IRRA 50th Anniversary Volume, Madison, WI: Industrial Relations Research Association, 1997).
Medical costs currently comprise 50% or more of the benefits (combined medical and indemnity costs) of workers’ compensation in the US (See NASI Workers’ Compensation Research for the latest report) .  In an unregulated free market, the potential for externalization of medical costs is high:
Absent workers' compensation, much of the medical costs and some of the indemnity costs from workplace injuries will be shifted to others. Indeed, an advantage of having workers' compensation rather than other forms of health insurance pay for the medical cost of workplace injuries is that it shifts costs to parties whose behavior can affect safety.
(Addison and Hirsch, ibid.)
“Cost shifting” of medical and indemnity costs is an externality (an unintended effect that amounts to a subsidy).  Note, intentional cost shifting through waiting periods or employer deductibles may also be seen as subsidization of work-injury costs but are not externalities or market failures because they are intentional.
There are other market failures including those due to “moral hazard” and also government failures, failures related to the regulation imposed by government (topics of other blog posts).
The success of interventions to overcome market failures varies by jurisdiction.  Each intervention has the same intent (ameliorating the effects of market failures, making all parties better off and eliminating the externalization of costs of work injuries to others).  There is no one “right” intervention but each intervention has its own advantages and consequences.  Only active and continuous performance measurement against the intended social policy objectives of the jurisdiction will confirm the effectiveness of a particular intervention.
The failure of private, competitive, unregulated markets to deliver desired outcomes continues to be the motivation behind workers’ compensation.  The “historic compromise” or “grand bargain” that spawned workers’ compensation was a collective decision by labour, employers and the state (acting on behalf of all of us) to overcome market failures and support a specific social policy objective:  to protect workers from work-related injury, disability, illness and death in a compassionate and sustainable way that still allows the economic activity and innovation necessary for societies to operate and thrive. 

Tuesday, July 26, 2016

Why is measuring worker outcome so challenging for workers’ compensation systems?

Those who make laws and policy do so to achieve certain outcomes.  Unfortunately, meaningful measurement of outcomes in workers’ compensation is sadly lacking. 

Workers’ compensation outcomes seem straightforward enough.  Safe workplaces.  Fair compensation for work injuries.   Effective treatment and rehabilitation.   Safe, timely and durable return to work.   There are others, but even these basic worker outcomes (or indicators related to them) are rarely reported. 

The most obvious barrier to reporting worker outcomes is that they are hard to measure.  Unlike “dollars spent” or “new claims received”, which are very objective input and process measures, worker outcome measures require a great deal of time and effort to develop, track, and report.  

Measuring “safe, timely and durable return to work” , “impact of disability on future earnings”, or “worker satisfaction with claim process”  for example, require specific definitions for these important terms and a mechanism for consistently assessing cases and reporting outcome on a timely basis. 

Often, the only way to get the data is through interviews well after the last temporary disability payment has been sent and the claim closed.  Many organizations are just not willing to put the time, staff resources and money into getting the data needed to produce a credible outcome measure on a timely basis.

One way to overcome this barrier is to be selective in the population under study.  Focusing on a few injury types, industries, and occupations can make the process easier.  Sampling techniques can reduce the number of cases (and related time, effort, resources and costs) needed to get a representative result.  Often, the lower precision of the outcome measure is an acceptable price to pay for increased timeliness of the analysis. 

The second barrier is a little less obvious but vitally important.  Worker outcome measures are meaningless without an appropriate basis on which to assess the reported result.  Even if you put the money, time and effort into developing and reporting on a given worker outcome, how is a policy maker or other stakeholder to know if the reported outcome is good or bad?  Without a credible parallel measure to compare with, an outcome measure may only provide year-over-year change data.  Comparator data is notoriously hard to come by.

No matter what population you decide to focus your outcome measure on, you are going to need something to compare your result against.  Where are you going to find that data?  You can’t just use another jurisdiction’s data without first adjusting for factors that might otherwise impact the outcome—factors like age, gender, industry, and occupation.  Not only that, privacy rules are likely to add to the data acquisition challenge.

Consider “duration of temporary disability”—arguably an important outcome for injured workers (who suffer the financial and physical losses while away from work) and employers (who pay the claim costs and consequences of worker absence including backfilling costs, lost productivity, etc.).  One would expect cases of similar work-related injury in similar occupations and industries would have similar outcomes assuming other factors are also similar.  Differences in outcomes across jurisdictions selected for comparison can be a fabulous starting point for exploring policy and practice impacts on worker outcomes.  But I can tell you from experience, getting timely comparable data from jurisdictions outside your own is a herculean task.

