Tuesday, May 3, 2016

Reconsidering the utility of Alberta's experience rating program

A few weeks back, Alberta announced it will be reviewing its workers’ compensation system over the coming year. One of the topics that ought to be considered is the effectiveness of its experiencing-rate system.

Experience-rating raises or lowers an employer’s workers’ compensation premiums based upon an employer’s claims costs. The rationale for experience rating is that it creates a firm-level incentive for employers to improve safety in their workplaces that otherwise does not exist.

Broadly speaking, Alberta employers are eligible for premium surcharges and rebates of up to 40% (this can vary by employer size). Employers can also receive up to another 20% in rebates under the partners in injury reduction program.

In 2014, these programs were budgeted to operate at a net loss of $173.3 million. There is no analysis of whether these programs improved safety: fewer lost-claim incidents and lower employer claims costs can result from reporting error and employer claims management behaviour.

The academic research suggests that there is some (but uncertain) evidence to support a relationship between experience-rating and safety. But, there is strong evidence that worksite inspections coupled with penalties reduces injuries. Overall, this evidence suggests improved workplace safety is better pursued through enforcement activity.

Given that there is little evidence that experience-rating and other premium rebate programs make workplace safer (but good evidence that these programs incentivize illegitimate claims management behaviour by employers that negatively affect injured workers), Alberta ought to consider terminating these programs. The ~$175 million in cost-savings should be used to fund a four-fold increase in OHS enforcement activity by the government.

-- Bob Barnetson

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