Self Insurance and Workers' Compensation

I read the following headline recently: "North Dakota Weighs Letting Firms Self-Insure for Workers' Compensation" (see Insurance Journal, Midwest News, January 20, 2009). The article briefly outlined an initiative that would allow self insurance and alluded to various other states that are monopoly providers of workers' compensation coverage. Unfortunately, the article does not define self insurance or the various forms of workers' comp insurance arrangements.


A self-insured firm in a workers' compensation context, is one that carries the risk of work-related injury, illness and disease to its employees without pooling or sharing that risk with other employers. For individual firms with enough employees and a stable injury rate, the risk can be quantifiable and, over time, the costs can be predictable.


Self insurance can be with or without self administration. Self-administered firms come in a range of 'flavours' along a continuum between the following extremes:

• all aspects of claims management and rehabilitation handled internally for their own employees
• all (or almost all) of the administration contracted out to a third party.

Self insurance without Self administration usually leaves the adjudication and administration of claims to the state agency with the firm carrying the costs of injuries and paying for the administration. WorkSafeBC, for example, has Deposit Class employers who are essentially self insured but the claims from these employers are handled just as they would be for all other insured employers by WorkSafeBC.


It makes little sense for small or medium sized firms to self insure. Work-related injuries are relatively rare and serious injuries with high costs are thankfully even rarer. Unfortunately, one rare but costly work-related injury could bankrupt a small firm. As with other risks of rare events (fire, flood, third party liability), it makes sense for most firms to be insured. And since administering workers' compensation claims is not the core business of most firms, self insurance is rarely considered even where it is offered.


Allowing self insurance where it does not exist or expanding it can create a lot of additional and unanticipated costs. There are monitoring costs by the insurance regulator, the question of appeals or dispute resolution and the assurance, bond or other security the self-insured firm normally has to post with the state to guarantee payments should the firm be unable to do so. This last point was unthinkable a few years ago but the viability of once blue-chip firms is a painfully real issue in light of the current economic crisis.

Allowing or expanding self insurance has other consequences for the remaining insured parties or the state. On what basis should the costs of workers' compensation research, oversight and appeals be shared by self-insured firms? Removing firms from existing pools will also have an effect on the remaining firms in the pool. Credibility from an actuarial point of view may be lost and wider swings in premium rates are more likely if the largest firms in a rate group are removed to become self insured.


The article also points out that North Dakota is one of only four exclusive state funds in the US. It should be noted that exclusive state funds are the norm in Canada where each province has made its workers' compensation agency the sole provider of workers' compensation insurance. In a sense, the federal government in the US is also an exclusive state fund providing the insurance administration for federal government departments. (And in some sense, the federal government departments are like self-insured firms contracting with the exclusive insurer for administration).


A few years ago, Best Practices LLP produced a report entitled "Excellence in Workers' Compensation Program Administration". It focuses on very large self insured organizations and how they structure the administration of their programs. Interestingly, the costs for administration vary widely in the surveyed population. More importantly, the costs of the best performing firms appear similar to or higher than those of several exclusive state funds in Canada and the US.


Self insurance with Self Administration may make sense particularly for very large multinational firms if there are no other alternatives. That said, many such firms already operate in states, provinces or countries that do not allow self insurance so the insurance arrangement is not a barrier to locating operations in a particular market.

Self insurance without Self Administration has its place but it also has costs and risks. Any jurisdiction considering introducing or expanding the number of self insured firms in its jurisdiction needs to be aware of these.

How much of the Cancer Burden is Work Related?

Everyone knows someone with cancer. About 4 in every 10 of us will be diagnosed with a cancer in our lifetimes regardless of gender. How much of this has to do with the work we do? Estimates vary. The Health and Safety Executive in Britain quotes 4% (range 2% to 8%). A Queensland publication suggests 11% of cancers in males and 2% in females are work related. Whatever the true level, the recorded number of cases that present as claims for workers' compensation are consistently low and those allowed are much lower.

Since the causes of cancer are many, the attribution of work being the cuase is difficult. On a population basis, statistics and very large sample sizes can attribute much or most of the cause to occupation, materials or agents in the workplace, or some other work-related exposure. Unfortunately, this is much harder to do on an individual basis, yet that is what workers' comp systems are asked to do.

The standard of proof on an individual claim is often very high. Some jurisdictions require work to be 'the predominant cause' while others set the bar lower with work being of 'causitive significance'. And the burden of proof often rests with a worker who may have imperfect information on exposures, have other risk factors for a particular cancer, or may have already succumbed to the disease before a claim is even decided.

To overcome these issues, many workers' compensation jurisdictions create schedules or include provisions in their legislation (often called 'presumptions'). Rather than requiring each worker and adjudicator to labour over a particular set of facts, the existance of a presumption allows the claim to be adjudicated quickly. A diagnosis of Asbesosis and Mesothelioma may be presumed to be work-related if associated with a history of work exposure to asbestos, for example.

As the science around the 'work-relatedness' of a particular cancer develops, authorities like IARC, the International Agency for Research on Cancer, provide guidance that may help prevent future work-related cancers and increase vigilance regarding cancer to those exposed to the cuasative agent. IARC uses a four-level classifcation system regaring carcinogenicity to humans with Group 1 representing those agents that are carcinogenic.

About a year ago, IARC published a mongraph that found the following:

• Occupational exposure as a painter is carcinogenic to humans (Group 1)


• Shiftwork that involves circadian disruption is probably carcinogenic to humans (Group 2A).


• Occupational exposure as a firefighter is possibly carcinogenic to humans (Group 2B).

How ought workers' compensation/prevention agencies react to this information? The compenstion side will always be difficult and will ultimately require each case to be determined on its own merits. The designation of exposure to a substance, occupation or other agent as a Group 1 carcinogen may assist in claim decision-making. For all Group 1 and 2 categories, prevention is high priority. Identification of those at risk may be straightforward (as it is in these examples where occupations or shiftwork are identified) but the next task is to reach the workplaces where these carcinogens are present. How to do that is a subject I would like to hear from you about? Feel free to email me or make a post!

Workers' Compensation and Recession

The current economic situation is having a significant impact on workers' compensation systems as well as the workers and employers they serve. The obvious impacts are straightforward:

• fewer people working means fewer injuries and claims
• lower revenue due to lower payrolls and more business failures
• fewer jobs to return to adding pressure to claim duration

On the finance side, lower returns on investments put pressure on investment returns and reserves. Assuming injury rates remain constant in all sectors, past recessions have seen pressure on safety training budgets, equipment maintenance and investment in new, safer equipment. These may increase risks... but may not increase injury rates.

In both union and non-union firms, the first to be laid off during an economic contraction are often new workers--workers who tend to be young. We know that injury rates (for males, at least) generally decline with age. Younger workers are more likely to be injured than older workers but older workers are more likely to be off for longer periods of time. This makes sense since older bodies take longer to heal from similar injuries and older individuals often have co-morbidities--conditions (diabetes, obesity, high blood pressure, etc.) that may prolong recovery.

Despite the bad news, it is important to keep focused on the task and mandate of workers' compensation. Even as unemployment rises, the vast majority of those in the labour force are still employed. They continue to need the services of prevention, compensation and rehabilitation organizations.

Economic cycles will ebb and flow; work-related injuries may occur at any point in that cycle and last a lifetime ... or end one. Workers' compensation systems must be vigilant, responsive and committed to their mandate throughout economic booms and recessions.

Workers' Comp and Canadian 'Medicare' Post 2

One of the key features of the Canadian healthcare system is that it is essentially a single payer system. Insured health services must only be paid by the provincial health plan. Payments by others are not allowed and can result in penalties in the form of decreased transfers to the province where such payments are permitted. As a consequence, firms outside the scope of coverage of workers’ compensation are not permitted to pay for insured health services for their employees (as long as those employees are insured persons under the CHA). As pointed out by the recent Committee of Review report in Saskatchewan, this creates a situation where taxpayers are subsidizing the cost of work-related injuries for those industries and occupations not within the scope of coverage of workers’ compensation. For provinces such as BC where more than 93% of the employed labour force is covered by workers’ compensation, such subsidies are rare and limited primarily to sole proprietors, partners and independent operators.
Given BC’s high coverage ratio, the operational consequence of the legal framework means those with work-related injuries are provided the health services they need without the taxpayer having to bear the cost of subsidizing the industries that gave rise to them

Workers' Comp and Canadian 'Medicare' Post 1

One of the questions I am often asked is how come WorkSafeBC can expedite the treatment of workers for diagnostics and treatment such as surgeries. Like most workers’ compensation systems in Canada, the US, and Australia, WorkSafeBC is responsible for the medical costs of work-related injuries. The logic is based on the social justice principle that the cost of work-related injuries should be born by the industry that gives rise to them so that the costs would be reflected in the cost of production and not externalized to the public. In BC from 1917 until the 1940s, workers actually funded the medical aid part of the system through a cent a day levy on their paychecks. In fact, the timely access and payment of medical aid costs were part of what labour demanded in its agreement to the workers’ compensation ‘historic compromise’ in this province. When the Royal Commission on Health Services in Canada recommended universal healthcare insurance for Canada, it recommended excluding workers’ compensation from its coverage, just as Saskatchewan’s Tommy Douglas had done in establishing universal Medicare in that province. Today, the Canada Health Act CHA provides exclusion for payments made by a provincial workers’ compensation system as follows:

"insured health services" means hospital services, physician services and surgical-dental services provided to insured persons, but does not include any health services that a person is entitled to and eligible for under any other Act of Parliament or under any Act of the legislature of a province that relates to workers' or workmen’s compensation;

Since the CHA is primarily a funding agreement, this exclusion makes a lot of sense. Provinces retain authority to determine how the workers’ compensation system operate but payments made by this payer are outside the definition of insured health services so in no way violate the CHA.

Workers' Comp and the Prevention Mandate

As noted in an earlier post, the degree to which the Prevention or OH&S mandate is part of the workers' comp system varies from simple allignment to full integration. One determinant of where along this range a particular workers’ compensation jurisdiction will fall is the percentage of the labour force within the scope of workers’ compensation coverage. Using data from the Association of Workers’ Compensation Boards of Canada (AWCBC.org), the accompanying table and graphic illustrate the range of relationships for the Canadian jurisdictions.

The higher the percentage of coverage, the greater the likelihood the workers’ compensation authority will play an important role in prevention. This axiom holds in general for sub-national systems where the authority for workplace safety and health is constitutionally aligned with state or provincial powers. Parallels may be found in Australia, for example, where states such as New South Wales and Victoria have authorities that share the compensation and OH&S roles [see http://www.worksafe.vic.gov.au/ and http://www.workcover.nsw.gov.au/ ]. Although occupational health and safety is a federal responsibility in the US [see http://www.osha.gov/ ], state agencies do exist. In the case of Washington State, the Department of Labor and Industries has both the state OSHA function and responsibility for workers’ compensation either directly or through oversight of the self insurance part of the system [see http://www.lni.wa.gov/ ] .

Workers’ Comp and Prevention (Occupational Health and Safety)

Workers’ compensation is often linked with workplace injury prevention. How that link is expressed, however, varies; it ranges from an implicit value proposition (injuries cost money; prevention saves money) through a motivational component such as experience rating (injuries cost moneyprevention saves money; investment in prevention will lower your experience rating so you can achieve those savings over time) to active loss control (safety officers consulting and inspecting) and regulation with enforcement (setting the standards and backing them up through administrative penalties and/or prosecutions).

Ubiquity, Context and Perspective

Work-related injury, illness and disease and the efforts to prevent them are ubiquitous. Every developed nation and most of the developing world has some form of occupational safety and health protection for workers and methods of compensation where work is the cause (or of significant contributing cause). The diversity of legislative and social approaches to occupational safety and health as well as compensation results in a range of policy alternatives and perspectives. There is no one ‘right way’ or system to protect workers nor is there any guarantee that the approaches of one jurisdiction will work in another. The diversity, however, may generate ideas or insights that may help policy makers in determining the direction of their systems.

Context is important. We hear of developments in workers’ compensation systems or results that are couched in positive terms. Without some context about the system, it is often difficult for those outside the jurisdiction concerned to interpret the results.

The ubiquity of workers’ compensation systems among the most developed nations creates an opportunity for comparison and a kind of early warning system for workers’ compensation and occupational health and safety systems. Many of the posts in this blog will focus on comparisons. Comparisons, however, are generally made from something more familiar to something more abstract. I am Canadian, working for an exclusive ‘state fund’ workers’ compensation system with the mandate for both the compensation of work-related injuries and illnesses and injuries. It is from this vantage point that this blog is developed. For those of you who work inside or with WorkSafeBC, you will understand this perspective. If you work in a jurisdiction with a state fund, you will recognize a similar view. If you work in a system dominated by private insurers or where workers’ compensation is a national concern, you may see some things differently. The perspectives you hold and develop on the issues in this blog are also welcome and will add to the learning experience this blog intends to foster.