This example raises a third barrier, the “Do I really want to know?” challenge.  Outcome measurements that are rigorously developed and reported with appropriate comparator start discussions and raise questions that some may not want to consider. Fear that the result of outcome measurement will make a jurisdiction “look bad” may be the biggest unspoken reason for avoiding the whole process or the real reason behind stated objections against involvement (funding, providing data) in worker outcome research.  This barrier applies both to the jurisdiction developing the measure and any other jurisdictions approached to participate as a comparator.

At this point, you can understand why outcome measures are rarely reported in workers’ compensation.  Yet, if you are interested in improving workers’ compensation systems, outcome data across jurisdictions is essential.  When you come across well developed outcome measures from multiple jurisdictions it is like finding a vein of pure policy gold in the mountains of workers’ comp statistics, reports and data out there.  

A couple of recent studies demonstrate how the commitment of participating jurisdictions and the dedication of researchers have overcome these barriers.  These research products provide credible, useful outcome measures and analysis that policy makers and stakeholders can use to evaluate system performance and improve workers’ compensation.  Each study involves very large sample sizes and matched data sets that control for variations in many factors ( such as injury type, industry mix, age, gender, etc.).

Alex Collie, Tyler J Lane, Behrooz Hassani-Mahmooei, Jason Thompson , and Chris McLeod,  “Does time off work after injury vary by jurisdiction? A comparative study of eight Australian workers' compensation systems”, BMJ Open 2016;6:e010910 doi:10.1136/bmjopen-2015-010910

This study examines more than 90,000 claims and controls for demographic, worker and employer factors; it shows conclusively that jurisdiction in which an injured worker makes a compensation claim has a significant and independent impact on duration of time loss.  (Free on-line article).

Bogdan Savych and Vennela Thumula. “Comparing Outcomes for Injured Workers in …” WCRI, May 2016

This study (or, more accurately, a series of parallel studies) examines worker outcomes for each of the 15 states:  (ArkansasConnecticut, FloridaGeorgia, Indiana, Iowa, Kentucky, Michigan, Massachusetts, Minnesota, North Carolina, Pennsylvania, Tennessee, Virginia, Wisconsin)  using claim and interview data from very large samples in each jurisdiction. Each study controls for “mix” of industry and financial severity of the claim.  In the “Data Book” supplements for each jurisdiction, the authors provide worker outcome data for the unadjusted for case mix and additional detail on return-to-work accommodations provided in both successful and unsuccessful cases. (Limited free viewing and  free policy-maker registration for webinar;  low cost for others).

Neither of these examples identifies the specific policy features that may account for the outcome differences—that was never their purpose.  System features such as the presence (and length of the waiting period), rate of compensation, mandatory reinstatement laws, specific vocation rehabilitation programs, and insurance arrangements (exclusive state fund, competitive state fund, or private provision) are a few candidates for stakeholders and policy makers to consider.   

Another series of studies that do attempt to evaluate the impact of legislative changes on the specific worker outcome of post injury earnings and the adequacy of compensation are highlighted in a recent research summary: 

Emile Tompa, R Saunders , C Mustard, and  QLiao  “ Measuring the adequacy of workers’ compensation benefits in Ontario: An update”   IWH Issues Briefing,   March 2016.

This summary updates the analysis of benefits adequacy in Ontario by looking at more recent cohorts of permanently impaired workers’ compensation beneficiaries following the 1998 changes to Ontario’s workers’ compensation legislation.  This update does not directly compare any other jurisdictions although the methods and prior research but the study demonstrates the complexity of analysis necessary in outcome analysis.  Prior research in this series used data from British Columbia and Ontario as well as comparable data from taxation data sets.  Previous work by RAND and other research groups on data from California, New Mexico and Washington state, among others.  (Issue briefings and previous IWH research available for free online viewing).

By the way, although the results of these high-quality, peer-reviewed research efforts may be “free” to stakeholders and policy makers everywhere, the research itself has significant costs.  Not all workers’ compensation jurisdictions financially support workers’ compensation research, but thanks to those that do, every system can benefit from research findings. 

Getting those findings takes qualified researchers familiar with the data, jurisdictions committed to providing data and data definitions, and hours of work by analysts not to mention the infrastructure necessary to secure and maintain the integrity of the data, review research, publish and other activities transfer that knowledge to those who can act on it.  Understanding workers’ compensation is not a trivial undertaking for anyone including skilled and capable researchers.  It is doubtful that any of this research could have been undertaken without the knowledge base and experience with workers’ comp data evident among the researchers leading these studies.


Bottom line:  Worker outcome measures are challenging but essential to assessing and improving workers’ compensation systems. A few jurisdictions have invested their time and resources demonstrating  just how valuable this sort of research can be.  Every jurisdiction should actively pursue worker outcome research by contributing their data to comparative efforts,  funding workers’ compensation research,  and developing the research talent in workers’ compensation.     

Wednesday, June 22, 2016

Is Workers’ Compensation primarily a “medical insurance” plan?

