Why Doesn’t Every Work-Related Injury Become an Accepted Workers’ Compensation Claim? Part 2: Attrition by Design

The pathway from work-related injuries to accepted workers’ compensation claims, noting attrition points along the way.  Attrition points fall into three main categories:

• Attrition by Intentional Design
• Attrition by Barriers
• Attrition by Policy, Practice, Process

In this post, we explore the first attrition point.  The chosen design of workers’ compensation systems in US, Australia, and Canada intentionally excludes about 15% of the employed labour force at the aggregate level. Cases of work-related injury in the excluded segment of the employed labour force can never become accepted workers’ compensation claims.   

Let’s start by understanding what accounts for this attrition by intentional design then examine the variation in coverage among state and provincial jurisdictions.

Attrition by Intentional Design

All jurisdictions in the U.S., Canada, and Australia share a common interest in protecting workers from work-related physical, mental and financial harms.  That social policy intent is given legal form through the adoption of a model to financially provide for work-related harms to workers.   These countries adopted the Bismarckian workers’ compensation model originating in Germany in the late 1800s, with coverage for a few select sectors and later expanding to cover most industries and occupations.  

Alternative models of social insurance and welfare protecting workers have been adopted in other countries. For example, Beveridge’s conception of a welfare state—universal medical protections for everyone including injured workers —dominates in the UK, with fault-based employer liability, backed by compulsory Employers’ Liability Insurance.  Owen Woodhouse’s Royal Commission principles formed the foundation for New Zealand’s Accident Compensation Corporation (ACC). National rather than state/provincial social insurance schemes are the most common form of financial protections for work-related injuries.

The choice of model has implication on who and what is covered, how coverage is provided and who funds the system.

Over time, the scope of coverage has widened in most jurisdictions.  The majority of systems mandate workers’ compensation coverage in selected industrial sectors and certain occupations, intentionally excluding or exempting others. 

Workers’ compensation as public policy

The schemes in Australia, the US and Canada share a common public policy formulation and purpose.

The British Columbia Sessional Papers (1914) from the formation of its legislation concisely states the public policy objective this way:

Each class surrenders to the State certain rights...

The employer receives protection from expensive litigation

The workman in return loses the right to sue for damages and receives a stipulated amount based upon his economic position in the community...

Both, and the State as well, benefit from the elimination of the friction and loss which necessarily attends all litigation.

The legislation in each jurisdiction reflects common principles.  Insurance principles dominate with no-fault compensation (almost) regardless of how the injury, illness, or death occurs as the dominant principle. 

As with all insurance, there is an agreement to transfer financial risk arising from defined perils.  The insurer assumes the risk in exchange for a premium.

Administrative models and Self Insurance

Each jurisdiction decides how best to administer the legislation.  The choice of oversight, administrative model, and insurance arrangement does not directly impact scope. 

State funds dominate in the US jurisdictions.  Washington State, North Dakota, Wyoming, Ohio operate at exclusive state funds; competitive (or insurers of last resort) state funds as well as private insurance are prevalent.  Canada uses provincially and territorially administered public workers’ compensation boards, all of which function as exclusive funds.  Australia has a variety of models including contracted claim management organizations acting as agents administering state authorities.

Regardless of the insurance arrangement, many jurisdictions permit selected, typically large, stable employers, and governments to self-insure with or without self-administration.  Self-insurance confines the cost of work-related injury to the employer rather than pooling or sharing incurred costs with others.  Self-administration allows the claims management to be carried out by the self-insured, although many use Third Party Administrators (TPAs).  The employer protections and workers entitlements of workers’ compensation are preserved.

Self-insurance with or without self-administration may be referred to by different names (self-insured employers, deposit class, qualified self-insured (QSI), or self-funded plans.).  Unlike rated or classified employers participating in traditional insurance pools, self-insured employers are responsible for their own workers’ compensation costs, although they may be assessed for a share of the research, oversight, prevention, appeal system and other cost aspects of the workers’ compensation system.

