What is an equitable maximum insured earnings level?

My last post on maximum insurable earnings for workers’ compensation coverage generated a lot of email and questions.  Several people had responses like this one:

“…it does not appear that you addressed the root question of whether or not WCB adequately compensates high earners.  Rather, you imply that, as we are operating in a similar manner as everyone else, we must then be providing adequate compensation.  Just because everyone operates in a certain manner does not mean that said practice is a good practice.”

This is a fair point.  The blog post focused on practice and did not really address what would be “adequate” or qualify as “good practice”.  There are, however, some serious difficulties in coming to a judgment about what an equitable maximum insured ought to be.

Although WorkSafeBC's maximum insured earnings is similar to many other workers' compensation systems, it is higher than most US jurisdictions but lower than the insured earnings in Ontario, Alberta, Manitoba and at least some Australian schemes.  Without an agreement on what the maximum ought to be, it is hard to judge the adequacy of any particular jurisdiction.

I note that section 37 of Saskatchewan’s new Workers’ Compensation Act provides for the long-standing maximum of $55,000 per year to be raised to $59,000 per year with provisions for increases until the maximum is “equal to 165% of the product of the average weekly wage and 52.”  Why 165%?  The Committee of Review in 2006 had recommended the maximum be “not less than 165% of the “average annual wage” rounded to the nearest $100.”  Ontario’s workers’ compensation legislation in section 38(1)(c)sets the maximum at 175 per cent of the average industrial wage for Ontario.  Why 175%?  I’m not clear on why this particular percentage was chosen but it appears to be an effort to ensure a higher proportion of upper-level earners are fully covered.

British Columbia’s Workers Compensation Act uses a formula in Section 33.  A Board Minute sets the maximum for 2013 at $75,700 using the formula.  That is about 169% of the 2012 average industrial aggregate wage as reported by Statistics Canada. Is this equitable?  The last Royal Commission on Workers’ Compensation in British Columbia examined the current formula and made the following recommendation:

“[Recommendation]  … 139. the maximum wage rate under Section 33(1) and (6) of the Workers Compensation Act be adjusted annually to an amount equal to two hundred percent of the average industrial wage in British Columbia for the twelve month period immediately preceding the adjustment.”

Why 200%? In its discussion, the Royal Commissioners cite “fairness” and included a quote from a background paper prepared for the United States National Commission on State Workmen’s Compensation Laws, [John F. Burton Jr.,  1972]:

“To be equitable, the program must treat all workers fairly. According to one concept of fairness, most workers should have the same proportion of their wages replaced. However, a worker with a low wage may need a higher proportion of his lost wage in order to sustain himself and his family. … A high income worker who can afford to purchase private individual protection may have his weekly benefit limited to some reasonable maximum.”

Sir William Meredith’s 1913 final report to the Ontario government, which is the foundational document for workers’ compensation in Canada, made only one oblique comment in his narrative regarding the maximum.  He writes:

"...there is no reason why highly paid managers and superintendents of establishments should be entitled to compensation out of the accident fund to an amount greater than the highest paid wage earner would be entitled to receive.”  

The "highest wage earner"  is likely to have a unique earnings level in each province.  The intent, however, appears similar to the National Commission’s intent:  cover all earnings for all workers except for the very highest earners.

In the absence of any authoritative absolute statement on where to draw the line, an appropriate test of adequacy of earnings coverage in any jurisdiction might be to identify the proportion of the employed labour force with earnings below, say, the 90th percentile of earnings from employment.  The 90^th percentile could be calculated from a number of potential sources from standardized surveys to actual tax returns. It has the advantage of being applicable regardless of the how skewed or splayed the distribution of earners might be without actually determining specific occupational roles.

Perhaps you have a better way or think the idea of a maximum insurable is outmoded.  Feel free to add your own comments and ideas.  

Does workers’ compensation adequately cover workers with relatively high earnings?

A reader of this blog recently pointed out that workers with relatively high earnings may not be adequately covered by workers’ compensation.  One’s expenses tend to parallel one’s net earnings; a temporary loss of earnings because of an occupational injury or disease puts all earners at risk of having insufficient income to meet their expenses.  While one might expect all workers to have less income on workers’ compensation, high wage earners lose disproportionally more than lower wage earners. 