Nearly three quarters of US  workers’ compensation jurisdictions now incur more  healthcare cost than “indemnity” costs (wage replacement for temporary disability workers’ compensation claims) for the most common workplace injury claims.

For many years, NCCI has published charts like this one that was presented at the 2016 Annual Issues Symposium (Kathy Antonello, State of the Line 2016):




The total “ benefits pie” in this case is made up of specific incurred costs of claims from the injury year taken to “full development” (essentially the full lifetime of the claim).    The indemnity side of the pie represents the cost of wage-loss or replacement compensation incurred for temporary claims.  It also apparently includes certain vocational rehabilitation costs such as retraining allowances and tuition. The medical slice of the pie includes hospital, physician, physiotherapy, medications, appliances, diagnostics (including x-rays, MRIs, CT Scans) and other healthcare expenses.  Excluded from this pie are permanent disability, administrations and other costs (such as underwriting expenses, advertising, etc.) not directly associated with the main benefit costs associated with claims.The NCCI chart reflects data from NCCI states and State Fund states. 

NASI publishes a similar analysis covering all US states and the District of Columbia using NCCI data and other data from non-NCCI states (see Workers’ Compensation: Benefits, Coverage and Costs, 2013  Figure 3).  The result is similar:




The NASI study contains individual state-level data [see Table 8] .  For the following chart I have extracted the percent of the combined medical and indemnity pie and ordered the data by percentage medical.



This depiction is useful in showing the range.  Note the median value using NASI’s 2013 injury year data is 54.7% medical.  This is statistically very close to NCCI’s estimate of 58%.  Based on this ranking, three-quarters of US workers’ compensation jurisdiction pay more than 50% of the benefit pie on medical expenses. 

What accounts for the variation in the share of medical costs?  Medical costs do vary from state to state.  Some jurisdictions have medical fee schedules;  others have requirements regarding the use of certain medical networks.  The proportion of more serious injuries may also contribute to greater expense on the medical side. A jurisdiction with large, high-risk industrial sectors such as primary resource extraction (logging, mining) is likely to have more serious injuries that involve greater medical costs than a jurisdiction dominated by low-risk industries such as financial institutions or tourism.

A more significant factor, however, relates to the non-medical side of the pie that covers the level of compensation.  The so called "indemnity" or "cash benefit" side of the pie is determined by the percentage of wage replacement provided, maximum insurable earnings covered (or maximum weekly benefit payable),  the duration of a waiting period,  the length (or absence of) a retroactive period, and the overall duration of temporary disability claims (sometimes capped).  States with low compensation rates and long waiting periods (and correspondingly long or absent retroactive periods) are likely to have higher percentages of the pie going to medical.  

To make this point clearer, I used the current “Maximum Weekly Workers’ Compensation Amounts” [as reported by the SSA, Program Operations Manual System (POMS), DI 52150.045 Chart of States’ Maximum Workers’ Compensation (WC) Benefits]  as a handy proxy  indicator for the overall “comprehensiveness” of the wage-replacement compensation side of the equation.  Seven of the ten states with the highest weekly maximums ($1211 to $1628: Washington, Massachusetts, District of Columbia, Illinois, Connecticut, Vermont, Iowa) have lower-than-median percentage shares on the medical side; eight of the ten states with the lowest weekly maximums ($468.63 – $778.83: Kansas, Delaware, Mississippi, Montana, Idaho, Arkansas, Arizona, South Dakota) have medical percentage shares above the median.  Of course, this is a very rough indicator; most injured workers are unlikely to be paid at the maximum rate and this indicator fails to account for financial losses the worker must bear  in terms of uncompensated waiting periods and low compensation rates that fail to approximate usual spendable income.    

The most common claims in workers’ compensation are for healthcare expenses and temporary wage replacement.  The medical-indemnity split analysis underscores the magnitude of healthcare costs and also provides evidence regarding the wage replacement costs.  A very high percentage of medical costs may indicate  temporary disability compensation rates are exceptionally low.

Workers’ compensation systems may not have started out to be medical insurance systems but medical costs now dominate the claim expense for temporary disability in many states.  This warrants close attention to both the medical cost drivers and the levels of compensation.  

Workers will always bear all the physical, psychological and social consequences of workplace injury.  Workers’ compensation should minimize any externalization of medical or financial losses to workers and their families or the communities (including the community of tax payers) in which they live.  Severing medical costs from workers’ compensation effectively removes half the premium incentive for greater investment in workplace health and safety.  Transferring medical costs to other payments would likely amount to a subsidy to industry overall and increased costs for healthcare funders.  

The financial costs of workplace injuries, illnesses and deaths should be covered by the industries that give rise to them.  That was the basis of the "grand bargain", the "historic compromise" and should continue as the foundation for workers' compensation.  


