Experience Rating Review Committee · PDF fileThe following report provides background information on the Experience Rating Program, the Experience Rating Review Committee’s report

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Experience Rating Review Committee Recommendations WCB Board’s Request for Feedback

June 22, 2015

The WCB has committed to an external review of the Experience Rating Program every 3 to 4 years to ensure it continues to meet prevention and safety objectives in a fair and equitable manner. The most recent review was conducted in 2014 by a six-person committee, comprised of equal employer and labour representation. The Experience Rating Review Committee put forward six recommendations, two of which did not have consensus. The following report provides background information on the Experience Rating Program, the Experience Rating Review Committee’s report and recommendations and WCB’s viewpoints. The last Committee of Review recommended the Board look for ways to seek additional stakeholder input. Since the committee was unable to reach consensus on all recommendations, the Board is seeking further input to assist them as they consider the committee’s report. Please forward your responses by July 7, 2015 to Sharon Acres ([email protected]), Director of Employer Services.

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TABLE OF CONTENTS Experience Rating Program Background .................................................... 3 Experience Rating Review Committee ........................................................ 4 Committee Report and Recommendations ................................................. 5 Further Considerations ............................................................................... 7 Appendix A – Experience Rating Review Committee Report ...................... 8 Appendix B – Impact analysis by individual recommendation ................... 18

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EXPERIENCE RATING PROGRAM BACKGROUND

The Experience Rating Program was implemented in 2005 to recognize individual employer experience and to provide incentive for employers to positively influence injury prevention and safety in the workplace. The program adjusts industry premium rates to reflect an individual employer’s claims history. Employers may receive a discount for a good claims record or be surcharged for a poor claims record.

All eligible employers are included in the Experience Rating Program based on the size of total base premiums (before discounts and surcharges are applied) over a three-year evaluation window. Employers who have paid base premiums of less than $15,000 over three years participate in the Standard Program, where discounts and surcharges are applied based on the number of time loss claims. The maximum discount is 25% and the maximum surcharge is 75%. Employers with $15,000 or more in base premiums over three years participate in the Advanced Program. Discounts and surcharges are calculated by comparing the claims experience of individual employers to that of their industry. The maximum discount is 30% and the maximum surcharge is 200%.

Discounts or surcharges are calculated when the annual premium rates are set in the fall of each year and are applied to an employer’s industry premium rate for the upcoming year. Employers are notified of their industry premium rate and applicable discount or surcharge on their annual Rate Notice. This notice includes information about the Experience Rating Program as well as an explanation of how an employer’s discount or surcharge was calculated.

For more information in the Experience Rating Program, please view our Experience Rating Brochure on our website.

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EXPERIENCE RATING REVIEW COMMITTEE The role of the Experience Rating Review Committee (ERRC) was to represent the interests of stakeholders and provide input and feedback regarding the Experience Rating Program. A six member committee was appointed, made up of three representatives from labour and three representatives from employers. The objective of the review was to ensure the Experience Rating Program continues to support prevention and safety behavior change and properly reflect an individual employer’s claims experience. In reviewing the Experience Rating Program, the committee considered the following:

• Experience Rating Guiding Principles – The committee reviewed the Experience Rating Program guiding principles to ensure they were clear and reflect the true intent of the program.

• Standard Program Discount Criteria – Employers in the Standard Program currently pay the industry premium rate if they have one time loss claim in the three year window. The ERRC discussed the Standard Program discount criteria and the impact one time loss claim can have on an employer’s discount.

• Transition from Standard Program to Advanced Program – The committee examined the impact of employers moving from the Standard Program to the Advanced Program when base premiums reach $15,000.

• Impact of Old Claims – The committee discussed the impact that older claims can have on an employer’s experience rating and considered the impact of removing older claims from experience rating calculations.

• Communication – The committee reviewed current experience rating

communications and discussed how to enhance employer understanding of the Experience Rating Program.

• Program Cost – The committee discussed the cost of the program and the

revenue difference between total discounts paid and surcharges collected.