I had to agree with the logic of this observation, however, the truth of the statement depends greatly on how you define “workers with relatively high earnings” and on the jurisdiction you are considering.

The compensation a worker receives under most workers’ compensation programs is the product of some measure of insurable earnings and a compensable percentage rate.   Neither the rate of compensation nor the level of insurable earnings is standard; both the rate of compensation and the maximum insurable earnings are matters of workers’ compensation policy.  How much compensation a worker with relatively high earnings will receive depends on these two policy factors and whether or not the benefits are taxable. 

Virtually all workers’ compensation systems in Canada, the US and Australia impose a maximum insurable or compensable earnings limit; income above that level is not compensated. Manitoba is an exception to the rule with no maximum on insurable earnings and a $111,000 per worker limit on assessable earnings.  BC has a maximum of $75,500 while Alberta’s max for 2013 is $92,600 (the highest in Canada).  Ontario’s maximum is $83,200.  Saskatchewan’s current maximum is the lowest in western Canada at $55,000.  The Maritime Provinces are in the same range as Saskatchewan while Quebec has a $67,500 maximum.  WorkSafeBC uses 90% of net while WSIB in Ontario has an 85%  of net rate.  Nova Scotia has a 75% of net rate with a step up at 26 weeks to 85% (presumably to compensate more adequately for injuries of greater severity).  Prince Edward Island provides 80% of net with a step up to 85% of net at 38 weeks.  The Yukon retains a 75% of gross calculation. 

In the United States, most states have a 66.67% compensation rate for individual time-loss claims as opposed to predominant model in Canada of compensating some percentage of net earnings.  I could not find a concise listing of maximum workers’ compensation insurable earnings but in 2012, the National Academy of Social Insurance noted that the maximum weekly temporary total disability (TTD) benefit ranged from $437 in Mississippi to $1,457 in Iowa. Both of these states provide a two-thirds of gross average earnings benefit level so the maximum earnings covered would range from a low of about $34k to $113k annual gross income.  Connecticut pays disability benefits at a rate of 75% of the spendable average weekly earnings to a 2010 maximum of $1168 per week or about $90K gross per year. If we define workers with high earnings as those earning at or above the maximum insurable, these workers will generally do better in Alaska, California, Connecticut, District of Columbia, Illinois, Iowa, Massachusetts, New Hampshire, Oregon, Vermont, and Washington where the maximum weekly benefit is greater than $1000 as opposed to Arkansas, Georgia, Idaho, Kansas, Louisiana and Mississippi where the weekly maximum temporary disability rate is $600.

Australian WorkCover schemes also vary in terms of the maximum earnings covered.  A worker with relatively high earnings needs to check with the jurisdiction in question to be certain if a maximum earnings level will limit their coverage.  ComCare has no explicit maximum.  Western Australia and the Northern Territories have maximum weekly earning restrictions that equate to well over $100k per year.  In New South Wales, weekly compensation is based on the “current weekly wage”, a rate that may be as much as 100 per cent of the rate of remuneration for one week of work (excluding overtime, shiftwork, payments for special expenses and penalty rates) or as little as 80 per cent of average weekly earnings (including regular overtime and allowances), depending on the presence or absence of an enterprise or industrial agreement (collective agreement).  In New Zealand, the ACC has a maximum weekly benefit of 80% of average weekly earnings which equates to a benefit maximum of around $96000 per year; earners with incomes above about $120k per year are expected to have supplemental insurance coverage.  Most compensation payments in Australia and New Zealand are taxable. 

This problem of the maximum vexes workers’ compensation systems.  On one hand, the historic compromise and exclusive remedy that are at the foundation of workers’ compensation are meant to provide timely, adequate income compensation without reference to the Courts.  On the other hand, the adequacy of income declines for earners above the maximum to the point where the adequacy of benefits may be questioned.  For earners earning, say, double the maximum, effective compensation may be less than 50% of typical net earnings. 

Should there be a maximum?  Since premiums are often based on a definition of “insurable” payroll, arguments for the sustainability of the system will tend to support a maximum.  How high should the maximum be?  That may depend on the spread of earnings for the population being insured… and that will vary greatly by jurisdiction.

