Wednesday, April 15, 2009

Why Timeliness of Payment matters in Workers' Compensation

Timeliness of payment matters. Injured workers and their families have financial commitments for mortgages, tuition, groceries, car payments, and the myriad of expenses we all carry. According to one source, 55 per cent of Canadian workers always or usually live paycheque to paycheque just to make ends meet. Since most families live with small cash reserves, breaks in income continuity due to a work-related injury or illness only add pressure at a time when the injured worker should be focused on recovery.

Recently, the New York Times ran a series of stories on workers’ compensation in the US. One sidebar showed the percentage of claims receiving first payment within 21 days of injury 2004-5. At the ‘best performance’ end of the scale were jurisdictions like Massachusetts, Wisconsin and Texas where about half the claims received first payment within 21 days of injury.

The closest similar statistic for Canada is provided by the Association of Workers’ Compensation Boards of Canada (AWCBC). The timeliness standard is expressed as the ‘Average Calendar Days from Injury to First Payment issued’. While not a perfect parallel to the data quoted in the NY Times, Alberta, BC, and Saskatchewan report averages between 20 and 23 days for 2007.

WorkSafeBC has a target of 17 days average time from injury to first payment issuance. Its current performance is a little higher than that. Put another way, more than half WorkSafeBC’s cases entitled to wage loss benefits are getting their first payments within 17 days of injury.

Several jurisdictions have taken steps to make certain there are no breaks in earnings for injured workers. In BC, many employers (accounting for more than 20% of first payments) continue wage or salary to the injured worker and WorkSafeBC reimburses the employer to the benefit level the worker would be entitled to. In some Australian jurisdictions, employers are responsible for the first week (or two) of benefit before the insurance kicks in.

The point is simply this: timeliness matters. Workers’ compensation involves making tough decisions and tough decisions take time to investigate and consider; knowing that most workers can’t wait more than one pay cycle underscores the need for a ‘sense of urgency’ in the design and administration of workers’ compensation systems.

Monday, April 6, 2009

Why the Oregon Workers’ Compensation Premium Rate Ranking matters

The 2008 version of the Oregon Workers' Compensation Premium Ranking Study is now posted. It is worth a read even if you don’t do business in Oregon. (A summary is also available).

Without repeating the study, the basic goal is to inform stakeholders as to how Oregon’s workers’ compensation premium rates would compare with those of other jurisdictions. Oregon takes great care to make the comparison realistic and valid for Oregon. Oregon’s researchers select fifty of the most important classifications (representing about 68% of the payroll) and then seek rates from other jurisdictions for the same or similar rating classifications. Finally, Oregon researchers develop a representative index premium based on this data for each state and determine where Oregon ranks on the resulting list.

The Oregon study matters to more than just Oregonians. For any cluster of states with a similar mix to each other, the relative ranking of one state may help identify efficiencies or problems. A ranking among the lower-cost jurisdictions not only means a lower cost for employers, it may also reflect a lower cost of injuries to workers. Since severity and frequency are major cost drivers, changes in ranking (particularly in states with similar benefit structures and practices) may reflect changes (or differences) in the prevention environment as well.

It is important to note the following about the Oregon premium rate study:

  • The selection of classifications is based on what is important in Oregon.
    Classifications are based (primarily) on NCCI definitions.

  • The weightings used to develop the rates are based on Oregon payrolls (although the major classes are usually within the scope of coverage in all jurisdictions-- clerical, sales, education, medical offices, restaurants, retail stores, hospital, auto repair, trucking)

  • Expense loading factors, or loss cost multipliers are accounted for.

The study result is an ordered ranking of index premiums. The median index premium rate is $2.26 per $100. Oregon, ranks 39th on the list of 51 included in the study with an index premium rate is $1.98 per $100 (83% of the median rate).

This is important information particularly for those in Oregon but remember it is Oregon’s rate ranking using Oregon payroll weights. If a jurisdiction has a similar industry and payroll mix to Oregon, the study may provide general guidance on the competitiveness of rates; if a jurisdiction has a very different mix, the comparability is likely of less value. Washington state’s ranking on the same list is 38th at $1.98 but this is based on Oregon’s weights, not Washington’s. Although one might assume some reasonable comparability between Washington and Oregon, it is conceivable that Washington could actually have a lower ranking (less costly premium) if Washington’s weights were used in the comparison.

The study does not include jurisdictions outside the US. British Columbia publishes rates [see] and it is possible, therefore, to generate a similar ranking based on Oregon weights. Such an exercise would show BC with rates near the lowest in the Oregon ranking. Since rates are based on a percentage of payroll, changing exchange rates are not a factor in the comparison. Put another way, if Oregon had WorkSafeBC’s premium rates for the industries and payroll weights used in this study, the result would be an index premium at the bottom of the current list.

Why would BC rank so much lower than Oregon on this scale? It may have something to do with the nature of the classification system. BC’s assessment rates are more industry based than NCCI classifications (which are more occupationally based). Lower health care costs in Canada may be a factor. Lower administrative costs, effective case management and vocational rehabilitation/ Return to Work initiatives, effective prevention initiatives, economies of scope and scale, and [perhaps] lower costs for disputes may all play a role in lower premium costs (assuming similar benefits and practices).

The bottom line is that BC, Washington and Oregon would have relatively low index rates if directly compared using the Oregon methodology, a result that benefits the economies of all three jurisdictions.