Monday, May 30, 2016

Should workers’ comp be eliminated for 90% of workers and employers?
In the current issue of IAIABC’s Perspectives magazine, Berkeley researcher Frank Neuhauser proposes the elimination of workers’ compensation for 90% of workers and employers.  [The full edition of the magazine including Frank’s article are available to registered IAIABC members  and non-members who take advantage of the free registration available at http://www.iaiabc.org/iaiabc/Perspectives.asp ]. Frank bases his argument on the following facts, all of which he supports with convincing data:
  1.   working actually reduces the overall number of injuries
  2.    work reduces the overall costs of health care
  3.       occupational injury risk has dramatically declined
  4.     the forty percent of occupations with the greatest risk represent only 10% of employment

The statements are simple matters of fact and the presented data reinforce his main points.  Work is good for you and often has a protective effect; occupational injury rates have fallen; and certain occupations have higher injury frequency rates than others.  He argues,

“If one accepts the premise, as I believe I have demonstrated, that work reduces the overall risk of injury and one assumes this can be extended to illness, as I believe it can, then one should consider what this means for the continued maintenance of the workers’ compensation system.”

His paper proposes states regulate work-related injury coverage for the 90% of workers in ways other than workers’ compensation.  He suggests healthcare costs associated with work injuries be paid for through existing health benefit plans the worker may have and that one of three mandated alternatives provide income protection:

a.       Requiring employers to offer short-term disability insurance,
b.      Adopting a universal, state disability insurance program, like California,
c.       Allowing workers to buy disability insurance with the higher wages that would develop over time.

Note that Frank does not propose or support straight “opt-out” provisions.  Rather, he seeks alternatives that will make workers and employers potentially better off  (or at least not worse off) than under the workers’ compensation regime.  He concludes that workers’ compensation is a “relic of the early industrial age and does not fit the vast majority of the 21st century workplace”.

It is hard to argue with the data presented.  Frank’s four basic premises (1-4) are factual. His argument is focused on efficiency.  He believes mechanisms other than current workers’ compensation provisions would provide more efficient means of payment of the healthcare expenses and wage-replacement costs associated with workplace injury.   His alternatives (a-c), however, gloss over some very important points. 


Containment and attribution of costs

One key aspect of workers’ compensation in Canada, the US, Germany,  and Australia (and many other countries with similar systems) is the containment and attribution of the costs of work-related injury to the industries that give rise to them rather than externalization to others including taxpayers.   Ensuring the cost of work-related injuries, illnesses and deaths charged to the employers or industries that gives rise to them is a powerful incentive toward prevention,  and investment in occupational health and safety.   The alternatives proposed remove this powerful link.  If not workers’ compensation, then who should pay and what are the consequences of any alternative?

Let’s look first at who pays medical and other healthcare costs for work-related injuries and the question of efficiency.  Workers’ compensation is the first payer for medical costs of all work-related injuries;  medications, hospitalization, treatment, diagnostics, etc. are a big part of the combined indemnity and medical expense “pie” of workers’ compensation expenses.   NCCI projects the medical slice of that pie to be 58% for 2015.  Under Frank’s proposal, these costs would simply be part of the overall costs of the medical plans (single or multi payer systems as may exist in the jurisdiction).  Any connection to work or incentive to reduce causes would be lost and every plan member would subsidize the medical costs of work-caused injuries.    

The other 42% slice of that pie, the indemnity cost of work-related injuries, is also a concern.  Under each of Frank’s alternatives,   the indemnity cost would be pooled with non-occupational injuries limiting the data and incentive for prevention.  Insurance pools for both medical and income protection would effectively subsidize the cost of work-related injuries.   

There is little debate that “single payer”  universal medical insurance systems are more efficient, however, jurisdictions with them typically exempt workers’ compensation medical costs in order to avoid transferring work-injury costs to the universal healthcare system.  Of course, you could you could force work-related injury costs to be tracked and funded within the single payment system but if medical costs are delinked from the adjudication and claim process, there would be increased costs to administer, track and monitor the claim status.  Any increase in efficiency of payment would likely pale to the increased administrative burden.

Who actually pays?

The question of who bears workers’ comp costs is always a matter of debate. Of the economics and social sciences estimates in the literature, I recommend Chelius and Burton’s two part analysis as reasonable discussions on this topic (see links at the end of this post).   They conclude “…a substantial portion of workers' compensation costs (and even, according to some estimates, all of the costs) are shifted onto workers.” 

Answering the question, “Who funds workers’ compensation costs on a collective basis?”  may be subject to some debate but there is no debate that injured workers bear much of the non-compensated financial losses and all of the physical, emotional and psychological costs of workplace injury. Arguing that all labour (injured workers and non-injured) collectively pay the cost does nothing to lessen the reality of individual suffering and loss. 

