Is competition the answer for WC in Ohio?

The workers’ compensation scene in Canada is dominated by provincial boards or commissions with exclusive authority to provide workers’ compensation insurance coverage to employers and benefits to workers. In the US, only four states have similar models: Ohio, Washington, Wyoming and North Dakota. Ohio is the largest and appears to be the latest to be looking at opening the market to competition. Back in November, the Ohio State Senate approved Resolution 118

“To create the Competitive Workers' Compensation Task Force to review the feasibility of allowing employers the option to obtain private insurance to insure their obligations under the workers' compensation system of Ohio.”

Is competition for the provision of workers’ compensation the answer? Comparative research suggests that competitive or open markets for workers’ compensation provision do not result in lower costs or better outcomes than exclusive state or provincial provision.

Comparisons between workers’ compensation systems is hard and much caution must be used in evaluating such comparisons. That said, I was interested in seeing the Institute for Work and Health’s (IWH) Issues Briefing document comparing the Canadian style workers’ compensation system with a jurisdiction dominated by competing workers’ compensation providers—California.

The IWH analysis summarizes its key messages this way:

• The administrative costs of the workers’ compensation system in California, where benefits are provided mainly through private insurers, are much higher than in Canada, where workers’ compensation is provided mainly through a single public agency in each province.
  
• Both workers and employers realize benefits from the public administration of the Canadian system compared with the competitive private insurance market for workers’ compen­sation in the state of California.
  

The IWH paper cites an earlier, comprehensive study that found a similar cost advantage in favour of monopoly provision of workers’ compensation insurance in BC and Ontario over states with competitive state funds and private markets. [Thomason T, Burton JF. The cost of worker’s compensation in Ontario and British Columbia. In: Gunderson M, Hyatt D (eds), Workers’ Compensation: foundations for reform. University of Toronto Press, Toronto. 2000]

Comparisons and benchmarking performance are hard to do and no comparison—or system—is perfect. Within the population of monopolistic systems, there are likely very good performers and very poor ones. The same can be said of private insurers and competitive state funds. Each underlying insurance model has its advantages and disadvantages. Competition or monopoly alone does not guarantee success.

Workers’ compensation is an important social insurance program that must always be guided by public policy objectives. How best to meet those public policy objectives should trump purely dogmatic considerations over structure.

The Ohio taskforce is due to report out by June 30. It will be interesting to see if the taskforce considers the issues and the evidence.

What is a ‘reportable’ injury?

I was asked last week to compare injury rates from two jurisdictions. I had to explain that this is not easily done. Economic mix, demographics of the workforce, differences in benefit terms (waiting periods, employer deductibles) and other factors can impact such a comparison. One factor, in particular, came up that is often overlooked: injury reporting requirements.

Before a workers’ compensation or prevention organization can act on an injury, illness or incident, there must be a report to the organization. What is reportable will have a large impact on key statistical measures including time-loss injury rate (injury frequency). There are two aspects to reporting requirements:

• What is required to be reported as a work-related injury or disease

  The degree of compliance with reporting requirements
  

So, what is reportable? That varies by jurisdiction. For WorkSafeBC with its dual role as the workers’ compensation and prevention agency for the province, a reportable injury is (or is claimed to be) an injury arising out of and in the course of employment with any of the following immediate or subsequent characteristics:

1. The worker loses consciousness following the injury.
2. The worker is transported or directed to a hospital or other place of medical treatment, or is recommended by such persons to go to such place.
3. The injury is one that obviously requires medical treatment.
4. The worker has received medical treatment for the injury.
5. The worker is unable or claims to be unable by reason of the injury to return to his or her usual job function on any working day subsequent to the day of injury.
6. The injury or accident resulted or is claimed to have resulted in the breakage of an artificial member, eyeglasses, dentures or a hearing aid.
7. The worker or WorkSafeBC has requested that an employer's report be sent.
   
   

Some incidents require immediate reporting whether or not an injury occurs:

• Any incident that kills, causes risk of death, or seriously injures a worker
• Any blasting accident that results in injury, or unusual event involving explosives
• A diving incident that causes death, injury, or decompression sickness requiring treatment
• A major leak or release of a dangerous substance
• A major structural failure or collapse of a structure, equipment, construction support system, or excavation
• Any serious mishap

Ontario’s WSIB (with its primary role on the workers’ compensation side) has the following reporting requirements written into policy:
Employers must report a work-related accident to the WSIB if they learn that a worker requires health care and/or

• is absent from regular work
• earns less than regular pay for regular work (e.g., part-time hours)
• requires modified work at less than regular pay
• requires modified work at regular pay for more than seven calendar days following the date of accident.