Is now a good time to invest in greater occupational illness and injury prevention?

The global economic crisis brought terms like Gross Domestic Product (GDP) from the financial section of your weekend paper to the lead headlines on the evening news.    Even the non-economists among us are more in touch with the standard definition of a recession (a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP) because of what it means in real, everyday terms to our communities and our families.

    

In the current environment where economic growth is being measured in parts of single percentage points of GDP, many are searching for ways to stimulate growth.   Some argue for cutting red tape and reducing “impediments” to business.  A few even suggest cutting safety and health rules, inspections or enforcement.  It begs the question, is now the time to reduce our focus on OH&S?

A few years ago, the Australian National Occupational Health and Safety Commission (NOHSC) estimated the total direct and indirect cost of workplace injury and illness to the Australian economy at 2000–01 reference year to be $34.3 billion.  That is the equivalent of 5 per cent of Australian GDP.  I was taken aback by the size of this estimate. It made me wonder what the estimate might be for other jurisdictions. 

Last month, László ANDOR, European Commissioner responsible for Employment, Social Affairs and Inclusion, spoke at the Institute of Occupational Safety and Health 2013 conference in London.  His talk separated the myths from the facts about OH&S.  He noted a recent study by the European Agency for Safety and Health and Work that puts the occupational injury and disease loss to the European economy at between 2.6 and 3.8% of GDP.

The International Labour Organization (ILO) in its 2003 Safety Culture at Work study pegged the cost of work-related injury and illness at 4% of the global GDP.  Estimates put the figure at about 3% for the largest economy on earth, the United States. 

These estimates converge on about 3% of GDP average.  Economic growth at that level would be considered healthy in most developed economies.  Recent estimates of current annual growth rates for Canada, Australia and the US are all under that level.  If we could eliminate the direct and indirect costs of workplace injury and illness, the benefits are obvious. 

If more evidence is needed, another study (the Socio-economic costs of accidents at work and work-related ill health [European Commission 2011]) study found, the median value of the profitability index for investments in occupational safety and health (the ratio of pay-off to investment in a particular project ) ranges from 1.29 to 2.89.  Fabulous results for any investment!

Working toward greater health and safety particularly in the low growth, post recessionary period, is not just good for workers, it is good for the economy.  

Who does workers’ compensation really protect?

This question gets asked a lot at public meetings, hearings and classes I attend or facilitate.  I can summarize one perspective with the following: 

 “Workers’ compensation is more about protecting employers than workers… It should be called the ‘Employer Protection Act’… It protects employers from being sued.  It protects them from the real costs of injuries.  It protects employers from having to look the families of the workers they have injured or killed in their eyes and be accountable for what happened.” 

This rather harsh assessment is not without its justifications.  The exclusive remedy workers’ compensation provides does protect employers from being sued by their workers for work-related injuries and diseases; however, it also protects workers from being sued by other workers.  There are some exceptions in some jurisdictions but this protection is an essential element of almost every workers’ compensation system.  More importantly, the no-fault, mostly universal coverage offered by workers’ compensation systems provide timely financial compensation and medical coverage in a way that fault-based systems reliant on the Courts simply cannot.  

Yes, the insurance does protect employers from the real costs of injuries but only to the extent that the cost of injuries exceed the cost of the insurance.  That’s the nature and purpose of insurance:  to protect against rare and costly adverse events.  It is also true that most of employers insured under a workers’ compensation policy in any given year will actually pay more for the insurance than the costs of their actual losses.  Some people are surprised by this statement, but only until they think about other lines of insurance.  The cost of my house insurance protects me from the real cost of a house fire but only if I have one.  Thankfully, my house is still standing and the cost of my house insurance far exceeds the losses I have had or will likely every have in a given year. 

Just because workers’ compensation in a no-fault system and protects an employer from suit does not mean the employer is not held accountable.  Firms with poor claim cost records relative to their industry counterparts will likely face financial consequences through experience rating (also called experience modification, demerits, and surcharges in other jurisdictions).  Put another way, firms who invest in safety and develop a strong safety culture are likely to have fewer injuries with less severity giving them a competitive advantage.    In addition to financial accountability through higher premiums that may hurt competitiveness of poor performing firms, more severe penalties add another layer of accountability in many jurisdictions. 