It is important to remember that all insurance works essentially the same way.  Insurers agree to take on the financial risk of a rare but costly eventuality in exchange for a premium that notionally will cover the expected losses (and administration, underwriting expenses, profit, etc. ) for a pool of similar entities facing a similar risk over a given time.  Ultimately, all insured home owners with fire insurance or car owners with auto insurance will fund the actual cost of accepted losses.  For the insured, the transfer of the financial risk is convenient, levels costs,  and helps limit the impact potentially huge but rare losses.  Just because the risk of your home burning to the ground has declined over time is not usually given as a reason for suggesting we eliminate fire insurance.  If the risk is low and the cost of claims is low, the cost of insurance will generally be very low.  That is the case for many workers’ comp classes.  And just as is the case for car and home insurance, direct premiums and perhaps experience rating (discounts and surcharges) provide incentives to the nominal payer to limit losses. 

Property and casualty insurance lines are well defined as they stand.  Current disability insurance takes into account the existence of other lines including workers’ compensation.  One implication of Frank’s proposal would be a re-write of disability insurance plans to account for the influx of potentially large numbers of cases among the minority of workers who actually have disability plans.  It might also mean the creation of new state-mandated disability insurance plans in the majority of states that don’t currently have them nor see the need to develop them.   

Although each of the alternatives Frank mentions provides benefits, the terms for disability insurance are often very different than they are for workers’ compensation.  Generally, workers’ compensation payments are tax free and often provide higher net or spendable income than their disability insurance counterparts. Disability plans often have duration limits whereas their workers’ compensation counterparts often pay as long as the disability lasts (or for substantially longer terms than most private disability plans).   The difference between what workers and their families lose in wages and what they recover through workers’ compensation temporary total disability is already a direct loss to them.  Frank’s alternatives would increase that burden on the very people who must already endure the physical and psychological costs of work-related injury.

Frank’s approach would mean a complete re-writing of industry classification systems as well.  You may want to cover a CNC lathe operator in a small to medium sized aerospace parts manufacturing plant but exclude the clerical and sales staff working in the same enterprise building.   Exactly how would you do that?  And when there is an exposure to all workers in the building due to a chemical spill or an explosion that injures the lathe operator, sales rep and file clerk, would you exclude the file clerk and sales rep from coverage and force them to seek remedy through tort?  This seems unwieldly and unfair… and was precisely why workers’ compensation was agreed to in the first place.

I suppose one could argue for a threshold limit,  a “seriousness” test beyond which a case might be covered by workers’ compensation; the loss of a hand, for example, might be considered so serious as to warrant coverage under workers’ compensation whereas the loss of a fingertip might not.  The problem with this logic is twofold.  First, you would have to know a priori that a serious injury is possible in order for the risk and the individual to be insured.  In reality, many risks are not evident until they actually manifest in an incident, near miss or injury.  Second, there is no incentive to eliminate minor injuries; the cost of worker injuries is diluted and indistinguishable from other causes in Frank’s alternatives.  It becomes nearly costless for industry to allow a thousand workers to suffer minor wounds as long as it avoids any that exceed the seriousness threshold.  The loss of finger tips is more common than the loss of hands but the safety failures that lead to either are often the same.  In my view, all work injuries are serious;  collecting the data on all injuries and confining the costs to the workers’ comp system are the best ways to eliminate the root causes of work injuries—something workers’ compensation does effectively and efficiently.   

Also omitted from the argument is the public policy objective workers’ compensation is designed to achieve:  to protect workers from work-related injury, disability, illness and death in a compassionate and sustainable way that still allows the economic activity and innovation necessary for societies to operate and thrive.  The “exclusive remedy” that workers’ compensation provides is consistent with the social policy objective and was a unique part of the “grand bargain” or “historic compromise” that is the basis of workers’ compensation in Canada and the US.  Removing 90% of workers from this protection would expose US industry to individual and class actions with the associated litigation costs for workers’ employers and the taxpayers who fund the courts.  Workers’ compensation was designed to eliminate these costs.  Retaining the exclusive remedy in any of Frank’s alternatives is not eliminating workers’ compensation but merely renaming it. 

Occupational illness and disease

Although Frank assumes occupational illness and disease are similarly declining, I am less certain.  We can see many examples of workers’ compensation systems accepting mental (psychological) illness/injury, cancer and other conditions that were previously routinely denied as work related.  As we begin to exploit larger data sets and integrate new research findings into workers’ compensation policy we will undoubtedly discover more connections between work and illness, potentially increasing the occupational “disease” cases covered by workers’ compensation. 

