Friday, October 30, 2009

Workers' Compensation and a Uniform or Flat Assessment Rate?

I received a call last week about funding workers’ compensation systems. The caller asked why we don’t just charge one rate for all industries. For those of us in North America or Australia, this notion may seem odd since our systems all have different rates for different industries based on some sort of classification system. On the other hand, those covered by Canada Pension Plan-Disability or Social Security Disability Insurance in the US are familiar with the idea of a single contribution rate paid for an insurance. For workers without workers’ compensation coverage, CPP-D or SSDI may be the only insurance they have for work-related injury that precludes them from earning. Is there any good reason for having assessment rates that varies by industry? Are there any advantages to having a single rate system?

First, let’s talk about the rating systems we have. In BC, the average WorkSafeBC assessment rate (premium) is $1.56 per $100 of assessable payroll. Industries with higher costs pay more: Heavy construction, steep slope roofing, steel frame erection are at the high end, around $12 while financial institutions, computer software design and production pay between $0.08 and $0.13 per $100. Having a rate structure has implications. There are costs for creating and monitoring the classification system, assigning firms to various classification units and managing the inevitable conflicts that can occur as a business changes or argues that it should be classified in a (usually lower) classification.

A single rate system, on the other hand, requires none of these costs. Canada Pension Plan contributions are calculated as a simple tax on payroll (currently the employer and the worker each pay 4.95% of earnings for CPP). That’s it. Simple. But is it fair? In one sense, it is equal treatment for all and for non-work related causes of severe and prolonged disability, it likely is fair. Each of us bears a risk for serious disease that could debilitate us from work so it makes sense that all should share equally in the cost.

Doing the same for a workers’ compensation scheme has been proposed. Sir Owen Woodhouse proposed a flat rate for employers for their part of the New Zealand Accident Compensation scheme back in 1967. In defense of Woodhouse, his concept extended well beyond work-related injuries and in the context of a no-fault universal scheme of social insurance, the uniform rate idea is attractive.

I am unaware of any system in Canada, the US or Australia that have implemented a flat rate system. In Canada, the issue of a uniform assessment rate was considered by Sir William Meredith who writes:

It is the purpose of my draft bill to empower the Board in determining the roportions of the contributions to be made to the accident fund by employers to have regard to the hazard of each industry, and to fix the proportions of the assessments to be borne by the employer accordingly, and not to require that the proportions for each class or sub-class should be uniform…

So, in practice, workers’ compensation systems use classification systems that result in different rates being assessed for different industries according to ‘hazard’ which includes the human and financial costs associated with the wage structure, frequency and severity of injuries that occur within an industry. A uniform rate, it may be argued, would be tantamount to a subsidy. In the BC example noted above, a uniform assessment of $1.56 would be very attractive to steep slope roofers and would be a significant cost burden to financial institutions whose assessments would be used to offset the costs in sectors where injuries were more frequent and/or costly.

Similar arguments apply within sectors and are often used as a justification of experience rating or rate modification…but that is a discussion for another day.

Thursday, October 22, 2009

Seasonal Agricultural Workers and Workers' Compensation

Last week I attended a symposium on health and safety issues for farm workers with a focus on those entering under the Canada as Seasonal Agricultural Workers Program (SAWP) from Mexico. I have been tracking the workers’ compensation issues raised by the entry of British Columbia into this program about five years ago.

What we know about this group of workers is that they are vulnerable on several levels. Language, culture, limits on the ability to meet with others in the community, long hours, fear of removal, limited knowledge of rights, isolation due to location are but a few of a long list of factors that make this population among the most vulnerable of workers. While these workers have the same rights under workers’ compensation laws and the Occupational Safety and Health Regulation, fully exercising those rights may be hindered by the these factors.

What we heard from the researchers confirmed what we already know: many temporary foreign workers are reluctant to report injuries and violations of the Regulation. Addressing the factors that contribute to this situation isn’t easy but is important.

Letting these workers know about their rights isn’t simply a matter of sending out a booklet or posting a page on the internet (although these actions help to some degree). Unlike other worker populations, workers under SAWP, other programs or even working without legal authority will, by definition, tend to be ‘new’ workers (new to Canada, new to the jobsite, new to tasks they will be performing). As we know from other research, newness itself increases risk (see IWH brief on this topic). Finding ways to better address the needs of this vulnerable group will be a growing challenge as the number of workers in this category increases.

In other forums, I have heard about innovative practices and approaches to serving agricultural workers, particularly temporary foreign workers from Mexico. In Washington state, Spanish radio vignettes have been designed and broadcast with plot lines and dialogue that mirror health, safety and compensation rights. In Ontario, all SAWP are covered by the provincial medical plan (OHIP) without the typical waiting period. In BC, WorkSafeBC and FARSHA have developed materials, delivered training and increased services designed to reach these workers on jobsites throughout the province.

One additional point came out of the symposium that is worth noting. The general category of ‘farm worker’ includes several vulnerable worker types. Canadian citizens and permanent residents may be subject to the same language and cultural barriers as workers under the SAWP groups (Mexico and the Caribbean); Refugee claimants with authority to work will have additional barriers as will other workers who may have no legal status at all in Canada. For the sake of all these vulnerable workers, new approaches may be necessary to educate these workers about the workplace risks they face, how to protect themselves and how to exercise their rights, protections and compensation.

Wednesday, October 14, 2009

What will drive the Future of Workers' Compensation?

