What's worrying workers' comp insurers: Part II

As part of my international scan of top issues worrying occupational safety/health and workers' compensation authorities, I've been listing the top issues clusters. In this post, I am continuing that list to round off the top dozen areas of concern.

• 6. Hearing, Noise and Ototoxins: This cluster is about the impact of work-related factors on hearing. Several sources noted increases in hearing-related claims and in the emerging science of substances and other agents in the workplace that may contribute to hearing loss. This area has implications for both prevention and compensation policy.




• 7. Pandemic, New Pests and Diseases, Zonotic vectors, Infections and Parasites: Changes in climate and travel as well as antibiotic-resistance are captured in this cluster. There is growing concern over the impact these factors could have in the workplace. Prevention strategies are stressed but contingency planning is advised. Several insurers also raised the issue of how they and their prevention counterparts would operate in conditions of an outbreak (would staff even come to work) so business continuity planning is also advised.




• 8. Respiratory and dermatological issues: Asthma is a growing concern and endotoxins [causing fever, acute toxic effects, allergies, organic dust toxic syndrome (ODTS), chronic bronchitis, and asthma-like syndromes, or lead to lethal effects such as septic shock, organ failure and death] are noted and forecasted to increase by several authorities particularly in Europe. With the growing population of asthmatics among youth, the potential for exacerbation of pre-existing conditions are increasingly likely as young workers enter and become the future workforce. Work environments that were not a problem for most workers a decade ago may pose a serious health threat a decade hence.




• 9. Foreign workers: Legal or not, short or long term, skilled or not--the numbers of foreign workers are increasing in Europe, Canada, the US and Australia. Language and culture are only two of the many barriers that may inhibit prevention and may account for a lower than expected access to workers' compensation. Reaching this audience, providing education and access will vary by vulnerability of the population but will almost always take greater effort than for similar citizen and legal permanent resident populations.
  


• 10. Musculo-skeletal injuries (MSI): This cluster was raised by several sources. Linked to the obesity issue, demographics, and changing work systems (involving greater repetitive actions) these injuries are and will continue to lead the list of work-related injuries. Ergonomic regulation may be part of the answer but new approaches to MSI are needed.




• 11. Terrorism: Chemical, biological, radiological, nuclear threats may be directed at more than workers but workers are likely to be injured in any terrorist attack and its aftermath. Workers were injured and killed while in the course of their employment in several terrorist attacks. Whether domestic or foreign perpetrated, workers and their families will suffer. What worries insurers is just how wide and deep the impact might be.




• 12. Cancer (emerging work-related causes and under-reporting of): As you saw in my previous posts, cancer is likely work-related to an extent far greater than recognized. That IARC study I cited [in my post from January], shift work was implicated as a probable human carcinogen. A few weeks ago, Denmark accepted 40 claims for breast cancer from flight attendants and nurses with long histories of shifts that interfered with circadian rhythms. [See this BBC story for a good lay overview].

There were other issues: human performance enhancement, synthetic biology, work relationships, fatigue/human factors to name a few. This list of issues may signal areas workers' compensation and prevention authorities ought to be looking at more closely--not simply because of the dollar costs implications--but because prevention can actually make a difference in protecting workers. It is the right thing to do.

What's worrying workers' comp insurers? Part I

Recently, I was asked to present a 'global scan' on what is worrying workers' compensation insurers and occupational health regulators. Working in a small department in a medium sized statutory agency, I rely on a lot of published reports from a lot of sources. The following is a Top Issue Clusters list based on this reading:

1. Psycho-social factors/Mental illness/ Stress/ Bullying/ Returning vets: The mind is often injured in the course of employment or in recovery but the harm is no less 'real' than a broken arm. This cluster highlights the growing awareness of pscyo-social issues as workplace factors. European and Australian sources were more likely to highlight these but North American jurisdictions are increasingly recognizing the role workplace stresses play in direct injury and indirect harm. Veterans returning from Afgahnistan, for example, may be suffering from unrecognized post traumatic stress that, when combined with yet another stresser in the worplace, may develop a servere reaction. Whether recognized by workers' compensation authorities or not, insurers and regulators are cleardly worried about this issue.


2. Nanotechnology/Nanoparticles: Seven of the reports I surveyed for this presentation cited this cluster in their top issues. More and more nano-scale products and agents are being used in the workplace and surprisingly little is known about the potential health impacts. Several sources drew parallels to asbestos and how it was used for many years even after it was known there were going to be health impacts. Some ask, "Are nanoparticles the new asbestos"?