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Recommendation 1: The committee recommends that the following new guiding principles be adopted as follows: The Experience Rating Program: • Fairly and equitable represents employers’ individual claims experience • Provides incentive that positively influences employer prevention and safety

behaviour change • Contributes to lower injury frequency and claim durations

Recommendation 2: Non-Consensus Employer representatives recommend implementing a $500 minimum claim cost to the standard program only. The advanced program is already a cost based program therefore limiting the cost of a claim in this program is not in keeping with the program parameters for larger employers. Labour representatives are not in agreement with this recommendation.

Recommendation 3: The committee recommends increasing the base participation factor in the advanced program to 46.5%, the point at which employers would see an increase of no more than 10% to their experience rate. While this does not solve the transition issue in its entirety, it is a step in smoothing the transition and does not have significant financial impacts to a large number of employers.

Recommendation 4: With the increase in the maximum assessable wage over the next few years there is potential for more employers to move from the standard to advanced program. In order to help minimize the number of employers moving from the standard to advanced programs simply due to changes to the maximum assessable wage or salary increases over the last several years, the committee recommends the base premium threshold be increased. The committee requested that WCB provide guidance as to what the new base premium threshold should be. Based on WCB’s recommendation, the committee agrees that the base premium threshold be increased to $21,000.

COMMITTEE REPORT AND RECOMMENDATIONS The EERC feels that overall, the Experience Rating Program is having a positive impact on injury rates and claims experience in Saskatchewan. The committee put forward six recommendations. There were two recommendations on which the committee was not able to reach consensus. The following are the ERRC’s recommendations:

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Recommendation 5: Non-Consensus Employer representatives recommend removing claims that are 20 years and older from an employer’s experience rating calculation. Labour representatives do not support removing any claims from the experience rating calculation.

Recommendation 6: While the committee did not provide any specific recommendations for communication changes they do believe that the rate notice needs to be easier for employers to understand. The committee suggests that the WCB consult with some employers in both the Standard and Advanced programs to get their input and feedback on any draft communications to ensure plain language. All committee members agreed to share draft communications with their members for feedback.

The ERRC acknowledged that their recommendations do not resolve the revenue difference between discounts and surcharges and agreed that future revenue requirements associated with the Experience Rating Program be funded through premium rates. Please see Appendix A for the ERRC’s full report. Please see Appendix B for impact analysis of each recommendation.

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FURTHER CONSIDERATIONS After further consideration of the ERRC’s recommendations, the WCB offers the following viewpoints. The impact of these suggestions has not been determined at this time. With respect to Recommendation 2, the WCB is committed to prevention and safety and working with employers and workers to achieve Mission: Zero. Zero Injuries, zero fatalities, zero suffering. From the WCB’s perspective, we do not feel a $500 minimum claim cost is consistent with the Mission: Zero message. As an alternative, consideration could be given to modifying the definition of a time loss claim to exclude wage loss payments that are solely a result of medical appointments. The transition from the Standard Program to the Advanced Program is a difficult situation to resolve. The ERRC looked at a number of options, however it is difficult to find a change in program parameters that is fair and does not have significant financial impacts for the majority of employers. From WCB’s perspective, increasing the base participation factor in isolation, while it may help a very small number of employers, does not resolve the transition issue. Our thoughts are that increasing the base premium threshold to $21,000 might be a better alternative as it would help minimize the number of employers who could experience the transition from the Standard Program to the Advanced Program simply due to the higher base premiums driven by increases to the maximum assessable wage. In regards to the impact of older claims (Recommendation 5), the WCB acknowledges that the impact of these claims on an employer’s experience rating can be a concern for employers. Long term claims are generally capitalized when the medical condition has stabilized. Capitalization means that the employer’s experience is charged with the present value of all future costs estimated on the claim. Currently only wage loss and earnings replacement costs are removed from experience rating calculations when a claim is capitalized. Any ongoing medical and vocational rehabilitation costs continue to impact future experience rating calculations. As an alternative, the claims capitalization process could be changed so that all costs are removed from an employer’s experience rating calculation at the point that a claim is capitalized.