Last week I was at the AWCBC Learning Symposium. The theme of the event was “Time Capsule” and I was asked to speak about the future of workers’ compensation.
My talk outlined three categories of forces that are driving change in workers’ compensation:

  • Factors that are substantially beyond our direct control like economic cycle, demographic shifts, and broad societal trends.
  • Public policy decisions that we do not necessarily control but which we may influence. This category includes the areas of who is covered, what is covered and the degree to which workers’ compensation and prevention are aligned and integrated.
  • Decision we make and direction we take that are substantially within our control.
The details of these forces and the analysis behind them are beyond the scope of this blog but there are some clear themes that emerge that may be summarized by the following points:

  1. Economic cycles, demographic shifts and societal changes will continue to impact workers’ compensation systems—outside our direct control but with predictable consequences. We need to take that step and have ready analysis of the effects of past recessions and expansions on investments, employment, injury volumes, injury rates, duration of disability, etc.
  2. The scope of coverage will trend toward universal coverage and greater prevention responsibilities—something we may anticipate and be involved in. In jurisdictions with less than 80% of the employed labour force covered by workers’ compensation laws, the trend will be toward greater inclusion within scope and the evidence of work-relatedness will increase in what is covered. Here workers’ compensation systems can play a vital role in identifying where coverage should be extended for the mutual advantage of workers, employers and the broader society.
  3. Occupational Diseases will drive our legislative, regulatory, policy and practice directions particularly in the area of
    • Stress, Psychological Injuries
    • Fatigue, human factors
    • New materials and processes
    • Old materials, new applications
    • New workplace relationships, participants
    • New zoonotic disease, new vectors
Based on this third point, Expansion of what and who is covered is likely.

I also extended my analysis to capture a other changes workers’ compensation systems could anticipate. The first was Harmonization. Workers’ Compensation and Prevention coverage, policies, and practices will trend toward greater similarity. Next was Integration, by which I mean workers’ compensation systems will trend toward an expanded mandate and the responsibility for prevention. I added an obvious prediction around Automation. Our work will be increasingly technology enabled… and dependent…even the parts of our work that require high levels of personal interaction. This is both a blessing and a curse since this dependence becomes one of our greatest vulnerabilities.

In some ways, my final prediction is an extension of the others. Cooperation will become a key driver in workers’ compensation. Strategic alliances, direct partnerships, shared resources such as systems and call centers will grow among workers’ compensation agencies and between individual agencies and their stakeholder partners.

In the future, the future that we must enable, we will see what Malcolm Sparrow calls the "Character of Harms" as a driver of what we do internally, externally and most importantly across traditional boundaries.

I can only add my biggest fear: that 20 years from now, workers’ compensation and prevention personnel will look back on what we are doing now and ask: What were you thinking? What did you know—or should have known—and why didn’t you act?

Monday, October 5, 2009

Workers' compensaiton state funds: Are they comparable to private insurers?

Workers' compensation insurance is ubiquitous in developed nations but how that insurance is delivered varies greatly. In most of the world, workers' compensation is part of social insurance structures. In Canada, the United States, and Australia workers' compensation is generally legislated by individual states or provinces. In Canada, every province and territory has a workers' compensation act as does the federal government. The same holds true in the U.S. and Australia in that each state and the federal government has legislation governing workers' compensation. Options for administration delivery of workers' compensation, covery a wide spectrum from [mostly] private workers' compensation insurance markets [with varying degrees of state oversight and regulation] to [mostly] state delivery models.

In Canada, there is only one model: provincial workers' compensation boards or commissions each the primary insurer in their respective jurisdictions. Some people refer to this model as the "exclusive state fund" model or "monopolistic state fund" model. The latter is less accurate in that many jurisdictions allow for private disability insurance over and above the workers' compensation coverage and to serve populations outside the scope of coverage offered by the state.

In the U.S. there are two main types of state funds (each with two main subtypes): Exclusive state funds (with or without a provision for self insurance), Competitive state funds (which compete with private insurers across a broad market or who serve a more limited market of specific sectors and often acting as the insurer of last resort). In the U.S. there are about 25 state funds, four of which would be considered exclusive state funds and closest to the Canadian boards and commissions.

Are state funds comparable in terms of efficiency with their private insurance counterparts? This question is frequently raised, usually with the supposition that exclusive state funds will somehow be inefficient and therefore have higher costs. Defenders of state funds note that some state funds were create precisely because of private insurance market failures. They note that several states created competitive state funds to create a more vibrant market and to ensure all those who need (or were required by the state to carry) workers' compensation insurance would have a place to go. In order for state funds to compete, like any other competitor in a market place, they must face similar costs and obstacles as their competitors. If they were inefficient, by definition, they would be less competitive and lose market share. For exclusive state funds, the economies of scale and scope, absence of costs associated with gaining or retaining market share, and the presence of almost perfect information on risks and costs in the market are often cited as offsets any inefficiencies inherent in exclusivity.

One of the premier consulting firms in the industry, Conning, recently completed a study on state funds in the U.S. A summary of their findings is available at this link. The summary notes:

Workers' compensation state funds currently write a quarter of insured workers'
compensation net written premiums. Although sometimes thought of as a "market of
last resort," despite their higher loss ratios, state funds' financial results are on par with the industry as a whole....As we show in this study, the primary mission of state funds is support of their local economies. This includes not only promoting fair access to insurance, but also the maintenance of a safe and productive workforce. Their ability to provide effective loss prevention and control services, and link the outcomes directly to insured costs, has helped state funds succeed in their mission.

This finding adds to the weight of evidence in favour of the competitiveness of workers' compensation state funds. And the advantages of the state fund model in meeting other public policy objectives --particularly in regards to workplace safety/prevention [see my earlier post]--continues to make the creation and maintenance of such funds a viable alternative to a purely private market for workers' compensation.

Each model has its advantages and disadvantages; clearly each jurisdiction has something to learn from the full range of models out there.