Backgrounder: Experience Rating (Mar. 2015)

Backgrounder: Experience rating (Mar. 2015)

What is Experience Rating?

Experiencerating(ER)isa financialincentivesystemusedbytheWSIB/WCBtopromoteworkplacehealthandsafety.Theideaisthatwhileemployersbelongto rate groups, which are supposedto reflecttheir relativehazard,individualemployerscouldbeencouragedto improveconditionsofworkthroughfinancialenticements.PaulWeiler,whopromotedthe conceptin hismajorreview ofthe compensationsysteminthelate70's, indicatedthatbasedon"intuitivepresumption"it seemedtomake sensethatifemployersgot arebateforhavingfeweraccidents,andiftheygotasurchargefor having moreaccidents, thenemployerswouldturntheir mindsandtheir moneytohealthandsafetyinvestments.

Anexperienceratingsystemwasthereforeputinplaceandhas been expandedovertheyears.Thesystem ishighlycomplex andconsumesa significantportionoftheWCB/WSIB's administrativebudget. A corresponding,highlylucrative,industryhasgrown in responseto provideservicesto employerstomaximisetheir rebatesandto protectagainstsurcharges. The stakesare high,forwhile the ratespaidbyemployersareknownelementswhich are acost-of-doing-business--a rebaterepresentsactualprofitand a surchargecanbe asignificantprofit-loss. It isindeeda powerfulincentive system--butto whatend?

Rebatesare given(andsurchargesimposed) with noquestionsasked.

Inorderto understandthebehaviourspromptedbyexperienceratingandtherelatedconsequences, itisimportantto understandtwo keyelementsofthesystem: Rebatesand surchargesarenotcalculatedon evidenceofactualhealthandsafetyconditions. Rebatesand surchargesare calculatedonthecost ofinjuredworkers' claims (endnote 1)

Doesexperienceratinghelpimprovehealthandsafety?

Therearesomeemployerswho arelikelymotivatedbythethreatof surchargesto improveconditionsofwork to preventaccidents.Thereishowever no directlink.Studiesbasedonclaimsdata, areunabletoconcludewhetherthereduction in lost-timeinjuriesseenovertheyearsrepresentsimprovementsin

theconditionsofwork, orclaimsmanagementtechniques. (endnote2). Althoughfewexist, studiesthat lookbeyondtheclaimsstatistics, uncoversignificantevidenceofclaimscontrolbehaviourbyemployers (endnote 3) aswell asattemptstodiscouragereporting ofaccidents.Overall, experienceratingdivertsemployerresourcesawayfromhealthandsafetyinvestmentandto claimsmanagement.Compoundingtheproblem, thisproducesunreliablestatisticson accidentsandespeciallylost-timeclaimswhich theMinistryofLabourreliesonforitsworkplacehealth andsafetyprogrammesincludinginspectionsandpublicannouncementsregarding workplacesafetyin Ontario. Bymanagingtheclaimsofinjuredworkers, employersnot onlygetrebates,butalso canavoidinspectionsandcontinueproductionundisturbedbyhealthandsafetyconcerns.

Doesexperienceratingrepresentahealthandsafetyrisk?

Experiencerating hurtsinjuredworkers.It doessoinamyriadofways.

Perhaps foremost isin thecreationofanhighlyadversarialsystem.Employersare pressuredthrough thetemptationofrebates, and even more, thethreatofsurcharges, to engageinadversarialbehaviour.Once anemployer isinapotentialsurchargesituation, thereisonlyonewayto convertit toa rebate:preventtheinjuredworkerfromreceivingbenefitsoratleastminimisethem.Fortheinjuredworker thiscanleadtonegativehealthconsequenceswhichcomefromuncertainty, trespassonprivacy(employeraccessto theircompensationfile,video surveillance), underminingdoctor-patient relationship, unjustterminationofbenefits,hostileencounters, andincreasedvulnerability (endnote 4) —allleadingto thesignificanthealth ramificationsof stressoverload.

Injuredworkersand theirco-workersgethurt atwork becauseofexperiencerating. Employersdon’twantinjuredworkersto become“alost-timeclaim.”which willreducethe chancesofa rebate, or willcause aheftysurcharge.

