Everyone has an opinion on health-care insurance, with well-publicized debates over the advantages and disadvantages of single-payer public systems versus competitive private insurance approaches.
A similar debate is present, at times, in workers’ compensation schemes, which are the oldest social security systems in North America. A new Issue Briefing from the Institute for Work & Health examines workers’ compensation costs in Canada and in the state of California. In California, benefits are provided mainly through private insurers, while in Canada, workers’ compensation is mainly delivered through a single public agency in each province.
The briefing shows that the administrative costs of the workers’ compensation system in California are much higher than in Canada.
Workers and employers gain more benefit from the publicly-administered Canadian systems than from the competitive private insurance market for workers’ compensation in California,
says IWH President and Senior Scientist Dr. Cameron Mustard, the briefing’s author.
Published in February, the briefing specifically examines wage replacement benefits, health-care treatment expenses and administrative costs. California and Canada have economies that are approximately similar in scale. In 2007, about 15 million workers were insured for workers’ compensation in California. In Canada, 14 million workers were insured.
Comparing costs and benefits
The briefing – which draws from several statistical reports and published research on workers’ compensation – shows that in 2007, $9.9 billion was paid in wage replacement to workers and health-care service reimbursements in California. In Canada, $7.3 billion was paid over the same time period. (Figures appear in each country’s respective currency).
In California, health-care expenses for injured workers were much higher than in Canada. They accounted for about 55 per cent of total benefit costs, or about $350 per covered employee. In Canada, health-care costs were less than 30 per cent of the total benefit costs, or about $150 per employee. The higher prices and greater intensity of health-care treatment in California account for these differences.
Administrative costs in California, including profits, brokerage fees and overall system administration, totalled $5.3 billion; Canada’s administrative expenses were about $1.3 billion. They included costs associated with managing the provincial workers’ compensation boards as well as funding for occupational health and safety programs.
Systems are distinct
Although the systems follow broadly the same principles, there are differences that need to be acknowledged, the briefing points out. One factor to consider is the way that wage replacement benefits are structured. The benefit rate and maximum weekly benefit is lower in California than in Canada. The Canadian system provides a larger share of benefit expenditures directly to disabled workers as wage replacement benefits.
However, in California, more disability episodes – between 25 and 30 per cent – are awarded a permanent disability benefit. In Canadian systems, this figure is about 10 per cent, due to statutory differences in the definition of eligibility for permanent partial disability and the greater involvement of legal representation in California.
Given the renewed interest from workers’ compensation policy decision-makers in examining the costs and benefits of compensation systems, the briefing concludes: “There is very little evidence that competitive insurance markets are more efficient in the provision of health-care services or in providing wage replacement benefits to injured workers.”
The full Issue Briefing is available for download at: www.iwh.on.ca/briefings/comp-california-canada
| California (2) | Canada (3) | |
|---|---|---|
| Covered employees | 15,250,000 | 13,980,000 |
| Wage replacement benefits ($ million) | $4,532 | $5,255 |
| Medical care and vocational rehabilitation ($ million) | $5,385 | $2,052 |
| Sub-total: Benefits paid ($ million) | $9,917 | $7,307 |
| Insurer underwriting profit (loss) ($ million) | $1,976 | $0 |
| Administration expenses (4) ($ million) | $5,323 | $1,306 |
| Total cost ($ million) | $17,601 | $8,613 |
| Total premium revenue (5) ($ million) | $13,200 | $8,998 |
| Benefits paid per covered employee | $650 | $523 |
| Administrative expenses per covered employee | $478 | $93 |
| (1) U.S. and Canadian cost and benefit estimates are recorded in respective national currencies. | ||
| (2) 2008 Annual Report. California Commission on Health and Safety and Workers’ Compensation (CHSWC). State of California, Department of Industrial Relations, December 2008. An estimate of amounts paid by self-insured employers and the State of California, representing $4.175B, are included in this system-wide cost and benefit summary. | ||
| (3) Key Statistical Measures, 2007. Association of Workers’ Compensation Boards of Canada, June 2009. Estimate of the insured workforce is obtained from the Institute for Work & Health, http://www.iwh.on.ca/compensation-fact-sheets | ||
| (4) Expenses for the California system include: loss adjustment expenses ($2.59B), commissions and brokerage fees ($0.94B), other acquisition expenses ($0.44B), general expenses ($0.99B) and taxes ($0.35B). Expenses for the Canadian system include incurred expenses related to the administration and management of provincial workers’ compensation boards. | ||
| (5) Total premium revenue for the Canadian schemes combines the amount reported by the Association of Workers’ Compensation Boards of Canada (2) for all jurisdictions except Quebec with total employer assessment income ($2.277B) reported in the 2007 financial statements of the Quebec CSST. | ||