Are there opportunities to change and improve workers’ compensation?  Of course!   Every workers’ compensation system has its shortcomings but the same can be said of any other disability or health care plan.  Every plan must innovate and evolve.  There exist hundreds of examples in many countries that demonstrate the adaptability of the workers’ compensation paradigm.  There are alternatives within the workers’ comp framework to deal with low risk and low cost injuries without disenfranchising workers, employers or society at large from the benefits of workers’ compensation coverage.  In Australia, for example, some states have a sort of employer deductible whereby the first five to ten days of wage loss benefits and medical costs are paid directly by the employer before the workers’ comp insurance (or  “workcover”) starts to pay. 

Rather than a relic of the past century, workers’ compensation is a vital and evolving social contract with a proven record of adaptability to new information and conditions.   Workers’ compensation continues to incentivise investments in safety and health, contribute to lower injury rates and provide the impetus for improved worker outcomes including return-to-work.  Rather than eliminating these benefits for 90% of workers, it is time to extend the coverage to those currently excluded from coverage (such as agricultural and domestic workers in many jurisdiction) or those with limited coverage (such as those in concurrent employment). 


James R. Chelius and John F. Burton, Jr. 1992. “Who Actually Pays for Workers’ Compensation?” Workers’ Compensation Monitor, Vol. 5, No. 6 (November/December): 25-35.  To download, click here: WCM Who Pays? Part I

James R. Chelius and John F. Burton, Jr. 1994. “Who Actually Pays for Workers’ Compensation?: The Empirical Evidence.” Workers’ Compensation Monitor, Vol. 7, No. 6 (November/December): 20-27.  To download, click here: WCM Who Pays? Part II







Thursday, March 31, 2016

Is a “safety culture” assessment right for your organization?


Safety culture is a popular term in occupational health and safety articles.  There is no one universally accepted definition but the US OSHA describes Safety cultures this way:

Safety cultures consist of shared beliefs, practices, and attitudes that exist at an establishment.  Culture is the atmosphere created by those beliefs, attitudes, etc., which shape our behavior.  An organizations safety culture is the result of a number of factors such as:§  Management and employee norms, assumptions and beliefs;
§  Management and employee attitudes;
§  Values, myths, stories;
§  Policies and procedures;
§  Supervisor priorities, responsibilities and accountability;
§  Production and bottom line pressures vs. quality issues;
§  Actions or lack of action to correct unsafe behaviors;
§  Employee training and motivation; and
§ 
Employee involvement or "buy-in”
Safety culture is often summarized as “The way we do things around here”.  

However you define it, a safety culture can only exist in a social context, in a community of individuals (specifically employees and management) organized around a work objective.  Safety culture in any particular organization at any given time is dependent on that context.  If the context is relatively stable then the safety culture is likely stable over time (absent interventions or events that disrupt the status quo).  

Building a strong safety culture can make workplaces safer by extinguishing behaviours that put workers at risk, increasing adherence to safe work procedures, eliminating hazards, etc. 

An “assessment” is an examination process by means of a structured (formalized) instrument such as a survey or audit (including interviews).  An assessment has a result or conclusion often expressed as a score against specific areas examined.  The formalized nature of an assessment instrument ensures the components or criteria are applied consistently.  Effective assessments measure what they purport to examine in an objective way; they are highly replicable and consistent (regardless of who administers and scores the assessment) and comparable (over time and between similar populations). 

With or without a formal safety culture assessment, your organization has a safety culture.  You likely have a good idea what your organizational safety culture is.  The question is simply this:  Is a formal safety culture or safety climate (a closely related concept) assessment useful to your organization?  The answer is not always an automatic “yes”.

It is currently fashionable to promote safety culture or climate through various assessments.  The WorkSafe New Zealand “Safety Culture Snapshot  Survey” and the Nordic Occupational Safety Climate Questionnaire (NOSACQ)  are two such examples.  At the end of the assessment, management and employees have a measure of the organizational safety culture at the point the assessment took place.  Each assessment is very specific to a particular time, organizational structure, and labour force composition.  This specificity, often to a single work location and work group at a point in time, is both an advantage and limitation of formal safety culture assessments. 

If you have a stable work organization doing similar work with a relatively constant workforce and management team in a medium to large enterprise, then the assessment may be valid and useful as a baseline and to measure improvements over time.   If your organization is smaller, has a labour force that is subject to frequent changes (layoffs, temporary hires, turnovers, changing work teams, etc.) a safety culture assessment will still get a measure of the safety culture at a point in time but the validity of comparisons over time may be difficult to prove and its utility as an instrument for improvement less valuable than more targeted or direct alternative initiatives at improving workplace safety.   

An organization that decides to undergo a safety culture assessment does so for a reason.  Sometimes that reason is sincerely based on a genuine interest in improvement of workplace safety.  If an organization already has a pretty good idea about the state of its safety culture, the formal assessment can be an expensive and time-consuming effort to tell you what you already know.  If an organization is very unsure of its safety culture, then an assessment can play an important role in identifying opportunities for improvement and defining a baseline for future measurement. 