Storiesaboundofworkersbeingpushedtoworkwith no timetoheal.Orinsufficienttimetoheal.What shouldhavebeena temporaryinjurycanbecomepermanent.A secondinjurycanoccur,while tryingto use theuninjuredlimbforexample.Toomanypeople endupwithtwoinjuriesinsteadofone.Co-workerscanbecome injuredwhilebearingthe burdenoftheheavieror morerepetitiveaspectsoftheworkintheemployer's“accommodation”plan.Resentmenthasbeen experiencedby manyinjuredworkersbyco-workersandproduction managerswho arefrustratedby thepresenceofsomeonewhoreallyisnot fittowork.This situation can leadto adeteriorating work-environmentmarkedbythe “discourse ofabuse.” (endnote5)

Experiencerating isa healthandsafetyhazardandneedstoberecognised assuchofficially.

Whataboutemploymentofinjuredworkers?Doesexperienceratinghelp?

Foryears, the Boardhasinfactusedthethreatofsurchargesandtheenticementsofrebates, not to promotehealthandsafetyimprovements,but asa levertogetemployerstoprovidequick (immediate ifpossible) returnto work forinjuredworkersasa meansofreducingbenefitpayments. Besidescontinuingto throw injuredworkersintothe unsafeenvironmentofanexperience-ratedemployer, thestrategyisill-advisedbecauseexperienceratingdoesnot supportsuccessfulreturn towork.Theincentivepromotes short-term,rapid,returntowork, butnot suitable, norsustainedreturntowork.

Sinceexperienceratingoperatesusingactuarial risk assessment—onceinjured,a workerbecomesan ongoing risk foranyemployer.Thelogicofthesystemcreatesa risk ofasurchargeto theemployer,iftheworker loseseven onedayfrom workdueto their injuryin eachyear thattheclaim isbeingexperiencerated.Theemployer will consideranyworker with a permanentcompensableinjurya liability.The result?Many employerswill seek to terminatetheemploymentofthatworker–andtodo soinamannerthatdoesnot linkthetermination to theinjury.Thisisnot difficultto do, especiallyin non-unionisedworkplaceswhich constitutethe majorityin Ontario atthistime.

Theworkerwiththeinjurynowhasno jobandnosupportfromthecompensationboardandfacesa competitivelabourmarket.

E.C. Huntlosthisarmina sawmillintheearly1900’sandtestifiedto SirWilliamMeredith (endnote 6) thatheandhisfamilywerein greatpovertybecause,despite hiseffortstofindwork, anemployer “prefersa man with two arms.”Nothing haschangedinthatregard.

Lookingforemploymentwith anew employerdoesnotlessentherisk ofunemploymentrelatedto ER. Because ofthe riskofasurchargeunderexperiencerating, an employertakescarenotto hirean injuredworker.Theymayconsidersuchaworkerto beaccident-prone.Ortheymayknowthatsucha workercouldsuffera recurrencethatcouldbecosted asa new injury.Whileunlawful,manyjobapplicationsask about aprior workplaceinjury.Gapsinemploymenthistoryarealso a goodclueto employers.Therehasbeenlittleresearchonthistopic, however onestudyexaminestheexistenceof thisbehaviourandindicatesit also heightensthediscriminatoryhiring practicesagainstthedisabledin general. (endnote7)

AnEmbarrassment

In2008,theApr. 5 Toronto Star cover storyrevealedthatthedisjointbetweenexperiencerating andhealthandsafety wassogreat thatcompanieswhohadbeen heavilyfinedbytheMinistryofLabourduetoworkplacedeath,weregetting insomecases morethandoublethemoneybackinrebates fromtheWSIB/WCB.The Premier wasembarrassed. WSIB/WCBChairSteveMahoneywascaughtoffguard.Swiftaction wastaken to stopa rebatechequein thesameyearasa death. (endnote8).Butnothing wasdoneto preventthe harmtothelivinginjuredworkers.

Again in2014, theToronto StarNov. 24coverstory headlined:“Dangerousemployersgetbigpayouts:Reportfinds safetyboardstillgivingfirmsrebatesdespitemajor violations---yearsafterStarfirstexposedpractice.”TheWSIB/WCBsimplydoesnot wantto stopexperiencerating.It isa usefultooltogetinjuredworkersoff benefits.But it hasbecomemoreandmoredifficulttojustifywithexposureofhowitworks.