In Alberta, reporting requirement of injuries for occupational health and safety purposes is different than for workers’ compensation purposes. According to the Alberta OHS Act, injuries and incidents have to be reported to the Government of Alberta if they:

• result in a death
• cause a worker to be admitted to hospital for more than two days
• involve an unplanned or uncontrolled explosion, fire or flood that causes or has the potential to cause a serious injury
• involve the collapse or upset of a crane, derrick or hoist
• involve the collapse or failure of any component of a building or structure necessary for the structural integrity of the building or structure.
  

My point is simply this: injury rate comparisons are complex. The injury rate in any jurisdiction is the result of many factors. Reporting requirement and the level of compliance with those requirements can have a significant impact on the apparent injury rates. When comparing injury rate data between jurisdictions, understanding what is reportable and how well reporting requirements are met are essential to understanding reported injury rates.

What factors encourage OH&S compliance?

Recently, I’ve been thinking about compliance with safety and health requirements of law and regulation. What factors encourage compliance among workplace players (employers, supervisors, workers)? I think there are three main categories of organizations to consider:

• those with strong safety cultures,
• those who are uninformed, and
• everyone else.

The easiest category to consider is the first one. Many workplaces are safe and secure form injury, illness and disease because of a pervasive safety culture. By this I mean that those present in the workplace put safety and health top-of-mind all the time. Supervisors continually incorporate safety-oriented content in 75% or more of their interactions with those they work with; workers are constantly alert to hazards and empowered to act to correct and control them; managers view violations of health and safety requirements as defects in their processes, training or supervision; firms act to eliminate safety and health risks to the vital human resources and the reputation of the firm. This shared culture is the predominant motivator and compliance is a natural byproduct of that culture.

The second category is characterized by a lack of safety culture without any malice or intention to violate health and safety requirements. In a sense, this group has the most to learn and gain from an intervention such as an inspection by an occupational safety and health officer. Often, these are newer firms struggling to gain markets, to expand or just to keep the business going. For this group, it is a lack of knowledge or skill rather than an active or willful disregard for health and safety that characterizes the lack of compliance. I include in this group those who may be well intentioned and even striving to develop a strong safety culture but ill equipped with the necessary knowledge, skills and abilities to make this happen.

The final category includes everyone else. Members of this category have knowledge of the health and safety requirements, the skills and abilities to comply with the health ans safety standards, but lack the internal motivation to act on what they know. For this group, compliance is more of a risk calculation:

Is the Cost of compliance less than [the probability of being caught in non-compliance times the cost of sanction(s)]? If so, comply... If not, continue in non-compliance.


A roofing firm might know that fall protection is required and even have the equipment and training to use it; however, if the risk of an inspection is negligible or, if an inspection does occur, the value of any penalty is low or non-existent, compliance may be seen as an added cost. (I shall assume that the value of non-compliance results in little or no increase in production).

For this category, there are few routes to compliance. Compliance may come as an unintended consequence or benefit of a change in process (a new machine comes with an automatic power off feature built in, for example) or if the cost equation makes non-compliance very costly.

Simple consequences of the equation follow:

• If there are no penalties, there would be no motivation for this group to comply.
• If the penalties are substantial but the probability of detection is very low (there are no inspectors in the region or the workplace is not easily observed), then there is little or no incentive for compliance.
  

There are much more complex equations in the literature but this simplified version leads to a couple obvious conclusions. Workplaces in this last category will move toward compliance as their perceptions of the cost of non-compliance increases. The perceived cost of non-compliance will increase if either or both the perceived probability of detection of non-compliance and cost of sanctions rise.

One way to increase the perceived probability of detection is announce an inspection blitz of a region or industry. Another is to increase the publicity around detected violations and penalty assessments. This does not increase either the number of inspections or the value of individual penalties for detected violations but it does increase the perception or expectation about the cost of non-compliance.

Another strategy is to increase the cost of non-compliance by a broader interpretation of penalties and sanctions. Loss of reputation through higher-profile sanctions may achieve this. OSHA in the US posts inspection reports on line. You enter a firm name and a state; you get a list of inspection reports and can determine if there are any penalties for serious violations of health and safety standards. To the extent that potential customers of a firm use this information to decide on whom they will do business with, the perceived cost of non-compliance will rise.

Ideally, we can move all workplaces into the first group—those with great safety cultures. Hopefully, a using these concepts to design compliance strategies will more workplaces toward that goal.