3. Obesity: How is this work-related? Several references pointed out that the workforce is now populated with many individuals who are clinically obese and research shows that these individuals are more likely to be injured and, once injured, are likely to have longer recoveries, more complications and greater degrees of residual disability. Some jurisdictions are going so far as to add programs and initiatives more focussed on wellness as part of thier prevention strategies.


4. Chemicals/Substance in processing/solvents/Asbestos: As with the special case of nanoparticles, concern over the use of other substances in production or processes (other than the actual production of such substances) was raised by at least five workers' compensation insurance-oriented reports. Who is tracking the agents and their health effects? And even if we are not sure of the effects, who is tracing the exposures now? We know with asbestos that we may see health effects fify years from now. Will employers with records of exposure be around in a half century?


5. Aging/Demographics: The one presentation I have been asked to give more often than any other is on this topic and it was clearly 'top of mind' for many workers' compensation and prevention agencies. Even in the recession, the impact of structural demographic forces in the labour force are relentless. Young workers will enter the workforce, older ones will retire and some will die while in the labour force. These are facts and while some can modulate certain life events (when to start a family or retire) the demographic clock will continue to be a major factor in prevention strategy and workers' compensation cost control.

There are more issues worrying workers' compensation insurers and prevention agencies... and those are a topic for anther post.

Workers' Compensation Fraud

In every recession, workers' comp agencies increase diligence on compliance issues.

• Firms are required to register for and obtain workers' compensation, declare the type of work they do, report accurately their payroll, and submit premiums accordingly.
• Workers are expected to participate in their own recovery, be honest about the extent of their injuries and disability, declare earnings from employment and return to suitable and available work when it is safe to do so either as part of their rehabilitation or recovery.

Most workers and employers play by the rules but some don't. The evidence of alleged worker violations of these rules are sometimes much heralded in videocasts; employer non-compliance and outright fraud doesn't lend itself to video journalism but it is often larger than the collective value of alleged worker fraud and abuse. Provider fraud, supplier fraud and even internal fraud within insurers are not unheard of. What's important is to acknowledge the potential for such frauds and put in place the controls necessary to mitigate against that potential. The process must be dynamic. New fraud's are perpetrated and new means of detection and control are always required.

How much fraud is out there? In the words of one Australian parliamentary 2003 report:

The Committee could not quantify the significance or otherwise of fraud within any sector without sound data, which is presently not available. While fraud may not be common, when it does happen in workers’ compensation schemes it does have costs and it is very expensive. [Australian] House of Representatives Standing Committee on Employment and Workplace Relations, "Back on the Job: Report into aspects of Australian workers’ compensation schemes", 2003 page xx

In the big scheme of things, the actual amount of fraud is probably a very low percentage of premium or benefit costs. One workers' compensation chair is quoted as calling fraud 'insignificant' [Peter Criscione, "Instances of workplace fraud in Ontario insignificant: WSIB chair", Brampton Guardian, Thursday March 5 2009] . Having said that, any amount of fraud means that those playing by the rules are disadvantaged by those intentionally breaking them. That disadvantage means closer scruitiny, audits, delays while facts are checked, and even surveillence and investigation.

For there to be fraud, there must be intent. Intentionally under-reporting payroll, suppressing claims or misrepresenting classification for the purpose of paying the appropriate premium are obvious and well documented fraud cases from the employer side. Worker fraud cases usually involve collecting full workers' compensation benefits for temporary total disability while still working. Supplier and provider fraud cases can involve billing for services not rendered.

Workers' compensation fraud is not a victimless crime. The victims of such frauds are not really the workers' compensation insurers. Instead, the victims are those who play by the rules--the workers, employers and providers/suppliers of services. Workers receive more scrutiny of their claims, employers are subject to more audits and must bear the costs not being covered by those fraudulently under-reporting payroll. Everyone pays for the oversight and increased administration and controls. Programs like WorkSafeBC's Report Fraud line and Washington State's Labor and Industries fraud initiative are just two programs that seek to level the playing field and protect the system for those who need it and play by the rules

Workers' Compensation fraud is a sad but real aspect of every workers' compensation system. Compared to the billions collected and paid, the amount lost to fraud may be low but in tight economic times, even small amounts have significant costs --not just to the bottom line.

Injury Statistics: Sources and Issues

Finding solid statistics on work-related injuries is not that easy. Finding sources that provide enough context and detail for understanding is even more difficult.

