Monday, January 23, 2012

Why should we care about a privatization proposal for another workers’ compensation fund?

The idea of privatizing workers’ compensation state funds comes and goes regularly. West Virginia’s state fund (BrickStreet), and Nevada’s state fund (Employers Insurance Company of Nevada, Inc. or simply Employers), are recent examples of this trend. In Colorado, Pinnacol, the state workers’ compensation fund is the latest subject of a privatization proposal.

Pinnacol is a competitive state fund. Most state funds are “competitive” but North Dakota, Ohio, Washington, and Wyoming operate as “exclusive” (monopolistic) state funds. All Canadian workers’ compensation systems are similar to this latter group. Pinnacol has 55,000 employer/policy holders, covers about a million workers (57 percent of the market), and is the “insurer of last resort” in Colorado. Pinnacol is the fourth largest of the 25 state funds in the U.S.

At present, Pinnacol is a state entity. The proposal is for Pinnacol to separate from the state and become a “mutual insurance holding company”. The proposal was submitted to the governor in November with the support of Pinnacol’s board of directors and CEO. Under the plan, Pinnacol would be owned by its policyholders (the employers who pay the premiums) although it could be demutualized and become a shareholder-owned and traded corporation at some point in the future.

The advantages for Pinnacol include autonomy from government, the potential to expand market beyond the borders of Colorado, and (suggested) improved value to policyholders. For government, the positives include the creation of a taxpaying entity, a 40 percent stake in the new company, and dividends the state could use as much needed revenue. Denver Post blogger Tim Hoover has gone so far as to say that failing to privatize Pinnacol would be a costly mistake.
Reaction to the proposal is not all positive. A report in the Denver Business Journal suggests many businesses are reluctant to back the plan. According to the Northern Colorado Business Report, one obvious concern is over rates. Privatizing would change Pinnacol’s tax-free status and this alone could put upward pressure on rates.

I strongly believe every state has the right to determine what’s best for its own jurisdiction. There are many examples of well-performing private insurers, competitive state funds, Canadian workers’ compensation boards, and exclusive state funds that deliver excellent value to both workers and employers. That said I have seen no compelling study that shows private provision of workers’ compensation insurance delivers lower employer cost or better results for workers, than existing Canadian workers’ compensation boards or U.S. exclusive state funds, particularly over the long run. The one good study on the topic found a slight advantage in terms of employer cost when provided by exclusive funds (but because of data limitations, the study’s authors concluded there was no clear difference between exclusive and private provision).

Privatization is a one-way solution. While I can recall Hawaii (1996) and Maine (1993) creating new workers’ compensation state funds (HEMIC and MEMIC) in private workers’ compensation markets, I can’t recall any private insurers being bought out or taken over by a state (on an ongoing basis). The drivers in one jurisdiction may signal “coming attractions” for another.

Privatization is often proposed as a quick fix for what are usually more fundamental issues. Access to insurance, competitive rates (often related to funded status and sustainability), cost control, and improved service top the list of drivers behind many proposals to change models. Every workers’ compensation insurer — private, public, competitive or other model — needs to keep an eye on its performance on these important dimensions.

Tuesday, January 10, 2012

What is the true incidence of work-related disease?

The following story from New Zealand (NZ) caught my eye:

New figures reveal work kills 1000 a year
(by Tom Hunt, Fairfax News, 19/12/2011)

Work is killing 1000 of us a year.
New figures, which also show there are 17,000 new case [sic] of work-related disease in New Zealand each year.

Think about that for a minute. New Zealand is a country with a population of 4.3 million — almost identical to the population of British Columbia — yet work-attributed fatalities and diseases in NZ far exceed those we accept at WorkSafeBC. What accounts for the difference?

When I tracked down the source report for the headline, the reasons became clear. NZ is taking a holistic approach to the issue of occupational illness: on a population basis, the incidence of occupational disease that can be attributed to work will always be greater than incident rates calculated from individual cases where causation must be adjudicated.

On a population basis, NZ finds:
about 700–1,000 deaths occur every year in New Zealand from occupational disease, particularly cancer, respiratory disease and ischaemic heart disease (such as coronary artery disease) 2–4 percent of deaths of all people over the age of 20 are due to occupational disease, and 3–6 percent of all cancer deaths in people aged 30 or older are due to occupational cancer
there are about 17,000–20,000 new cases of work-related disease every year.

What the population-incidence approach illustrates is that workers and society are paying a huge price for work-related illness and disease. If B.C. has a similar population-incidence ratio then the true cost of work-related disease is far greater than the 2,750 occupational disease claims first accepted and paid in 2010.

Leaving aside the under-recognition and under-reporting of many occupational diseases, this high incidence alone requires action. The NZ Action Plan proposes a focus on five specific hazards:
• occupational carcinogens;
• respiratory hazards;
• noise;
• skin irritants; and
• psycho-social hazards.

Exactly what actions will be taken to address each of these hazards will depend to some extent on the sector. To assess whether any of the actions has been effective will require data on exposure to health hazards in the working population. NZ is actively developing a surveillance system through the Centre for Public Health Research at Massey University.

Recognizing the true incidence of occupation disease changed the dialogue in NZ. The focus is not on claims costs but human and societal costs. More importantly, there is a refined focus on prevention rather than jurisdiction. It will be interesting to see how their strategy and surveillance systems develop. There may be important lessons for other jurisdictions.