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APPENDIX A – EXPERIENCE RATING REVIEW COMMITTEE REPORT October 30, 2014 Mr. Peter Federko Chief Executive Officer Saskatchewan Workers’ Compensation Board 200 – 1881 Scarth Street Regina SK S4P 4L1 Dear Mr. Federko; We, the Experience Rating Review Committee, have completed our review of the Experience Rating Program. We appreciate the opportunity the WCB has provided us to participate in the review of the program. The Committee met on four occasions and discussed a number of issues that are outlined in the attached recommendation document. The Committee would like to acknowledge that while there are many factors that can influence changes in safety behaviour, the Experience Rating Program is having a positive impact on injury rates and claims experience in the province of Saskatchewan. For these reasons, the Committee does not see a need for significant changes, however has put forward six recommendations to help address some issues that committee members have received feedback on. You will note that there are two recommendations that the committee could not reach consensus on. The Committee also recognizes that the recommendations do not eliminate the revenue difference between discounts and surcharges and understands that any future revenue requirements associated with the Experience Rating Program will be funded through premium rates. If you have further questions regarding the deliberations of the Committee, please feel free to contact us. Sincerely,

Reid Bews Employer Representative

Lori Johb Labour Representative

Marilyn Braun-Pollon Employer Representative

Terry Parker Labour Representative

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Curtis Hemming Employer Representative

Ron St. Pierre Labour Representative

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Recommendation 1: The committee recommends that the following new guiding principles be adopted as follows: The Experience Rating Program: • Fairly and equitable represents employers’ individual claims experience • Provides incentive that positively influences employer prevention and safety

behaviour change • Contributes to lower injury frequency and claim durations

Experience Rating Review Committee Recommendations

A. Experience Rating Guiding Principles

The committee felt that the guiding principles should be revisited to ensure that they are clear and measurable and reflect the true intent of the program. The committee feels the concept of fairness continues to be an important component of the guiding principles however questions the relevance of advancing closer relationships between employers and workers as a key principle of the program.

B. Standard Program Discount Criteria

Employers in the standard program currently pay the industry premium rate if they have one time loss claim in the three year window. The committee reviewed and discussed the following options regarding the standard program discount criteria:

a) Allow a discount with one time loss claim in the standard program The committee considered the possibility of providing a discount with one time loss claim however believe this goes against the Mission: Zero strategy and may send the wrong message that one claim is acceptable.

b) Minimum claims cost threshold of $500 The committee looked at the option of excluding time loss claims with costs under $500 from the experience rating calculation.

Employer committee representatives are concerned that employers who have one small claim are being labelled as an unsafe employer. The removal of claims under $500 lessens the impact of these very small claims on an employer who would otherwise lose their 25% discount. While there could be some risk of an employer not reporting a claim to stay under the threshold, employer committee members believe the threshold may actually encourage workers to seek medical attention and employers to report these small claims as they would not be concerned about the impact to their experience rating. Employer representatives also believe this is a good incentive to keep employers on track with their safety programs. Employer representatives also feel the $500 minimum claim cost addresses the most frequent concern expressed by small employers regarding the significant impact of a very small claim on their experience

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Recommendation 2: Non-Consensus Employer representatives recommend implementing a $500 minimum claim cost to the standard program only. The advanced program is already a cost based program therefore limiting the cost of a claim in this program is not in keeping with the program parameters for larger employers. Labour representatives are not in agreement with this recommendation.

rating. It should be noted however it would still count in their overall injury rate, but it just wouldn’t impact the firm’s experience rate. Labour Representatives on the other hand believe a minimum claim threshold does not hold the employer accountable and is not consistent with the Mission: Zero message. The labour committee members feel the minimum threshold creates incentive for an employer to keep a claim’s cost under $500. The view is employers may return injured workers to work sooner doing less meaningful work or require them to seek medical attention outside of work hours to keep costs below the minimum. The labour members also do not think the minimum threshold is worth the risk for the 159 employers who would benefit.

