Experience rating of workers’ compensation premiums in Ontario seems to be encouraging employers to focus more on managing claims and/or accommodating injuries rather than on prevention.
This is one of the key findings of a new study from the Institute for Work & Health (IWH) that looked at the relationship between the degree of experience rating and various workers’ compensation claim outcomes. It seems that what happens after an accident, not before, is what’s being emphasized as a result of experience rating,
says IWH Scientist Dr. Emile Tompa, the principal investigator.
Tompa’s study is to appear in a special issue of Policy and Practice in Health and Safety coming out in May. With the release of Harry Arthurs’ review of funding within Ontario’s workers’ compensation system expected soon, Tompa’s study and the special issue are timely.
Workers’ compensation boards will want to enhance the positive aspects of experience rating programs, while reducing their negative ones,
Tompa says.
Experience rating remains controversial
Experience rating is adopted by workers’ compensation boards to provide fairness in insurance premium costs and to encourage vigilance around health and safety by offering financial incentives to employers for good performance. Ontario introduced its principal experience rating program, New Experimental Experience Rating (NEER), in 1984.
Under this program, firms pay premiums based on the industrial rate group within which they operate. At the end of the year, they receive a rebate or surcharge depending on the degree to which their actual claims costs are lower or higher than the average. This “degree” is expressed by something called “the rating factor,” which is set by the Workplace Safety and Insurance Board (WSIB) ahead of time so firms know how their claims costs will affect them financially.
The rating factor essentially defines the percentage of financial responsibility an employer will assume for compensation claim costs that are higher or lower than the average for their rate group. That is, the higher the rating factor, the higher the relative rebate or surcharge when costs differ from the average. In Ontario, 60 to 70 per cent of employers have a low experience rating factor, and approximately five per cent have the highest experience rating factor.
Experience rating tends to be controversial. Groups such as unions and injured worker organizations feel experience rating runs counter to a no-fault system in that employers can be financially penalized for having costly claims. They also feel it may encourage employers to cut costs in ways that do not result in safer workplaces (e.g. non-reporting of compensable injuries and illnesses, encouraging injured workers to return to work too early).
On the other hand, employers tend to feel that experience rating makes things fairer by rewarding them financially for keeping workers safe, and helping to ensure that their premiums more accurately reflect their costs to the workers’ compensation system.
Incentive affects secondary prevention
Tompa and his team set out to explore just what types of employer behaviours are being encouraged by experience rating. They looked at a sample of 21,558 firms that participated in WSIB’s NEER program from 1998 to 2007. At the firm level, they looked at a range of claim outcomes that provide insights into safety and claims management activities.
The researchers found the following:
- Firms with a higher rating factor (i.e. a higher degree of experience rating) tended to have fewer lost-time claims (LTCs) and more no-lost-time claims (NLTCs) than similar firms with a lower rating factor.
This suggests that the incentive may be primarily for secondary prevention—that is, work disability reduction—through accommodation or cost-focused management of lost-time claims, or some combination of these practices,
says Tompa.The study does not allow us to distinguish among these possibilities.
- Firms with a higher rating factor did not have fewer permanent impairment claims.
Although the decline in LTC rates may reflect some improvement in the prevention of work injuries when firms face greater financial consequences for them, this suggests that the incentives to prevent lost-time injuries primarily affect less serious injuries that are not permanent,
says Tompa. - Firms with a higher rating factor were more likely to have claims in categories that could be suggestive of cost-focused claims management practices. That is, a higher degree of experience rating was associated with an increase in permanent impairment claims that result in no lost time from work, denied claims (which can arise for various reasons, one of them being appeals by employers), claims with cost relief and claims that reopen after the three-year experience rating window.
To see the Policy and Practice in Health and Safety issue devoted to experience rating when it becomes available, which will also include studies led by IWH Scientist Ellen MacEachen and IWH Research Associate Liz Mansfield, go to: http://www.tandfonline.com/toc/tphs20/10/1?nav=tocList.