Unfortunately, many organizations engage in safety culture assessments for political reasons or to meet some external pressure or particular criterion in a certification process.  Some see a safety culture survey as a quick fix (its not).  Worse yet, organizations that could benefit most from safety culture assessments—the ones with the least organizational self-knowledge of or commitment to fostering excellence in safety culture—are unlikely to engage in safety culture assessments. 

For the right operation and the right reasons formal safety culture assessments are valuable.  However, safety culture surveys and audits aren’t always the best way to improve workplace health and safety.  Other initiatives that focus on safety training, improving safety mindedness, or updating the safeguards, barriers, and work processes that protect workers (and others in the workplace) from harm can have a more immediate and larger impact on safety for similar costs.

There is a potential trap in using safety culture assessments as the basis for organizational change.  The assessment is narrow, applying to the management and employees of an organization in one context: the workplace.  Safety culture assessments do not typically encompass safety attitudes and beliefs beyond the workplace; nor do these audits or surveys typically reach into the community, shareholder base, customer population or supply chain to include the views of these powerful influencers of workplace safety and health. 

Each safety culture assessment tool is also very specific.  The components of safety culture assessed, the questions asked and the way the results are presented or reported is unique to the assessment tool used.  The choice of assessment tool should be an intentional, informed decision that takes into account the reasons for doing the safety culture assessment and the plans for how you plan to use the results.  If the plan includes multiple assessments over time (to gauge the impact of interventions aimed at changing the safety culture over time, for example), then the initial selection of the safety culture assessment tool is critical;  using different assessment instruments may yield very different results.

Administering a safety culture assessment does not automatically lead to building a strong safety culture.  At best, safety culture assessments are indirect means to improving workplace safety and health.  The outcome of the safety culture assessments are measures across several dimensions.  The measures may identify areas of relative strength and weakness in the safety culture.  What you do with that information does not automatically flow from the results.  The assessment may provide and impetus for improvement or change but that is not the same thing as making the workplace safer.  Even if the audit or survey reveals areas that would be amenable to improvement, someone still has to prioritize the opportunities and win budgetary/operational support to invest in them. If there is no will to act on the results of a safety culture assessment, there is little value in doing one.

Safety culture assessments are not costless.  Even if a safety culture assessment instrument is “free”, the time and effort costs can be significant.  Could an equivalent effort have a bigger impact?  Quite possibly; there is, after all, an “opportunity cost” for any assessment.  Alternatives such as introducing wellness programs, supporting initiatives to increase individual “safety mindedness”,  investing in safety training, and acting on “near miss” reports may all increase workplace safety for the equivalent cost/effort investment.   

Safety culture is not the sole determinant of workplace health and safety.   No safety culture assessment is a panacea.  If you think your injury rate will drop just because you engage in a safety culture survey or audit, think again.  The safety culture assessment can provide a starting point but the real work begins after that.   

For the right organization, the right reasons and the right plan, a safety culture assessment can be a great starting place for improving safety.  For others, an equivalent investment in more direct action may be a more effective way to improve both workplace safety and safety culture. 

Ten questions to ask before a safety culture assessment:
  1.       Why do we want to measure our safety culture?
  2.       What expectations will be created by conducting a safety culture assessment?
  3.              What alternative time-effort investments could achieve this purpose?
  4.               Is a safety culture assessment likely to tell us something we don’t already know?
  5.               Which safety culture assessment tool should we use?
  6.                Who will be included in the process?
  7.                 How much will the assessment cost (including the cost of the instrument as well as the time and effort to administer, analyze and report the results)?
  8.                How, when and with whom will the results presented or shared (internally and externally)?
  9.               How will the results be used?
  10.                 Is this assessment intended to be a one-time assessment or part of a series of assessments over time?





Wednesday, February 17, 2016

How "Safety-minded" are you .... Really?

I was mowing my lawn yesterday (Yes, Vancouver weather means mowing begins in mid-February some years) when  a passing neighbour noted my hearing and eye protection with a “thumbs up”.    I guess wearing Personal Protective Equipment (PPE) to mow the lawn says something to others about a person’s attitude toward safety.  

When  I reflect on how I mowed my lawns decades ago,     I’m  certain my behaviour back then also said something about my inner values and beliefs;  safety might not have been the message I was sending .  The battery-powered electric mower I use today is arguably safer than the old gas mowers  I used years ago,  but back then I didn’t always wear the PPE or disconnect the sparkplug terminal before clearing the blade.  Today, wearing the PPE is second nature and removing the power key to “lock out” the motor when clearing the blade is something I always do.  I do it now for myself but I remember making that a consistent part of my routine around the time the kids were old enough to want to help.  I recall wanting to set a good example.  I realized that my actions communicated something about my inner values and beliefs.  Kids are perceptive;  you can talk about safety but what really gets through to them and becomes part of their way of thinking is not what you say but what you do.    

