Tuesday, August 7, 2018

CFIB stokes employer anger about Alberta WCB premiums

Like most employer lobby groups, the Canadian Federation of Independent Businesses (CFIB) has been resistant to changes to Alberta’s workers’ compensation system. Most recently, they have been trying to whip up anger about workers’ compensation board (WCB) surplus payments for employers.

To understand what is going on, you need a basic understanding of how workers compensation works and how it is funded. Apologies for the length of this explanation--it is complicated.

Employers pay premiums that fund the WCB. In return, they can’t be sued by the workers they maim and kill. Instead, the WCB provides stable, predictable, and immediate compensation to workers (most of the time, anyhow). Workers’ compensation isn’t perfect, but, in aggregate, it is better than the alternative for all parties.

Employer premiums are set based upon the projected cost of injuries each year in each industry or sector (called the industry rate and expressed as $x per $100 of payroll). Some employers can have their premiums raised or lowered based upon their specific claims costs (this is called experience rating).

When setting premiums, the WCB tries to collect enough money from an industry to cover the current and future costs of injuries incurred by that industry in that year. For example, if I get run down on a job site because there weren’t enough workers hired to act as spotters, there will be current-year costs (such as wage-loss and medical aid) plus likely future costs (such as permanent wage loss payments or future medical treatments as my discs degenerate from the injury).

Ensuring that the WCB has collected enough money from this year’s employers to cover this year’s injuries prevents the transfer of claims costs over time. That is to say, if the WCB did not collect enough to cover the future costs of my injury from the current group of employers, then future employers (who likely had nothing to do with my injury) would have to pay premiums to offset those costs (which isn't really fair to the future employers).

The money to pay for injuries is collected in an accident fund. Alberta’s accident fund is about $11 billion. This money is invested and the returns help off-set future claims costs (which will total about $17 billion, all in).

Alberta’s accident fund is considered fully funded when it is between 114% and 128% of projected injury costs. This “over funding” reflects that not every injury or illness that occur in this year will be claimed this year. This is particularly the case with occupational diseases, that often take years to manifest themselves and even longer to be accepted. So having a cushion helps ensure today’s employers pay for the cost of today’s injuries.

When the accident fund is over 128% due to greater than expected investment returns, the WCB’s past practice has been to give the surplus to employers on a pro-rated basis. This has happened in (I think) 9 of the last 13 years. Over the past five years, this has amounted to somewhere around $2 billion in surplus payments. In 2017, the fund was at 127%, so there are no surplus distributions in 2018.

It is important to note that previous surpluses have not been the result of premium overpayments by employers (but rather come from investment income). Indeed, over the last three years, employer premiums have not even covered the cost of injuries and have been supplemented by investment income. The CFIB typically forgets to mention its members are being undercharged for thir workers’ injuries.

The WCB could have chosen to do something else with accident fund surpluses (e.g., improved benefits, addressed long-standing contested claims, paid for better injury prevention efforts). But the WCB has long been captured by employer interests and focuses on keeping the cost of injuring workers as low as possible for employers. So its policy has been to pay out surplus distributions.

During the recent WCB review, the review panel recommended keeping surpluses inside the WCB system and using them for other purposes. Specifically, they said:
Recommendation 44:

Amend the Workers’ Compensation Act to make clear that money in the Accident Fund is in trust for the benefit of workers and employers to support a sustainable workers’ compensation system.

Seen in this context, the current practice of distributing a “surplus” to employers is not appropriate. Under the current practice there is no way to ensure that the distributed money will be used for workers’ compensation purposes. It flows to employers with “no strings attached”. In our Panel’s view, this practice should end, and a more appropriate policy should be designed to address instances where the Accident Fund exceeds the target range established in the WCB Funding Policy. We believe this policy should be established and in place to deal with any “surpluses” that are realized from the 2017 assessment year. (p.116).
The New Democratic government slightly amended section 91(2) of the Workers' Compensation Act to say:
91 (2) The general purpose of the Accident Fund is to support a sustainable workers’ compensation system for the benefit of workers and employers.
But they did not go so far as to prohibit surplus distributions.

The WCB is now proposing a slight amendment to its funding policy (consultation concludes August 13). The gist is that when the accident fund is larger than 128% of expected costs, the surplus get allocated in a couple of ways:
  1. The Board retains the discretion to allocate surpluses as its sees fit.
  2. If premiums were too high, then the premium overage goes back to employers (again, this historically hasn't been the cause of surpluses and premiums have been set too low).
  3. If investment income results in a surplus, the funds are allocated between employers and programs designed to reduce injuries.
Basically, the WCB is making allowance for the possibility that surplus investment returns could be allocated to making workplaces safer, rather than just lining employers’ pockets. Not surprisingly, the CFIB opposes any redirection of WCB surpluses to prevent injuries.

Instead, it says that employers should be trusted to use the rebate to improve safety. In light of recent research on injury rates and employer non-compliance with occupational health and safety laws in Alberta, trusting employers to protect workers is basically a laughable proposal.

Further, the CFIB wants the accident fund surplus distribution threshold set at 110% of projected costs. The result of this will almost certainly be the development of an unfunded liability in the accident fund.

It is a bit weird that a business group would be proposing a fiscally irresponsible policy change—at least until you think it about some more. An unfunded liability caused by the CFIB’s proposal will mean one or more of three things:
  1. Future employers will end up paying for the costs of injuries caused by present-day employers.
  2. Taxpayers will be forced to cover the unfunded liability.
  3. The WCB will be forced to reduce worker benefits.

The CFIB’s proposals make more sense once we see that the CFIB is seeking to externalize the cost of injury from its present members onto other parties (most likely future injured workers and taxpayers).

That is to say, this whole campaign is about reducing the cost of injury to employers by transferring it to workers—either through injuries, crappier injury compensation, and/or higher taxes. For this reason the government and WCB appear to quite rightly be ignoring the CFIB.

-- Bob Barnetson


  1. "Employers pay premiums that fund the WCB. In return, they can’t be sued by the workers they maim and kill." How insensitive can you be? Small businesses care deeply about their employees, most of them are family and friends. It is in their best interest and a top priority to provide a safe and healthy work environment.

    "...the CFIB wants the accident fund surplus distribution threshold set at 110% of projected costs. The result of this will almost certainly be the development of an unfunded liability in the accident fund." Do you have an ounce of proof of your claims? There is no basis for the doom and gloom you predict here.

    1. Thanks for your note, Amber. The evidence is pretty clear that Alberta employers structure work in ways that injuries 1 in 5 workers each year.

      Ontario provides a useful historical case for what happens when there is underfunding of accident funds.

  2. I do not authorize the use of my picture on your blog.