Allowing self-insurance with or without self-administration does not impact scope but it does impose a monitoring cost on the oversight authority to ensure compliance with the legislation.  [For a concise example, see L&I News, February 14, 2002, “L&I settles Wal-Mart decertification case; workers win protections” https://web.archive.org/web/20020601134633/http://www.lni.wa.gov/news/2002/pr020214a.htm ]

Variations in Scope of Coverage and Coverage Rates

As noted, most jurisdictions intentionally mandate employers obtain workers’ compensation coverage.  Overall workers’ covers about 85% of the employed labour force:

•       US: 87.7% of Jobs;  92.4% of Total Employment (NASI, 2022 data, Table A.2)

•       Canada:  83.4% of Employed Labour Force (AWCBC KSM 22, 2022)

•       Australia: “Approximately 85% of filled jobs in Australia are covered by a workers’ compensation scheme” (SafeWork Australia, Explanatory Notes: National Data Set for Compensation-Based Statistics Explanatory notes NOVEMBER 2024, p. 4 )

The extent to which this mandate falls short of universal coverage varies by state/province and is an intentional choice.

Washington state mandates near universal coverage through its Department of Labor and Industries (L&I); Texas does not mandate employers carry workers’ compensation, making it the only true “opt-in” jurisdiction in North America.  That said, 75% of employers subscribe to workers’ compensation coverage, representing more than 83% of private employment in that state [Texas Department of Insurance, Employer Participation in the Texas Workers’ Compensation System, 2022 Estimates available at https://www.tdi.texas.gov/reports/wcreg/documents/nonsub2022.pdf ]. 

The Canadian coverage rate of 83.4% of Employed Labour Force oversimplifies the variation among provinces/territories.  The coverage rate varies; Ontario at 75.17% and Nova Scotia at 72.8% are at the low end of the range, while British Columbia at  95% and Prince Edward Island 98.5% approach universal levels.   

Australia has state, Australian Capital Territory, Comcare, and Seacare workers’ compensation schemes, collectively covering 85% of employment.  Again, there is wide variation among the jurisdictions.  New South Wales mandates broad coverage with an inclusive definition of worker and Schedule 1 “deemed” workers,  while Western Australia, using a narrower definition of worker.

Prevention Implications of Scope of Coverage

Workers’ compensation was intentionally designed such that the costs of work-related injuries would be “allocated to the employer” as a “cost of production”. [National Commission on State Workmen’s Compensation Laws. (1972). Washington, DC: U.S. Government Printing Office. (p. 34)].  That allocation of costs “can provide a powerful economic incentive for safety” [National Commission, (p.39)].

The scope of workers’ compensation coverage has implications for other programs including Occupation Health and Safety (OH&S), particularly as coverage approaches universal levels.  In Canada, for example, the OH&S responsibilities for prevention, regulation, inspections, and education are typically included within the workers’ compensation authority where the coverage rate is well above 90% (BC, Quebec, Prince Edward Island, for example).  Where rates are below that level, the primary OH&S responsibilities are generally located in government departments (Alberta, Nova Scotia, Ontario, for example).  

OH&S responsibilities are similarly collocated in jurisdictions with high levels of workers’ compensation insurance in the US and Australia. Washington State’s Department of L&I administers the state workers’ compensation system and OH&S functions through its Division of Occupational Safety and Health (DOSH). Similarly, WorkSafe Victoria is the workplace health and safety regulator and workplace injury insurer in the state of Victoria, Australia.

In systems with near universal coverage, there is little doubt among employers, workers, or other stakeholders about the responsible authority.  Injury reporting for OH&S purposes and workers’ compensation purposes can be combined.  For example, in those jurisdictions, healthcare providers are often required to ask, “Is this injury work-related?”.  Workers’ compensation is the “first payer” in insurance terms.  This simple question leaves little doubt about reporting and payment responsibilities.    