C. Transition from Standard to Advanced Program

The committee reviewed the impact on employers making the transition from standard to advanced program. There are a small number of employers (441) who are financially impacted through a reduction in discount or increase in surcharge when they move from the standard to advanced program. The committee discussed the following options with respect to the transition from standard to advanced:

a) Reduce maximum discount for standard employers to 10%, 15% or 20%. b) Implement participation factor in standard program. c) Move to a cost based program for standard employers. d) Eliminate participation factor in advanced program. e) Increase base participation factor to 82.5%, the point at which transition is

smooth between standard and advanced programs. f) Increase base participation factor so that the maximum increase for an employer

is no more than 10%. g) Adjust base premium threshold for an employer to be included in the advanced

program from the current $15,000 over three years.

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Recommendation 3: The committee recommends increasing the base participation factor in the advanced program to 46.5%, the point at which employers would see an increase of no more than 10% to their experience rate. While this does not solve the transition issue in its entirety, it is a step in smoothing the transition and does not have significant financial impacts to a large number of employers.

Recommendation 4: With the increase in the maximum assessable wage over the next few years there is potential for more employers to move from the standard to advanced program. In order to help minimize the number of employers moving from the standard to advanced programs simply due to changes to the maximum assessable wage or salary increases over the last several years, the committee recommends the base premium threshold be increased. The committee requested that WCB provide guidance as to what the new base premium threshold should be (see attached impact analysis). Based on WCB’s recommendation, the committee agrees that the base premium threshold be increased to $21,000.

In all of the above situations, except for f) and g), the committee felt it was difficult to find a change in program parameters that would be fair and equitable and not result in significant negative impact to a large number of employers. Decreasing the discount in the standard program would impact over 18,000 employers vs. the 441 currently impacted by the transition from the standard to advanced program. The implementation of a participation factor in the standard program also has a significant impact on the level of discount for a large number of employers and was not well received when implemented in 2006 and subsequently removed. A cost based program for smaller employers is not consistent with the objective of keeping the program simple for the vast majority of employers who fall within the standard program. Finally, the impact of increasing the base participation factor to 82.5%, the point at which transition is seamless between the two programs, is too high for too many employers to make this a viable alternative.

D. Impact of Old Claims

The committee discussed the impact that older claims can have on experience rating and reviewed the impact of removing claims that are 10 years, 15 years or 20 years old. Employer committee representatives raised the question of when employers should stop being penalized for old claims and when, in keeping with insurance principles and the spirit of collective liability, the industry as a whole should be paying for these claims. Employer safety programs and practices may have changed significantly since the claim occurred however the employer continues to be penalized for these old injuries and there may be little the employer can do to influence the claim after a certain point of

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Recommendation 5: Non-Consensus Employer representatives recommend removing claims that are 20 years and older from an employer’s experience rating calculation. Labour representatives do not support removing any claims from the experience rating calculation.

Recommendation 6: While the committee did not provide any specific recommendations for communication changes they do believe that the rate notice needs to be easier for employers to understand. The committee suggests that the WCB consult with some employers in both the Standard and Advanced programs to get their input and feedback on any draft communications to ensure plain language. All committee members agreed to share draft communications with their members for feedback.

time. Employer members feel that at some point, an employer should be given the opportunity to positively impact their rate and move into a discount position. Labour Representatives on the other hand feel the employer should be held accountable and responsible for the claim for as long as the worker is injured.

E. Communication

The committee reviewed the current brochure and rate notice letters that employers receive and had some discussion around how employer understanding of the program could be enhanced. The committee members felt that there is not likely a broad enough understanding of the program among employers however feel there is a balance between enough and too much detail and cautioned against providing too much information, as that may cause more confusion.

For information on the financial impact of the recommended changes, please refer to the Impact Analysis that follows.

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Experience Rating Review Committee Recommendation Impact Analysis

The following information shows the estimated combined impact of implementing the following four recommendations for the Experience Rating Program:

1. Implement a $500 minimum claim cost to the standard program only. 2. Remove claims that are 20 years and older from employers’ experience rating

calculations. 3. Increase the base participation factor in the advanced program to 46.5%, the

point at which employers would see an increase of no more than 10% to their experience rate.

