It has been an interesting couple of weeks for me. We had an expert in workers’ compensation from Michigan visit our offices, a telephone meeting with vocational rehabilitation experts in South Australia, an internal request for a contact in Sweden, and a data request for a project involving workers’ compensation in Victoria Australia, New Zealand and British Columbia. Then we had a visiting delegation from Russia. Last week I was on a panel with German representatives from the International Social Security Agency (ISSA) speaking to an audience of Canadians, Germans, Australians, Canadians, Americans and a representative from Taiwan.
No one jurisdiction has a monopoly on good ideas. When looking for alternative policies or programs, seeing how other agencies have attacked similar issues can both inform your decision-making and act as an early warning system for problems that might be encountered.
The act of collecting data and policy alternatives from others, however, imposes certain obligations on the requester. First, a basic understanding of the context of each country’s workers’ compensation environment is essential. Who is covered, what is covered, how does the OH&S role / prevention mandate integrate with the workers’ compensation mandate, how are disputes handled—all are questions that need to be asked and the answers understood before the data can be properly assessed and interpreted.
The other obligation is reciprocity. If I ask you about your system, your results or how you approach a particular policy, it stands to reason that you may want to ask similar questions about my system, results or policy. Often, answering such questions will take time and resources when you can least afford them. It is important to realize that the same will be true when the tables are reversed.
I am constantly blown away by the cooperation and generosity of others in helping me understand their systems. Wherever possible, I try and reciprocate. Rarely do I find that my requests for information are ignored or dealt with in a perfunctory way.
My point in this blog is simply this: we live in an information age where data is plentiful but meaningless without context. That context can only be gained by asking questions, learning from others and sharing insights and knowledge. And it’s a two way street.
So, to all of you who end up answering my requests for information, thank you!
Tuesday, September 29, 2009
Sunday, September 20, 2009
Workers' Compensation Funded Status and Funding Policy
Last time I wrote about why funding status is important. The recent economic crisis has had an impact on the funding status of many workers’ compensation systems. Since most use fair value accounting, many saw the value of assets at the end of 2008 and hence their funding levels decline dramatically.
To get around the differences, the AWCBC publishes key statistical measures for all Canadian boards using a standard calculation (total assets divided by total liabilities times 100) to generate a ‘Percentage Funded’ standardized statistical measure. These are compiled annually and reported on their website. Because of timing of release of information, however, the results are usually published about eleven months after the calendar/fiscal year end. As of this writing, the results for 2007 are the most recent ones available at that site.
The point here is that there is no one ‘right’ funding policy or strategy. When comparing systems, you need to look beyond the published measure a system may post. The standard calculation helps put the systems on an equalized basis but the funded percentage may not tell the whole story
Funding status is typically defined as assets (including reserves) over liabilities with 100 representing a ‘fully funded’ position. Using published Annual Reports from individual workers’ compensation funds in Canada, the funding levels for 2008 looked like this:
- [corrected Jan 18, 2010]
- WorkSafeBC 115.5%
- WorkSafeNB 87.7%
- WHSCC Nfld 77.3%
- WSIB Ontario 53.5%
- WCB PEI 89.2%
- WCHSB Yukon 105.2%
- WCB Sask 101.8%
- WCB Alberta 111.7%
- WCB NS 59.9%
- WCB MB 106.6%
- CSST 69.9%
Funding status using this measure is not the same as the ‘funding policy’. Alberta, for example, has a funding policy where “the Accident Fund is considered fully funded when it is within the Funded Ratio target range of 114% to 128%”. Saskatchewan and BC have alternative funding policy measures that are more complicated. Current funding status of both systems, if expressed using the standard calculation discussed above, would be greater the 100%.
To get around the differences, the AWCBC publishes key statistical measures for all Canadian boards using a standard calculation (total assets divided by total liabilities times 100) to generate a ‘Percentage Funded’ standardized statistical measure. These are compiled annually and reported on their website. Because of timing of release of information, however, the results are usually published about eleven months after the calendar/fiscal year end. As of this writing, the results for 2007 are the most recent ones available at that site.
The point here is that there is no one ‘right’ funding policy or strategy. When comparing systems, you need to look beyond the published measure a system may post. The standard calculation helps put the systems on an equalized basis but the funded percentage may not tell the whole story
Friday, September 11, 2009
Workers' Compensation and Unfunded Liabilities
A relatively new workers’ compensation officer asked me to explain ‘unfunded liability’ and why this would be a concern to a workers’ compensation system. The officer’s interest arose from a reading of the Ontario WSIB Annual Report for 2008 which stated:
Funding workers’ compensation systems requires a longer view than most insurance systems. Injuries in one year may not be fully resolved within that year. In fact, many cases will require medical treatment, rehabilitation, and medical aid expenditure for decades. Permanent disability cases may also require funding for many years. Add in the cost to administer the claim and expenditures over time and it is plain that the true total cost of a claim will not be known for many years. For the workers’ compensation insurer, these future costs are ‘liabilities’.
Since payments against a claim will be made over time, workers’compensation insurers can estimate the amount of money they need today to make those payments into the future. Amounts that will be paid in the future are ‘discounted’ so they can be stated in current dollars. Using actuarial principles, past experience, and some assumptions about investment returns the insurer can place a ‘present value’ on the cost of the claim at or near the time the injury occurred. This present value is also known as the incurred cost of a claim. As long as the insurer has collected enough in premiums to cover the incurred costs of all claims, receives the investment returns expected and experiences costs over the lifetimes of the claims as expected, the insurer will have just enough money to cover all the costs associated with all the claims that arose in a given year. The idea is simple: premiums collected from current employers in a year should be sufficient to cover the cost of the work-related injuries incurred in that year.
Of course, things do not always go as planned. The costs of medical treatment may increase at a rate greater than expected. Investment returns may be less than expected. By comparing the current present value of all claims to the current value of all assets that may be used to pay those claims, an insurer can determine its funded status. If the value of its assets equals the present value of its liabilities, the system is ‘fully funded’. If there are more liabilities than assets, the system is under-funded and is said to have an ‘unfunded liability’. If the valuation of current assets is made when the market for those assets is depressed, the size of any unfunded liability will be larger than on a day when the market is elevated.
So,what if there is a large and persistent unfunded liability? Not necessarily. The situation may improve with higher investment returns, actions to achieve lower patterns of expenditure such as improved return to work outcomes and better health outcomes with lower disability. If these don't work, at some point the unfunded liability must be funded. Assuming benefits are held constant and patterns of disability do not change, the only other source available to cover the unfunded liability of past claims will be premiums or assessments paid by current employers. In effect, using premiums or assessments to offset an unfunded liability is an inter-generational transfer of the cost of work-related injuries from employers in the past to current employers.
There are other measures of financial health of a workers’ compensation system but the funded status is one of the most common in Canada. The AWCBC includes funded status in its report of key statistical measures. The 2007 results for all Canadian boards are the most recent funding ratios available without going to individual annual reports.
Due mainly to the investment loss, the unfunded liability has increased to$11,469 million at the end of 2008. This is $3,375 million higher than at the end of 2007, when it was $8,094 million. The WSIB’s funding ratio has decreased by 12.9 percentage points to 53.5 per cent on December 31, 2008, from 66.4 per cent at December 31, 2007.
Funding workers’ compensation systems requires a longer view than most insurance systems. Injuries in one year may not be fully resolved within that year. In fact, many cases will require medical treatment, rehabilitation, and medical aid expenditure for decades. Permanent disability cases may also require funding for many years. Add in the cost to administer the claim and expenditures over time and it is plain that the true total cost of a claim will not be known for many years. For the workers’ compensation insurer, these future costs are ‘liabilities’.
Since payments against a claim will be made over time, workers’compensation insurers can estimate the amount of money they need today to make those payments into the future. Amounts that will be paid in the future are ‘discounted’ so they can be stated in current dollars. Using actuarial principles, past experience, and some assumptions about investment returns the insurer can place a ‘present value’ on the cost of the claim at or near the time the injury occurred. This present value is also known as the incurred cost of a claim. As long as the insurer has collected enough in premiums to cover the incurred costs of all claims, receives the investment returns expected and experiences costs over the lifetimes of the claims as expected, the insurer will have just enough money to cover all the costs associated with all the claims that arose in a given year. The idea is simple: premiums collected from current employers in a year should be sufficient to cover the cost of the work-related injuries incurred in that year.
Of course, things do not always go as planned. The costs of medical treatment may increase at a rate greater than expected. Investment returns may be less than expected. By comparing the current present value of all claims to the current value of all assets that may be used to pay those claims, an insurer can determine its funded status. If the value of its assets equals the present value of its liabilities, the system is ‘fully funded’. If there are more liabilities than assets, the system is under-funded and is said to have an ‘unfunded liability’. If the valuation of current assets is made when the market for those assets is depressed, the size of any unfunded liability will be larger than on a day when the market is elevated.
So,what if there is a large and persistent unfunded liability? Not necessarily. The situation may improve with higher investment returns, actions to achieve lower patterns of expenditure such as improved return to work outcomes and better health outcomes with lower disability. If these don't work, at some point the unfunded liability must be funded. Assuming benefits are held constant and patterns of disability do not change, the only other source available to cover the unfunded liability of past claims will be premiums or assessments paid by current employers. In effect, using premiums or assessments to offset an unfunded liability is an inter-generational transfer of the cost of work-related injuries from employers in the past to current employers.
There are other measures of financial health of a workers’ compensation system but the funded status is one of the most common in Canada. The AWCBC includes funded status in its report of key statistical measures. The 2007 results for all Canadian boards are the most recent funding ratios available without going to individual annual reports.
Wednesday, September 2, 2009
A new lecture series at SOEH
September in North America tends to be associated with the end of summer vacations, a return to school, and the resumption of routines. For me, I am back from a summer break that included several conferences and speaking engagements and am heading back to university for an evening class (on ergonomics) and attendance at a weekly midday seminar series that many of you may find of interest. For a student of workers' compensation and OH&S, this last item is of real interest.
For the past few years, the School of Environmental Health (SOEH- the new, shorter name for the School of Occupational and Environmental Hygiene) at the University of British Columbia has offered a free Friday Seminar Series. Anyone can drop in on campus or connect via the internet for a weekly hour-long seminar on topics related to occupational and environmental health.
Not only are the seminars interesting in themselves, attendance either in person or online can earn Certification Maintenance credits for a number of professional associations (ABIH, CRBOH, BCRSP have pre-approved the series and other associations may grant credits upon application). As an added bonus, past sessions are archived and freely available on line for anyone who wants to review them.
As with any online system, there can be glitches but I have participated in these seminars from Australia, New Zealand, Hawaii, the eastern and southern US and from about half the provinces in Canada with minimal difficulty. The “live classroom support” is supported in part through funding provided by WorkSafeBC, a longtime partner of SOEH.
Check out the series at the following link. http://www.soeh.ubc.ca/Seminars/default.stm
For the past few years, the School of Environmental Health (SOEH- the new, shorter name for the School of Occupational and Environmental Hygiene) at the University of British Columbia has offered a free Friday Seminar Series. Anyone can drop in on campus or connect via the internet for a weekly hour-long seminar on topics related to occupational and environmental health.
Not only are the seminars interesting in themselves, attendance either in person or online can earn Certification Maintenance credits for a number of professional associations (ABIH, CRBOH, BCRSP have pre-approved the series and other associations may grant credits upon application). As an added bonus, past sessions are archived and freely available on line for anyone who wants to review them.
As with any online system, there can be glitches but I have participated in these seminars from Australia, New Zealand, Hawaii, the eastern and southern US and from about half the provinces in Canada with minimal difficulty. The “live classroom support” is supported in part through funding provided by WorkSafeBC, a longtime partner of SOEH.
Check out the series at the following link. http://www.soeh.ubc.ca/Seminars/default.stm
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