Somethingofamoralcrisis

Inresponseto the ongoing callforsomethingto bedoneaboutexperiencerating, theWSIB/WCBappointedpre-eminentlabourlawyerscholarProf.HarryArthursto look intotheissuealong withotherfunding relatedissues. Inhisreport“Funding Fairness”(releasedMay2012), Prof. Arthursobservedthatsomething wasamissintheprogramandexpressedhisviewthattheBoard “isconfrontingsomething ofa moralcrisis,” Hecalledontheboardto“commititselfto makingthechangesin itsrules,structuresand processesnecessarytoprotectworkersagainstclaimssuppressionandother abusesthat may occur inthecontextofexperiencerating programs” FurthermorehesaidthatiftheBoardcouldnot achievethiswithin 12monthsofreceiving hisReport, then itshoulddiscontinuetheprograms(Ch. 6:Employer incentivesandExperienceRating). TheBoardtooknostepsto make anysuchchangesandin factextendeditsexisting experienceratingprogramduringthisperiod.

Employer representativesclaimexperiencerating isa matterofequity.

Someemployersarguethatthesystemshouldtreatemployers, who put greateffortsinto establishingsafeworkplaces, differentlyfromemployerswithpoorsafetypracticesandtherefore moreinjuries

Wecansupportthat—but whatneedsto bemeasuredistheinvestmentinsafety. Weknow thatcompensation claimsstatisticsarenot areliableindicatorofthe safety oftheworking conditions.Throughclaimsmanagementtechniquesa companycan have a ‘claimsfree’ workplaceandstillhavehighlyunsafeconditionsandmanyinjuries. It may beeligiblefora rebatecheque.

Similarly, another can have a safeworkplace butexperience a seriousinjurye.g.a workerstruck by a drunk driver whilemakingadelivery.Itmaybeslappedwithasurcharge.That isnot equity.

Atpresentemployersthatgetsubstantialfines forsafetyinfractions fromtheMinistryofLabourcan also get a substantialrebatefromtheWSIB/WCBunderexperiencerating.That isnot equity.

Anequitablewayto recognize anemployer’scommitmentto a safeworkplacecouldbethorough an accreditationprocessthatlooksat theconditionsofwork.

Furthermore, experiencerating penalisesthe employer whoismostsupportiveofthe injuredworker.Experienceratingdiscouragesthe kindof behavioursthatpromoteshealing andsafereturntowork.Theemployer whorequirestheworkerto reportto the workplacethedayafterthe injury,regardless oftheinjury,maygetarebatebecauseoftheirclean recordofnolost-timeinjuries,whilecreatingaseriesof safetyproblems fortheinjuredworkerandco-workers.Theemployer who allowstimeoffto healandthensetsupagraduatedreturntowork programthatbuildsupa claimcostforlossofearningsbenefits.Thisemployermayget a surcharge.Thatisnotequity.

Inanyevent, theworkerscompensationsystem wasnot setupasaprivateinsurancecompany.It wassetupona collectiveliabilitysystemin whichemployerssharethe cost ofaccidentsandillnessesand assuchareprotectedfromfluctuating andpotentiallyruinouscostsofa claim.Experience ratingworksagainstthatfundamentalsafeguardforemployers.

Infact, Prof. Arthurspointedoutthatitisillegalunderthelegislationto useexperiencerating asa meansto deliver insuranceequity.(“Funding Fairness”,ch. 6).

TheWSIB/WCBisdeterminedtokeepexperienceratingdespiteitall.

Under thepressureto getridofexperiencerating, andtaking itscuefromtheemployer advocatecommunity, theBoardcommissionyetanother studyonfunding.Thistimeitappointedtheprior headofthe New Brunswick workers’compensationsystem,Mr. DouglasStanley, formerCEOofWorkSafeNB(2000-2010)whorecentlycompleted areportonfundingfortheManitobaWCBproposinga similarmodelthatwas significantlycriticizedbylabour (endnote 9).It wasclearfromthetermsofreferencethatMr. Stanley’sdutywasto construct afundingsystemthat wouldadopt theemployers’ equityargumentforexperiencerating.Itwas soclearthatlegalclinics, unions, andinjuredworkerorganisationshada specialmeeting withMr.Stanleyto explain whytheywouldbeboycottinghisenquiry.There wasno surprisewhenMr. Stanley’sreportwasdelivered(Feb.2014) thatanewformofexperiencerating hadbeen constructed:one thatwillnolonger userebatesand surcharges,but willimbedthefunctioninto the rates.Everyemployer willseetheir ratefluctuatebasedonthecostofclaimsarisingfromtheir workers.The Boardwilluseemployersasa tooltoreducebenefitcostandtheharmsto injuredworkersand theirfamilieswillcontinue.