4. Increase the base premium threshold for movement into the advanced program.

Determining a New Base Premium Threshold The current base premium threshold to move into the advanced program is $15,000. The committee requested that WCB provide direction as to what the new base premium threshold should be. The following are items that WCB has considered in recommending what the new base premium threshold should be:

1. The maximum assessable wage increased in 2014 for the first time since the implementation of the experience rating program. In future years, the maximum assessable wage will be adjusted in accordance with the increase to Saskatchewan’s average weekly wage. It is estimated that the maximum assessable wage will increase approximately 50% over the next 3-4 years. If the 50% increase is applied to the base premium threshold, the base premium threshold increases to $22,500.

2. The average weekly wage in Saskatchewan has increased 40% since 2005. If this factor is applied to the base premium threshold it moves to $21,000.

3. When the experience rating program was introduced in 2005, the distribution of employers between standard and advanced was 10% advanced and 90% standard. If that same 10% is maintained in today’s environment, the base premium threshold increases to approximately $23,000.

Taking into consideration all of the above points and the fact that not all workers earn the maximum wage, the WCB is recommending the base premium be increased to $21,000 and be reviewed again with the next program review.

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Financial Impact The following table shows the percentage change that employers would see with the recommended changes. Eight out of ten employers would see no change to their experience rate. Change to Experience Rate # of Employers % of Total More than 50% decrease 129 0.5% 41% to 50% decrease 20 0.1% 31% to 40% decrease 20 0.1% 21% to 30% decrease 195 0.7% 11% to 20% decrease 930 3.4% 6% to 10% decrease 33 0.1% 1% to 5% decrease 2,340 8.7% None 21,635 80.1% 1% to 5% increase 810 3.0% 6% to 10% increase 682 2.5% 11% to 20% increase 171 0.6% 21% to 30% increase 11 0.0% 31% to 40% increase 11 0.0% 41% to 50% increase 1 0.0% More than 50% increase 11 0.0% Total 26,999 100.0%

The following table shows the premium change employers would experience with the recommended changes. Of those employers who would pay less in premiums, the majority would see their premiums decrease by $500 or less. Of those who would pay more in premiums, most would see an increase of $1,000 or less. Two hundred seventy-two employers would pay more than $2,000. Difference in Premium Amount # of Employers % of Total > $2000 less 202 0.7% $1501 to $2000 less 59 0.2% $1001 to $1500 less 263 1.0% $501 to $1000 less 751 2.8% <= $500 less 2,392 8.9% No Difference 21,635 80.1% <= $500 more 556 2.1% $501 to $1000 more 501 1.9% $1001 to $1500 more 224 0.8% $1501 to $2000 more 144 0.5% > $2000 more 272 1.0% Total 26,999 100.0%

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The following chart shows in more detail the level of impact of the recommended changes (before and after). Original Discount Original Original Surcharge

% of Firms

New Experience Rate

26% -

30% 21% - 25%

16% -

20%

11% -

15% 6% - 10%

1% - 5% None

1% - 25%

26% -

50%

51% -

75%

76% -

100%

101% -

125%

126% -

150%

151% -

175%

176% -

200% Total 26% to 30% discount 183 30 1 214 0.8% 21% to 25% discount 10 19,046 85 766 127 15 129 12 5 12 8 20,215 74.9% 16% to 20% discount 6 484 293 2 1 786 2.9% 11% to 15% discount 6 1,161 86 2 1 1,256 4.7% 6% to 10% discount 14 375 20 2 411 1.5% 1% to 5% discount 9 235 2 2 1 249 0.9% None 63 174 113 1,914 91 26 41 48 2,470 9.1% 1% to 25% surcharge 9 11 17 397 16 5 12 1 468 1.7% 26% to 50% surcharge 3 4 29 201 12 2 251 0.9% 51% to 75% surcharge 1 2 49 119 5 1 177 0.7% 76% to 100% surcharge 39 134 1 1 175 0.6% 101% to 125% surcharge 1 96 80 177 0.7% 126% to 150% surcharge 41 36 1 78 0.3% 151% to 175% surcharge 19 21 40 0.1% 176% to 200% surcharge 6 26 32 0.1%

Total 193 19,082 575 2,297 784 400 2,062 539 299 228 306 124 55 29 26 26,999

% of Firms 0.7% 70.7% 2.1% 8.5% 2.9% 1.5% 7.6% 2.0% 1.1% 0.8% 1.1% 0.5% 0.2% 0.1% 0.1%

