Monday, October 25, 2010

How would you design a completely new workers' compensation system?

I was asked a few weeks ago how I would design a workers’ compensation system.  I’ve actually given this a lot of thought over the years and have come up with some principles that I believe would optimize a new workers’ compensation system in a society similar to the Canadian context.   

Before you even glance at the following statements, let me make one point crystal clear.  I am not advocating any existing system change to adopt any of the following items. This is just a conversation starter intended to help in a ‘green field’ exercise.   Each item in the list is in some way dependent on others so the list is intended to be applied in its entirety to a hypothetical jurisdiction. 

Remember, these are my personal opinions based on my own experiences and observations; these items are not intended to be a statement of direction for WorkSafeBC or a prescription for any other existing system. 

Let me also add that each item here could fill pages of discussion and analysis.  I would be happy to discuss any one of them. 

Finally, the list is not comprehensive.  There are lots of other items that I would add for the design of a complete system but that is beyond the scope of a personal blog.

Keeping that in mind, here are my top dozen design criteria/features for such a hypothetical new workers’ compensation system in a society similar to Canada:
1.        Prevention orientation:  This has to be at the top of the list.  Employers would be required to report all work-related injuries to the agency within three working days.

2.       Universality:  Every worker and employer should be within the scope of coverage… and all work-related injuries, illnesses and diseases should be included within scope.  This takes away workers’ rights to sue but creates a comprehensive no-fault coverage system.

3.       Integrated: Given the universality of coverage, it makes sense to combine and integrate the compensation and prevention (consultation, education, promotion and compliance enforcement) functions.  It also makes sense to have the rate-making and financial authority integrated into this model.

4.       Accessibility:  workers and employers should have instant electronic access to information about their claim or claims, be able to communicate, and transact all business with the workers’ compensation insurer without temporal, language, bureaucratic or other barriers.

5.       Actuarially based:  full funding (capitalization of costs) for injuries should be maintained by injury year (premiums should cover all incurred costs including prevention and future administration).

6.       Comprehensive:  All medical diagnostic, treatment, and rehabilitation (physical, social, psychological and vocational) should be covered.  This ensures that the costs of injuries are born by industry and not the taxpayer.  It also is consistent with the current Canada Health Act, which does not include payments made by a workers’ compensation system in the definition of an insured health service.

7.       Supporting of the worker-employer relationship:  all claims of less than 8 weeks should be paid directly to the worker by the employer (at the prescribed rate).  The employer would be reimbursed by the workers’ compensation agency dollar-for-dollar for all wage-loss benefits paid to the worker through week six of the claim.

8.       Supportive of complete claims reporting:  Experience rating would not apply to claims of less than 8 weeks duration; this creates an incentive for firms to report all injuries (employers get to recover what they spend on wage-loss benefits they paid the worker) while retaining the experience rating that most employers feel adds a fairness to the system for those with poor performance.

9.       Encouraging of early and safe Return-to-Work:  Employers will be directly responsible for wage-loss costs payable in week 7 and 8 of every claim.  Experience Rating will apply for claims of greater than 8 weeks duration.  These features provide incentives for early return to work and accommodations consistent with Disability Management procedures.

10.   Value the injury of all workers equally:  Experience rating based on duration of disability not cost.  This avoids the criticism that most experience rating systems are cost-driven and thereby devalue injuries to low wage earners.

11.    Compensate long term claims equitably:  Permanent Disability (not impairment) to be roughly comparable for workers with similar age, gender, education, industry, and occupational backgrounds relative to their counterparts without work-related injury.

12.   Credibility and independence in all classifications:  Pools of firms with similar risks should be self sustaining for the costs they incur.  Very limited possibilities for cross subsidization and re-insurance.

I repeat, these features are the general parameters and very brief rationales for a new system and are not intended to be a roadmap for reform of any particular system.  Any system is a product of its history, societal values, politics, and even geography.   The present design of any system is responsive to a particular environment.  I am not injecting these ideas into any particular reform process. 

I have conveniently left off how dispute resolution mechanisms would operate, how premium rates would be established and what one would do with exceptional cases (this is only a blog post, not a thesis).    

Perhaps you have your own ideas.  I would be interested in how you would design a system if you were starting from scratch.

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