In my own jurisdiction, we have a great companion document to our Annual Report and Service Plan along with some very useful special reports (http://worksafebc.com/publications/reports/statistics_reports/default.asp). Since WorkSafeBC covers about 93% of the employed labour force, the stats are pretty representative for the jurisdiction.

On the national scale, the AWCBC hosts a useful instrument called the National Work Injury Statistics Program (http://awcbc.org/en/nationalworkinjuriesstatisticsprogramnwisp.asp#Stats). While the stats are very accurate, one has to be cautious about what the data are telling us. A listing of accepted claims is not the same as an estimate of the total number of persons injured. Why not? Aside from the problem of under-reporting which may exist to some degree in all jurisdictions, a bigger difference may well be in the scope of who is covered. In Saskatchewan or Ontario, accepted claims can only come from about 70% of the labour force whereas in Quebec or BC, accepted claims arose from a covered labour force of more than 90%. Not only are there differences in the labour force covered, the mix of industries can be substantially different.

An interesting and very accessible statistics document comes from the Chilean insurer, AHCS. This is the largest of the mutual insurers in Chile and their report contains English subtitles. I particularly liked the use of colour and charts to communicate important concepts. As with most reports, there are drawbacks. The injury rates and other information are particular to the jurisdiction and may or may not be appropriate comparators to other jurisdictions.

Using any other jurisdiction's workers' compensation data as comparators to one's own carries with it many issues. For example, in most US jurisdictions, there are waiting periods. Typically, the worker must absorb the loss of wages for three days before reaching the first day of compensation. For more serious claims, most jurisdictions have a retroactive period; if the time off work goes longer than a couple of weeks, the worker will be compensated for the waiting period. Another example comes from Australia where insurance carries with it the concept of an employer excess-- a deductible period where the employer pays the benefits for a week before the WC insurance kicks in. In both the US and Australia, the nature of the workers' compensation system may have a direct bearing on the reporting pattern and the statistics presented.

The point is simply this: the basis of injury and compensable claim counts can be quite different from jurisdiction to jurisdiction. I've learned over the years that I have to look very closely at the context before making any sort of comparison or drawing any conclusions.

As far as good jurisdictional reports on injury statistics, I recommend taking a look at three listed below (or click on the sample pages pasted in this post).

• WorkSafeBC Statistics 2007 http://worksafebc.com/publications/reports/statistics_reports/assets/pdf/stats2007.pdf
• CDC Worker Health Chartbook 2004 http://www.cdc.gov/niosh/docs/2004-146/
• Chile's AHCS 2006 (bilingual Spanish and English) http://ww3.achs.cl/cm2/aptrix/resources/file/ebe08308072f9cd/Completo%20E.pdf

The Cost of Workers' Compensation

How much does workers’ compensation cost the economy?

The greatest cost of work-related injury and illness is paid by workers and their families…period. There is no appropriate way to quantify the human suffering and loss, burden of disease, and opportunities lost to society because of preventable workplace incidents and exposures.

A lesser cost is quantifiable. The dollars and cents that employers (and in some jurisdictions, workers) pay for workers’ compensation coverage provide a relative measure of the cost of preventable injury to the other costs of production. There are two ways to look at these costs. The first is the cost of the workers’ compensation insurance itself. The second is the cost of the actual benefits paid (and the cost of administration for making those payments). The former is reflects current incurred costs while the latter estimates the actual dollars expended in a year.

In a recent report from the National Academy of Social Insurance (NASI.ORG), the total employer cost for workers’ compensation for the year 2006 were pegged at $70.5 billion. In Canada for calendar year 2006, premium and other assessment revenue from employers (including those self insured but administered by the workers’ compensation system) topped $8.5 billion. In Australia, a report estimated workers’ comp premiums in that country were $7.5 billion in 2000-1.

These are not trivial sums. Yet, it would be wrong to stop there in estimating the costs. There are replacement costs employers must pay for workers who are injured, investigation costs, lost productivity of other workers… the list goes on and on. And all these costs begin in almost every case with a preventable injury. We are all worse off because of work-related injury, illness and disease.

How much does workers’ compensation cost the economy? The answer is simple: too much both in dollar terms and, more importantly, in lives and dreams and opportunities for workers, families and society.

Administrative Costs 2: How much is reasonable?