My attitudes and beliefs about safety have changed over the years; that changed mindset has altered the way I think about hazards and the way I act to manage risks at work, at home, on the road and at play.    

The connection between the way we think (our attitudes, values and beliefs) and the way we act (what we do-including what we chose to consider in decision-making) is important.  What we do is mediated by what we think.  Periodically assessing our underlying personal attitudes and beliefs can provide a valuable perspective on how “safety-minded” we are.  But how can you assess your own “safety-mindedness”?

Most people will say they are “safety conscious” but being “safety-minded” is more than being merely safety conscious or aware.  You can’t directly observe a state of mind but because your mind mediates your actions action, you can observe your own actions—what you actual do when it comes to certain safety-oriented situation that arrive in everyday life.  The pattern of your actions across your work and non-work life reveals your current level of safety-mindedness. 

Categorize your current safety behaviours across the following safety statements in this Safety-Mindedness Self-Assessment.  Be honest with yourself about the frequency of each behaviour and you may get some valuable insights into where you are on the” safety-minded continuum”.  Just fill in the blanks with the most appropriate word to describe the pattern you follow in these common situations with a safety component.

Use the following terms to complete the ten sentences below:              
Never, Rarely, Sometimes, Usually, Almost always, Always

1)       I ______drive within 10% of the posted speed limit in normal conditions.

2)       I ______ignore text messages on my handheld or wrist device while I am driving.

3)       I ______use Personal Protective Equipment (PPE- safety glasses and hearing protection, for example) when it is recommended (hard-hat at work, hearing protection when mowing, etc.).

4)      I ______ visibly pay attention to the airline pre-flight safety presentation.

5)      I ______read the safety card provided on commercial flights I take.

6)      I ______walk further to the marked intersection to cross the street rather than cross elsewhere.

7)      I ______dispose of tools / appliances / furniture pieces   that may work but are unsafe.

8)      I ______use the recommended PPE when I engage in sports activities (cycling, skiing, skating).

9)      I ______ wear high visibility, reflective clothing or accessories when walking after dark.

10)   I ______ give safety-oriented products/accessories as gifts (first aid kit, earthquake kit, helmet, CO detector, fire extinguisher, safety helmet with bike).

Scoring:  Count the number of times you selected each of the following terms.  Multiply count times the value assigned each term and then total the points to determine your score.

  Term            Point Value    X            Count             Points 
   Never                         1         x            ______   =  _______
   Rarely                        2         x            ______   =  _______
   Sometimes                 3         x            ______   =  _______
   Usually                       4         x            ______   =  _______
   Almost always            5         x            ______   =  _______
   Always                       6         x            ______   =  _______
____________________________________________________
                                                       TOTAL Score   _______        

56-60  Safety is part of your belief system.  You  “walk the talk” at home, on the road, at work and play.  Safety is part of the way you think. You automatically assess the environment for hazards, continuously manage risks even in changing circumstances and adjust your behaviour to eliminate or minimize risks.

51-55  You almost always act safely and recognize the hazards in most activities.  You know you have some blind spots and you often make the effort to overcome them.  When you make a conscious decision to act less safe, you are highly aware of the potential risks, often resolving to change behaviour in the future.

41-50  You are aware of safety most of the time and act to reduce risks in most circumstances.  You are sometimes surprised by near misses and  injuries that happen to others and will consider changing your behaviour based on new information about hazards and risks. 

31-40   There are gaps and contradictions in your behaviour.  You don’t have a negative attitude towards safety but believe risks are sometimes overblown.  You frequently wonder if safety behaviour is worth the effort and cost over what else you could do with those resources.  You also believe that some risks don’t apply to you.

21-30   You may comply with required safety activities but don’t believe the risks are real for someone like you with your knowledge and experience.  With few exceptions, safety is extra work, not a way of thinking and acting.  You can see the point of a few specific safety measures but rely on design and procedures to have taken other hazards and risks into account.  It takes a real effort to think about possible hazards and risks beyond that. 

15-20  The immediate objective dominates your way of acting.  If you think about hazards at all, you minimize the risks/costs or you don’t believe the risks apply to you.  Safety is mostly passive and external to you.  You may comply with safety laws if you perceive the risk of being caught is more than minimal and penalties are high enough, otherwise the value of safety is just not there.    

10-14  Safety is not a consideration in what you do.  You rarely think about safety, hazards or risk.  Your safety relies on the innate design of the equipment you use, the actions of others and the environments you encounter.  If you are caught violating a safety rule, you are not likely to change your behaviour unless the cost of not doing so are very high. 

Safety-mindedness is not a static trait.  You can change.  You can become more safety-minded.  And that change will be reflected in increased frequency of behaviours that increase safety, reduce risk,  and communicate to others something about the importance of safety to you.  Something to think about next time you mow your lawn.