Howmuchmoneyisspentonthisdubioussystem?

Inthepasttwentyyearswell over3 Billiondollarshavebeen givenback toemployersin rebates(source: WSIBAnnualReportfigures).

Intheyear2007-2008,theBoardspent$523,000,000ontheexperienceratingprogramme.(Inthesameyearit fundedexpendituresonMinistryofLabourinspection andenforcement at$90,000,000.) (endnote10)

Whatcouldwedobetter?

TheBoardcouldusesomeofthatmoneytosupport realimprovementsinworkplacehealth andsafety—ONIWGandtheOFL havelongpromotedtheestablishmentofanExcellenceFund.Usingsomeofthemoneysavedbyterminatingtheexperienceratingprogramme, fundscouldbeusedto provideloans, subsidiesand outrightgrantsto employerswho fitcertaincriteriaandwho areseriouslyseekingto improvethe health andsafetyoftheir employees.

And justthink: with over500million dollarsa yearto playwith, ourcompensationsystemcouldreallyimprovethings forinjuredworkers--noquestionsasked. (endnote11)

IT’STIMETO GETRIDOFEXPERIENCE RATINGLetYour VoiceBeHeard

Endnotes:

1Foracomprehensiveexaminationoftheimpactsofexperienceratingandwhyitisnotbeneficialtoourcompensationsystem,seeIson,Terence.CompensationSystemsforInjuryandDisease:ThePolicyChoices.Toronto:Butterworths,1994.Ch.10:RevenueandFinance.

2 See,forexample:Tompa,Emileetal.“Systemicreviewofthepreventionincentivesofinsuranceandregulatorymechanismsforoccupationalhealthandsafety.”ScandinavianJournalofWork,EnvironmentHealth33.2(2007):85-95.

3 See,forexample:Kralj,Boris.“EmployerResponsestoWorkers’CompensationInsuranceExperienceRating.”RelationsIndustrielles49.1(1994):41-61.

4ForagoodoverviewofthenegativeconsequencesoftheadversarialsystemseetheworkbyKatherineLippel,CanadaResearchChairinOccupationalHealthandSafetyattheLawFacultyoftheUniversityofOttawa.Shehasdoneextensiveworkontheharmdonebyvideosurveillanceandontheruptureofthedoctor-patientrelationship.Forexamplesee: ManagingClaimsorCaringforClaimants:Theeffectsofthecompensationprocessonthehealthofinjuredworkers. Montréal:UQAM,2007.

5Eakin,Joanetal.ReturntoWorkinSmallWorkplaces:SociologicalPerspectiveonWorkplaceExperiencewithOntario’s“EarlyandSafe”Strategy.Toronto:InstituteforWorkHealth,Nov.2002.

6SirWilliamMeredithwasappointedbytheOntariogovernmenttoenquireintocompensationsystemsandtomakerecommendationsforasysteminOntario.HisrecommendationslaidthebasisforthefirstworkerscompensationlawinOntariopassedin1915.Theprinciplesheestablishedatthattimeremainfundamentaltooursystemto-day.

7Harcourt,Marketal.“TheImpactofWorkers’CompensationExperience-RatingonDiscriminatoryHiringPractices.”

JournalofEconomicIssues41.3(2007):681-699.

8TherewereanumberofarticlesintheTorontoStaronthisissue.Seeforexample:“Firmswithworkerdeathstoloserebates.”23Sep.2008

9ManitobaFederationofLabour.MFLResponsetoMorneauShepellDiscussionPaperontheRateSettingModelbyDouglas

C.Stanley.Winnipeg:MFL,2014.

10InstituteforWorkHealth.ReporttotheExpertAdvisoryPanelOccupationalHealthandSafetyPreventionandEnforcementSystem.SummaryMeasures.Toronto:IWH,7June2010.

11Remember,employersunderthecurrentexperienceratingprogrammegettheirrebateswithnoquestionsasked.Theprogrammeisblindtothestorybehindthestatistic.