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Program Cost The committee understands that the program needs to be either revenue neutral through program changes or funded through premium rates. The committee recognizes that it is very difficult to maintain a program this is revenue neutral from a discount / surcharge perspective and agrees that any gap in cost be funded through premium rates as required. The following table shows the estimated program cost of the recommended changes. The current difference between discounts and surcharges is $3,225,963. With the recommended changes, employers in the advanced program would receive less in discounts and more in surcharges, while employers in the standard program would see more in both discounts and surcharges. This would increase the difference between discounts and surcharges by $244,662, for total program costs of $3,470,625. This equates to approximately $0.018 on the average premium rate.

ADV STD

Discount Surcharge Discount Surcharge Total Program Costs

2014 Estimate $16,165,191 $18,854,333 $6,032,517 $117,412 $3,225,963 Recommended Changes $15,727,838 $19,574,875 $7,555,464 $237,802 $3,470,625 Difference ($437,353) $720,542 $1,522,947 $120,390 $244,662

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APPENDIX B – IMPACT ANALYSIS BY INDIVIDUAL RECOMMENDATION The Experience Rating Review Committee’s report includes the impact to an employers experience rating and the cost of the program if all recommendations were implemented at the same time, including the non-consensus recommendations. The following provides an analysis of the impact of each individual recommendation on its own. Note that recommendations one and six are not included as they do not have financial implications to the program. Recommendation 2: Implementing a $500 minimum claim cost in the

Standard Program Implementing a $500 minimum claim cost would primarily impact employers in the standard program. The chart below shows the impact to employers in the standard program. The green section shows employers who would be positively impacted by the change (159 employers).

The table below shows a breakdown of the cost of the program comparing the 2014 estimate to the scenario that uses a $500 minimum claim cost. The cost of the program increases slightly (approx. $113,000) with this recommendation.

Recommendation 3: Increasing the base participation factor The discussion from the committee on this topic was around increasing the participation factor so that employers would see an increase of no more than 10%. The idea behind this recommendation is that it could help smooth the transition from Standard to Advanced that some employers experience.

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Note: This recommendation is tied to recommendation 4 (increase base premium threshold), as increasing the base premium threshold naturally increases the base participation factor. The recommendation increases the base participation factor to 46.5% (when tied to increase in base premium threshold), however if we were to look at this recommendation in isolation, increasing the base participation factor so no more than 10% of employers see an increase would see the base participation factor at 42.5%. Increasing the base participation factor to 42.5% would make it such that a firm just transitioning into the Advanced Program would be eligible to receive a 13% discount (compared to 11% currently). The firms that would see the biggest impact are the smaller ones, particularly those that are being surcharged. The table below shows the impact of this change to employers in the Advanced Program. While 3,600 employers would see a decrease in premiums of approx. $160, there are 383 employers who would see an average increase of approx. $1,000.

The below table illustrates the cost of the program comparing the 2014 estimate to the scenario that would increase the base participation factor to 42.5%. This scenario would see the cost of the program decrease slightly (approx. $215,000).

While a small number of employers may see a slight reduction this recommendation does not fix the transition issue between the Standard and Advanced Programs. At best, those employers with a 25% discount in the Standard Program who are moving to the Advanced Program will see their discount reduced to 13% with this recommendation rather than the 11% it is currently. Recommendation 4: Increasing the base premium threshold to $21,000 The following table shows the impact of increasing the base premium threshold to $21,000. Most employers would see a decrease or no change to their

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discount/surcharge, however 391 employers would see an increase (compared to 441 impacted in 2014).

Recommendation 5: Remove 20 year old claims from experience rating

calculation The table below illustrates the impact of removing 20 year old claims from experience rating calculations. By removing these claims from the experience rating calculations employers would be compared to a different industry weighted loss ratio, resulting in 22.5% of employers seeing an increase, 1.9% a decrease and 75.6% no change.

The table below shows the impact to the cost of the program by removing 20 year old claims from experience rating calculations. Approximately $46,000 less in discounts combined with approximately $835,000 more in surcharges results in a decrease in the overall cost of the program of roughly $880,000.