WorkSafeBC recently issued its annual listing of “administrative penalties” against employers for violations of the Occupational Health and Safety Regulation that put workers at risk whether or not such violations actually resulted in real injury.  This form of accountability goes beyond the financial accountability equal to the dollar value of the penalty, it can also holds the employer accountable in the court of public opinion.  One has only to look at the media coverage related to penalties assessed by WorkSafeBC. 

Who does workers’ compensation really protect? The obvious answer is the worker.  As an insurance nominally paid for by the employer where the beneficiary of compensation is the injured worker, workers’ compensation protects workers and their families from the full financial loss that might otherwise occur as a result of work-related injury.  That protection amounts to billions of dollars every year paid out to injured workers and their families in Canada, the US, Australia and other countries with workers’ compensation systems. 

Often overlooked are the protections extended by workers’ compensation legislation to non-workers.  Spouses and dependents are often beneficiaries of workers’ compensation in the event of a work-related fatality.  Beyond that, the healthcare paid on behalf of the injured worker protect society (taxpayers like you and me) from medical and other healthcare costs that might otherwise be externalized to government programs.

Workers’ compensation systems also impose a duty on the insured employer to prevent injuries.  That duty, when embraced fully, becomes cultural but the duty to protect workers extends protection to every other person in the workplace. 

The prevention imperative of workers’ compensation to directly protect workers also protects kids in schools, customers in malls, and non-worker participants at or near the worksite.  In a sense, workers’ compensation protects all of us in one way or another making it an important element of social policy.

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. 

What does a rising trend in injury costs mean?

The costs of work-related injuries are felt by individuals, families and communities.  The personal and human costs are immense but difficult to quantify.  Injury costs associated with workers’ compensation claims, however, are financial and easily quantifiable. 

Changes in injury claim costs get the attention of employers and workers’ compensation administrators.  The obvious concern is that rising claims costs might be an indicator that claims managers are “giving away the farm”, not managing the claims very well.  I have rarely found this to be the root cause of such a trend.

Rising injury claim costs can be related to external factors.  Healthcare cost inflation is outstripping overall inflation, for example; even if all else remains the same, this factor alone may account for increased claims costs.  The external employment environment may also be a factor.  We know from research that claim duration increases as the employment moves from high demand to steady and from steady to declining demand (given relatively constant labour force supply). 

Occasionally injury claim costs rise because of closer adjudicative scrutiny.  I recall one claims director promoting very early intervention and a medical report every two weeks before a payment could be issued.  The result was increased medical tests and physician visits, which added significantly to costs and did not result in shorter duration. 

I was consulting with one large employer who was considering terminating his third party administrator (TPA) because indemnity and medical costs per claim were on the rise.  As we discussed the situation, it became clear that demographics not claim management practices were the main driver.  As this very large firm had automated and improved efficiency, it had hired fewer workers.  Mandatory retirement had also been eliminated so more workers were working longer (automation actually facilitated a longer work career).  Taken together, the result was an aging workforce and one with a greater level of co-morbidity (diabetes, high blood pressure, obesity).  While injury rates were lower, duration and medical costs were higher every year.  Clearly, these issues—not the TPA’s claims management practices—were driving claim costs upward. 

Recently, I was corresponding with a coordinator for a booming resource extraction firm where recruitment and retention were big issues.  The employer made a point of meeting with all the crews, raising awareness about workers’ comp and disability benefits as well as their extensive EFAP program and easy, on-line extended benefit program.  The result was increased utilization in WC, EFAP, LTD and extended health driving premiums higher.  This was both expected and welcomed because it contributed to a more important corporate objective:  increased employee retention and lower turnover.  The higher premium costs were much less than the cost of recruiting and training of new employees. 

Of course, a trend toward higher injury claim costs may also be related to internal factors.  Increasing caseloads, for example, may be caused by staffing reductions or increased claim volume with insufficient increases in staffing; either way, the result may be less attention per claim and rising injury claim costs.  Other internal changes to systems, policies and procedures may also contribute to higher costs.  One insurer back-filled a significant number of case manager positions with less experienced staff so the more senior staff could be assigned to a particular crisis situation.  At the best of times, the handover of a particular caseload from one case manager to another may contribute to longer claim duration and increased utilization as the new case manager becomes accustomed to the caseload.   When amplified by the simultaneous transfer of many caseloads, the impact on performance measures such as claim cost can be significant.