Exclusions and Exceptions

Intentional exclusions or exemptions from workers’ compensation coverage are an intentional part of the public policy. 

A clear example of this variation in the scope of coverage exists in Canada.  British Columbia’s near universal coverage model requires employers in almost every sector to register with WorkSafeBC for workers’ compensation coverage.  Ontario is sector oriented, excluding from mandatory coverage: banks, barber shops/hairdressing, private health care clinics, travel agencies, and computer software development.

Exactly which industries or occupations are excluded varies by jurisdiction.  Small employers, for example, are often exempt from mandatory coverage in many US states although the threshold in terms of number of employees varies.  Common but not universal exclusions often include:

Agricultural workers

Fishers

Domestic workers

Volunteers

Religious orders

Small Employers (1 to 5 employees) [

Business owners, sole traders, partners, and directors/corporate officers

Family members of owners

Casual workers

Outworkers

Independent contractors

“Gig” workers

This last category is an evolving area.  Many gig-economy workers fall outside the definitions of ‘worker’ but some jurisdictions have moved to deem certain groups in this category to be workers for the purposes of workers’ compensation.

Jurisdictions intentionally excluding sectors and occupations often have “Opt-in” provisions to allow excluded or exempted categories to be obtain coverage. Many opt in for the protection from suit offered by the exclusive remedy.

Implications of exclusions and exemptions

Workers’ compensation is the “first payer” for healthcare costs associated with accepted workers’ compensation claims.  Healthcare costs associated with work-related injuries that do not become accepted workers’ compensation claims are paid by someone else.

Canada has universal healthcare but follows the same principle:  workers’ compensation is the first payer for accepted workers’ compensation claim. The Canada Health Act excludes payments by provincial workers’ compensation boards from the definition of insured health services, making employers—not taxpayer-supported provincial healthcare insurance plans—responsible for the healthcare costs associated with work-related injuries.  Where sectors are excluded from coverage under provincial workers’ compensation legislation, necessary healthcare costs are paid for by the provincial medical services plan.  

The US and Australian workers’ compensation systems are similarly first payers for accepted workers’ compensation claims. Exclusions from the workers’ compensation umbrella will externalize healthcare costs to funders in private or publicly funded healthcare insurance alternatives.  Where co-pays and deductibles are part of the non-workers’ compensation coverage, those costs are born by the worker.

Final comments

From the initial population of work-related injuries, the intentional design of workers’ compensation public policy creates the first attrition point. 

Overall, about 15% of workers in Australia, Canada, and the US are not covered by workers’ compensation.  The work-related injury, illness, disease and death cases occurring in this segment of the employed labour force will not be reflected in workers’ compensation data.  If injury risk in excluded sectors and occupation approximates that in covered sectors, one would expect roughly 15% attrition.

Each jurisdiction choses its own public policy towards workers’ compensation.  Whether more universal or more sector-specific, the intentional design of its workers’ compensation has implications for those included and excluded. 

The costs associated with work-related injuries in the excluded segment still exist.  In many cases, some or all the costs will be shifted to others including the worker.  Social insurance, group disability insurance, healthcare insurance, or private insurance may pick up some work-related injury costs, shifting the cost away from the employer and onto the funders of these other programs (often taxpayers) or the worker himself. 

The public policy of workers’ compensation is clear: the financial cost associated with work-related injury must be borne by the employer.  Exclusions and exemptions from the intentional public policy choices reflected in workers’ compensation legislation shift the cost of work-related injury to others and reduce the safety and health incentive inherent in workers’ compensation.

Externalization of the costs of work-related injuries may be a valid public policy choice.  Recognizing the implications of that choice—including providing an effective subsidy to the cost of production—should be intentional and not an unintended consequence of intentional design. 

 

In the next post, we will look at the attrition point with the greatest departures from the pathway toward workers’ compensation claim acceptance: worker, employer, and system-centric barriers (including claim suppression).