Permanent Disability Award Calculations: Stabilizing Costs for Employers
As the sole funders of WorkSafeBC, it’s safe to say that employers are alarmed when seeing major fluctuations in premiums. Where is the consistency? On May 25, 2017, the Board of Directors approved the release of a discussion paper with options and proposed policy amendments regarding permanent disability award calculations. The proposed idea is “whether to stop using the projected total cost of permanent disability awards when calculating an employer’s experience rating (ER). Instead, WorkSafeBC would like to include the amounts of these awards as they are paid out to workers over time.” The goal behind this is to stabilize costs for employers.
A lot of employers spend ample time and money on Occupational Health and Safety with the goal in mind to be incident free. Employers in most industries realize that this isn’t always attainable. Incidents do happen and they need to be managed efficiently. This means offering modified work with respect to the injury, ensuring that employees receive appropriate medical aid; and if they lose time, they are able to return as fast and safely as possible. Efficient claims management is in the best interest of both employees and employers.
When it comes to claims costs, even with strong claims management efforts there are still costs that employers cannot control. Every now and then employers will experience a spike in their claims costs due to these unfixed costs. These costs, accrued from the single injury year, will typically impact premiums for the 3 years to follow. Specifically, with permanent disability awards that are issued, even if lost time and medical aid costs are minimal, disability awards add a hefty sum to the claim year, affecting future premiums. For all employers, but especially smaller ones, the cost of disability awards increase premiums significantly. Even employers who are able to maintain low premiums on a long-term basis can be hit with a claim that qualifies for a disability award and experience the negative impact this has on their experience rating assessment (ERA).
Therefore, the discussion is being opened for stakeholders, like yourself, to comment before September 15, 2017.
How does this work?
Rather than a permanent disability award being paid out as a lump sum, it will be paid out over time to the employee. Similar to the current system for other costs, only what is paid out over the 3 experience rated years will affect the experience rating for the respective injury year. The costs will only be what is paid out in those three years toward this disability award and the rest will be absorbed by the industry.
Current example: A 30-year-old employee makes an annual income of $50,000. He is injured in 2015 and granted a disability award for 2.5% of his annual income until retirement age (65 years old.) If paid out in a lump sum, this would be $43,750 in claims costs attached to 2015. This will impact the employer’s premiums in 2017, 2018 and 2019.
WSBC proposed changes example: Using the same scenario in the example above, the $43,750 will be paid out over 35 years until the employee is 65. Only $1,250 would be paid out per year in this example, therefore only $3,750 would contribute to the 2015 claims costs for this employer in turn effecting premiums for 2017, 2018 and 2019. The remaining $40,000 will be absorbed by the respective rate group the employer belongs to.
What does it mean when costs are absorbed by the rate group?
When costs are absorbed by the rate group, these costs will no longer affect employers individually but rather as a whole. In turn, these costs affect base rates. As most employers realize, even those in a discount, base rates will always effect what is being paid in premiums. This proposed idea may warrant some concern, in regard to the outcome this will have on base rates; however, WSBC has determined that most rate groups will only see a 0.005% increase to their base rates, while rate groups with more risk may experience a 0.01% increase. They are estimating, these absorbed costs will only impact base rates by a cent or a fraction of a cent.
We feel that this will have a positive impact on employers from all industries. This proposed amendment will stabilize claims costs in some regard for those employers greatly impacted by disability awards and protect them from seeing spikes in their surcharge or discount. It will have a smaller impact on the ERA because it will be a reduced amount paid out until it no longer effects the employer. TeksMed encourages you to read the full discussion paper on WorkSafeBC linked below. The consultation period for this item will end on Friday, September 15, 2017. We would love to hear your feedback and answer any questions you may have regarding this proposed amendment.
Find the discussion paper and the ability to comment on the link below: