How much does Canada spend on medical care for work-related injury?

A policy analyst from the US contacted me a few weeks ago and asked a disarmingly simple question.  “How much does Canada spend on medical care for work-related injury?”  The question came from an assumption that Canadian healthcare system would have this data readily available.  In fact, the question is quite complex (and is the reason for this longer than usual post).  

The first complexity is a definitional one:  what is covered by the term “medical care”.  Our discussion on this point lead to agreement that the term was meant to cover the various aspects of necessary medical care including doctor visits, hospitalization, medical diagnostics such as MRIs and x-rays, prescriptions, physical rehabilitation, and medical appliances such as wheel chairs.  Coming from a workers’ compensation background, both of us had a pretty good idea of what would be typically covered by a work-related injury under workers’ compensation in our respective jurisdictions.  We agreed that the scope and nature of WC medical coverage was pretty much the same in both countries.  For the purposes of the question, “Medical care” is meant to include the health care expenses typically covered by WC systems from hospitalization to bandages and medications to MRIs. 

The second issue we discussed was the term “cost”.  In workers’ compensation accounting, there are “actual costs”, real payments to real doctors, hospitals and therapists made in a particular year and there are “incurred” costs, which crystalize an estimate of the medical costs that are likely over the lifetime of claims occurring in a given year.  The incurred cost may include discounted future costs related to an injury-year claim.  My friend was interested in the former, the real dollars paid out in the calendar year. 

What surprised my colleague was the fact that workers’ compensation medical coverage was separate from the universal medical plans and that each province had its own medical plan.  I explained the constitutional reasons for this and the basic principles of the Canada Health Act.  Like WC insurers in the US and most other countries, WC is the first payer of work-related medical costs in Canada. 
I also clarified that payment of insured health services by an employer or a worker would offend the principles of the Canada Health Act (public administration, comprehensiveness,  universality, portability, accessibility).   WCBs pay for the cases they cover but no direct payment by the employer or worker for insured necessary health services is permitted. 

To answer the question, I went to WCB’s annual report and looked through the notes in the financial statements.   From a workers’ compensation perspective, medical care costs for work-related injury, illness and disease was nearly $1.75 billion dollars in 2011.  But that was not quite the answer to the question asked! 

Clearly, workers’ compensation covers a lot of the work-related injury medical costs—and well it should.  Work-related injuries have both a human and financial cost.  The financial cost is reflected in industry-specific premiums and firm-specific experience rating that determine the amount a firm pays for workers’ compensation coverage in a year.  Workers’ compensation costs are counted for in the firm as an employment expense and add to the labour cost of production.  It is only when the cost of work-related injury is fully reflected in the cost of production that firms may be motivated to invest in safety.  Firms with the lowest injury costs have a competitive advantage over those with higher costs.  Just as importantly, the cost of work-related injuries is borne by the industry that gave rise to that cost and not by the worker or the general community.    Why should the community –taxpayers—be on the hook for work-related injury medical costs?  That would amount to a subsidy to business.  

This all makes sense from a worker’s compensation perspective.  Industry should pay the medical cost associated with work-related injury and disease.  This logical, simple principle is also consistent with what Tommy Douglas and Emmett Hall—the founders of universal health care in Canada—envisioned.  Both saw fit to exclude payments made by workers’ compensation authorities from the definition of insured health services.  

To really answer the original question,  I had to estimate the medical costs from those enterprises and workers excluded from workers’ compensation.   The list of exclusions varies from province to province.  Some jurisdictions have virtually no exclusions or exemptions from coverage.  For these provinces, the amount spent by the WCBs for medical care for work-related injury is the cost of work-related medical care for the whole jurisdiction.  

Assuming the exclusions from WC coverage have a similar injury rate, severity and cost pattern to the WC covered population in each province, one way of estimating the medical care costs of work-related injury and disease in any given province would be to take the actual costs paid by the WCB for a year and divide that by the percentage of the employed labour force in that province.  Subtracting the actual cost of WC-covered costs from the grossed-up estimate would yield an estimate of medical costs for the non-WC covered segment of the employed labour force. 
The result of this approach yields more than $337 million.  That’s a third of a billion dollars being borne by workers and taxpayer-supported healthcare insurance programs.  More than half that amount is in Ontario.  So, based on this estimate method, the cost of work-related medical care (for both workers' compensation covered and excluded work-related injuries) in Canada is about $2 billion. 