If top charities spend about 30% on administration, how much should a workers' compensation system pay? Part of the answer depends on what you include as administrative costs. One way to look at this is to ask a simple question: How much money goes directly to injured workers (or you could include costs for direct services to injured workers for medical bills, prescriptions, diagnostics, and surgery)? Although simplistic, you can assume everything else is an administration cost.

Australia and New Zealand contribute to a combined report that attempts to answer these questions. The Comparative Performance Monitoring 2005-2006, published February 2008, (p. 24) states the following:

“The indicator shows that in 2005–06, compensation paid direct to the worker accounted for just over half of all scheme expenditure… Generally the privately underwritten schemes have higher proportional expenditure on administrative costs and lower direct payments. This is due to the profit margins built into the administration costs.”

These results cover only direct payments. If you add back in the payments for medical and rehabilitation services paid on the workers’ behalf, the total administration cost falls to an average of about 26% for Australia (New South Wales and Victoria are a little higher at about 29% and New Zealand with its economies of scope and scale from an overall accident compensation system come in at about 23%). WorkSafeBC is in the same range at between 26 and 27% in recent years. So, these public workers’ comp systems have relatively low costs.

Another interesting way to look at this can be derived from data from the U.S. compiled by the National Academy of Social Insurance (NASI). The US is dominated by private insurance but these data include state funds which have about a quarter of the market. Based on NASI’s publication Workers’ Compensation: Benefits, Coverage and Costs, 2006 [published August 2008], I derived the following:

On average, 38% of employer costs for workers’ compensation insurance are paid out for administration and costs other than payments to workers:

Average employer cost: $1.58 per $100 wages

Average benefits to workers: $0.99 per $100 wages

Average Admin &other costs: $0.57 per $100 wages

Now, there is a mismatch here. The employer costs are current year and the benefits being paid to workers are mostly related to injuries that occurred in previous years. The ratio, however, is fairly consistent.

Using WorkSafeBC data, Administration Costs work out to about $0.33 per $100 of assessable payroll. Note, Assessable Payroll is a similar but not exact match to $100 wages figure used by NASI. The Association of Workers’ Compensation Boards of Canada (AWCBC) uses this measure. Between 2003 and 2007, Canadian workers’ comp systems averaged between $0.35 and $0.31 per $100 assessable payroll for administration.

So, overall, Canadian workers’ compensation systems have relatively low administration costs. On a ‘percentage of total expenditures’ basis, the ratios of administration costs to other expenditures is as low or lower than the administrative costs for many charities and lower than the average for U.S. workers’ compensation

Administrative Costs 1: Lower than Charity?

I was asked the other day, why workers' compensation system have such large administrative costs. The questioner added, "Handing out money can't be that expensive". Of course, I thought, even charities have to spend administrative dollars 'give' money away...but the question made me wonder just how much administration costs ought to be for a charity or a workers' compensation system.

Like I said, even charities have costs to do their important work. Those costs may include a lot of items. To administer donations charities need staff; staff need a place to work, equipment to work with and systems to support them. And if you are a charity and have staff, you need to recruit, train, and retain them. And you will need more people to account for the money, develop programs, and manage policies.



The same is true for a workers' compensation system. Whether you are a public exclusive state fund, a self-insured/self-administered firm or a private insurer it costs money to make certain the right injured workers get the right benefits in the right time frame. But what proportion of expenditures ought to go to administration?



When I was asked this the other day, I decided to look at five prominent charities in Canada and see what their costs were. Most of us are familiar with charities like World Vision, Canadian Diabetes Association, Ducks Unlimited, Canadian Cancer Societies and the Heart and Stroke Foundations in various provinces. These are some of the best and they do fabulous work. Together, they spend about three quarters of a billion dollars (2007/2008). I obtained the tax returns for them so could actually begin to figure this out for myself.

What should one count as administration? This is not a simple question. For this exercise, however, I defined administrative costs to include the following:

• Travel and vehicle,


• Interest and bank charges


• Licenses, memberships, and dues


• Office supplies and expenses


• Occupancy costs [office rent]


• Professional and consulting fees, and


• Salaries, wages, benefits, and honoraria

Everything else, in my view, can be defined and defended as core benefits distributed by the program. This would include advertising, which is focused on changing attitudes, beliefs and ultimately behaviours in favour of or in congruence with the charities goals. The range was from 19% to 49% but the weighted average for these five charities was 30.6% of expenditures going towards administrative costs as defined above.

If roughly 30% of total expenditures is a reasonable administrative load for top charities, how would workers' compensation systems compare? That will be the topic of my next post.