Whether you are looking at the performance of an overall system or a specific firm, rising injury claim costs cannot be viewed in isolation.  Its meaning must be interpreted within a broader context. 

What “best practices” would you recommend to Case Managers?

Interacting with case managers at conferences and workshops, I learn a lot about case management practices that work… and some that don’t.  I hesitate to call the ones that work “best practices”.  The term is over-used and implies an evaluative process that is usually absent.  More often than not, the identified “best practice” is nothing more than an opinion (perhaps informed, occasionally expert but usually otherwise).

The other problem with “best practices” is the implied universality of the term.  Rarely does a discussion of best practices in case management precisely define the domain to which the identified practices apply. Not all case managers have equivalent duties or work within similar organizational structures; not all legislative frameworks allow for information exchanges that might be considered valuable or desirable.   A particular set of best practices may well exist for a narrowly defined role and organization.  In the absence of that definition, any list of best practices devolves into a set of self-evident generalities like “communicate clearly and often”, “intervene early”, “set expectations”.

Rather than propose a list of best practices in case management, here are four practices I have run across often enough to recommend them for your consideration.  

1.       Three point contact. If there is one practice that is mentioned more than any other, it is this one.  It is often modified and expanded to mean, “Case managers should review the file and, within three days of receiving that file, establish contact (preferably personal) with the treating healthcare professional, employer and worker.”  In practical terms, the treating healthcare professional contact may have to be indirect.  Don’t let that stop you from making personal contact with the worker and employer. (Many jurisdictions put this practice in their required procedures for agents and adjudicative staff.  See South Australia WorkCover Claims Operational Guidelines Chapter 6 page 4 as an example applied to agents and New Your State Insurance Fund Global Case Management for one that applies at an insurer team level).

2.       Facilitate personal contact with decision-making employer and worker.  The vast majority of injured workers return to their “at injury” employer.  The timeliness of that return and its long-term success often rest with the case manager.  Often, the manager or supervisor will be the key person mediating the timing of a return to work. Keeping the worker connected to the employer and the employer actively engaged in thinking about RTW for this person may well lead to improved outcomes.  ( I really like the CCOHS document Best Practices for Return-to-Work/Stay-at-Work Interventions for Workers with Mental Health Conditions FINAL REPORT [May 2010] because it is authoritative and well referenced. I think the personal contact practices identified are widely generalizable to most Case Management situations).

3.       Think mid-week this week, not Monday next week.  Case managers can influence the timing of a graduated RTW, light-duty RTW or work trial.  For most Monday to Friday jobs, there is a tendency to set a Monday start date a week or two in hence.  Research tells us that more injuries occur on a Monday than any other day of the week.  This “Monday Effect” phenomenon alone is reason enough to consider a different approach.  Why not consider the Wednesday, Thursday or Friday before as the RTW date?  Not only will this allow a returning worker more time to adjust to a regular work week, it may shorten duration and reduce costs overall.  

4.       Identify barriers…and how to overcome them.  I recently reviewed a case management system where the insurer and staff had developed a new “tab” that required the case manager to identify barriers to RTW.  Case managers themselves had helped design this part of the systems with drop-down menus of the most common barriers raised or identified in case management.  If the barrier source was identified as “employer” and the reason “wants worker to be 100%,” the course of action might be “case conference with employer” generating an actionable item in the system. If the source was “worker” and the reason “fear of re-injury” then the action might be “arrange work conditioning” or “set up light duties with employer.” The point here is not that you need a new case management system but that identifying barriers and ways to overcome them can be an effective technique in case management. 

There are other practices I think are worth considering (subject to jurisdictional law or corporate policy).  One case manager involved in making entitlement decisions asks if the client wants a text message when the decision is made (yes, a full letter will follow or is immediately available on the electronic file but let’s face it, most of us now depend on our smart phones).  Another routinely uses conference calls to have the worker, employer and treating healthcare professional (often a physio or occupational therapist) together to discuss progress and set up RTW trials.

If you have a practice that you think should be considered by Case Managers, share it through a comment.