To be more accurate the injury rate and population of each exempted category would have to be gathered and matched with similar populations from populations with WC coverage.  That data is simply not available to an independent researcher.  It may also be argued that at least some of the work-related medical care costs would not be borne by the taxpayer but may be borne by extended medical plans.  This may be true but few plans are fully employer paid or fully self-insured leaving open the likelihood of some externalization of costs from the employer.  Finally, there are costs that would be borne by certain workers covered directly by the Federal Government but I could not find a good source for that. 
There may be valid arguments for exclusions from worker’s compensation coverage but those arguments need to be sufficient to justify this substantial public subsidy to the cost of production.  Why should taxpayer-supported medical plans subsidized the cost of work-related injuries for banks in Ontario or teachers in Saskatchewan but not in BC?  So far, the only response I have received from policy analysts in those provinces relies on the universality principle of the Canada Health Act.    

Regardless of who pays, the financial cost of medical care for work-related injury in Canada is likely more than $2 billion—an unacceptable and preventable cost. 

If you have a better estimate methodology or can provide estimates methodologies that are more precise, let me know.  

What is the purpose of a waiting period in Workers’ Compensation?

Waiting periods are a very common feature in US workers’ compensation systems but are relatively rare in the Canadian context and absent from Australian systems.   A waiting period in workers’ compensation is a form of worker deductible.  Most commonly, waiting periods start on the first day for which wages are lost and last anywhere from one day to one week with three and seven day waiting periods being very common.

Many systems allow for medical-only claims during the waiting period and most have no prohibition against the employer paying some benefits during this time.  In fact, collective agreements may contain provisions that require wage continuation during a workers’ compensation waiting period.  In such cases, there is no administrative or indemnity saving by introducing a waiting period.  All that changes is the pocket from which the benefit is paid.

Most systems with a waiting period have a retroactive point.  If the worker is off work beyond this point (ranging from one to four weeks but most commonly two weeks), the waiting period is waived and the worker receives wage-loss indemnity payments for the waiting period as part of the workers’ compensation claim.  Eliminating a waiting period impacts only the cases with durations less than the waiting period.

When workers’ compensation systems started, the waiting period was seen as a way to constrain insurance costs.  As may be deduced from the structure of the waiting-period deductible and the retroactive provision, the waiting period is targeted at less severe (in terms of duration) claims. Let me be clear, waiting periods limit cost to the insurer (and, through insurance rate-setting and experience-rating provisions, to the employer).  The human and financial cost of the injury for the waiting period is borne by the worker and his family unless this burden is offset by collective agreement provisions or employer practice of wage continuation (or access to sick leave or other paid leave provisions) provided by the employer. 

When workers’ compensation got started in BC in 1917, the waiting period was three days.   In 1972, the waiting period was eliminated.   This was part of a trend in Canada, however, there has been a recent trend to consider and implement waiting periods.  Prince Edward Island and Nova Scotia each have a “2/5^ths” of a week waiting period [which works well for 4 day weeks and other non-five days a week schedules] and New Brunswick has a 3 day waiting period. 

From a pure insurance point of view, the best injury claim is the one never filed.  Introducing waiting periods conceptually reduce administrative costs [assuming healthcare costs are paid by someone else] and indemnity costs but they may well discourage many claims of longer duration from ever being filed.  If sick leave or other leave provisions are in place, a worker may well elect to forgo a possible workers’ compensation claim with all the burden of filing and often with an implied or perceived onus of proving work-relatedness in favour of a simple sick leave application within the firm.  Firms may well tacitly approve this practice as it may (or may be perceived to) positively impact workers’ compensation premium rates through experience rating. 

For workplaces with no alternatives, a waiting period externalizes a cost of production [work-related injuries and illnesses] to workers.  If this forces the worker or a family to access other aspects of the social safety net [social welfare services] or community food banks, then the mere existence of a waiting period externalized costs beyond the workplace.  Put another way, those externalized costs amount to a subsidy (paid by workers’ families, taxpayers or the community) to businesses where injuries occur. 

Yes, the firm will have to hire a replacement worker for a few days or bear the costs of lost productivity, but that is the case regardless of the legislative existence of a waiting period.  Contrast a firm in a jurisdiction with a waiting period to one where work-related claims are payable from the day following the day of injury and the collective value of waiting periods is obvious. 

Some may argue that the financial subsidy or externalization of costs at the aggregate level is not large.  If this is the case, then reverse is also true: the cost of eliminating waiting periods where they exist will not be large either. If, however, the value of a waiting period is argued to be significant, then its cost or subsidy value should be part of the policy discussion. 

Every jurisdiction has to make its own decision regarding waiting periods in workers’ compensation.  That’s a matter for legislators and their electorates.  There may be good and valid reasons for waiting periods that outweigh the costs or justify the subsidy in a particular jurisdiction.  I am not saying the public policy choice to have or introduce a waiting period is always a bad one.  I am suggesting that the policy debate include a full discussion of the externalized costs and subsidy values involved.