OHA Response to the WSIB Rate Framework Consultation Document. April 2013

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1 OHA Response to the WSIB Rate Framework Consultation Document April 2013

2 The Ontario Hospital Association The Ontario Hospital Association (OHA) is the voice of Ontario s public hospitals. Founded in 1924, the OHA uses advocacy, education and partnerships to build a strong, innovative and sustainable health care system for all Ontarians. The OHA is a not for profit organization representing 149 hospitals in Ontario. We welcome the opportunity to provide insight and thoughts on Policy and Operational decisions. The OHA has consulted with: OHA Health and Safety Advisory Committee members Hospital Occupational Health and Safety and Disability Management Professionals Hospital Chief Human Resources Officers and Chief Financial Officers Based on these consultations we are offering the recommendations set out below, on behalf of our member hospitals. OHA Response to WSIB Rate Framework Consultation Document 1

3 Contents Summary of Options Selected... 3 Introduction... 4 Health and Safety in Ontario s Hospitals... 4 Background... 4 Structure... 5 Responses to Questions in the WSIB Rate Framework Consultation Discussion Paper... 6 Section 3. Employer Classification... 6 Employer Classification... 6 Section 4. Premium Rate Setting... 6 Premium Rate Setting... 6 Claims Cost Measure for Premium Rate Setting... 7 UFL Apportionment... 8 Section 5. Experience Rating... 8 Insurance Equity... 8 Premium Rate Adjustments... 9 Special Situations Employers with Limited or No Claim Costs Additional Questions for Consideration Setting the Context for Dialogue Employer Classification Premium Rate Setting Experience Rating Conclusion OHA Response to WSIB Rate Framework Consultation Document 2

4 Summary of Options Selected Based on discussions with OHA members and submissions to the WSIB, the OHA recommends the following options: Classification and Rate Groups Option 2: Move to a North American Industry Classification System (NAICS) based classification system. Premium Rate Setting Option 3: Set premiums based on both business activity and costs Claims Cost Measure for Premium Rate Setting Option 4: Weighting of accident years UFL Apportionment Option 3: Blended charge/levy Experience Rating Option 3: Replace the current experience rating programs with a rate-setting model incorporating both risk banding and experience rating Premium Rate Adjustment Option 2: Prospective premium rate adjustment Special Situations: Employers with little or no claims costs Option 4: Use sector/industry average as a benchmark OHA Response to WSIB Rate Framework Consultation Document 3

5 Introduction Health and Safety in Ontario s Hospitals It has been recognized by several sources that Ontario s hospitals have invested considerable time and resources to continually improve health and safety for both patients and employees (Tullar, et al, 2010, p. 200), most recently by the Chief Prevention Officer for Ontario (Gritziotis, 2012) and others. This has not always been the case. In his report, The Spring of Fear, Justice Archie Campbell (2006, p.13) reprimanded hospitals by stating, Hospitals are dangerous workplaces, like mines and factories, yet they lack the basic safety culture and workplace safety systems that have become expected and accepted for many years in Ontario mines This statement was based in part on WSIB indicators such as Lost Time Incident (LTI) frequency. In 2003, the LTI frequency for hospitals was 1.8, a rate higher than mines (1.6). This simple comparison suggested hospitals were statistically more dangerous than mines. Among Justice Campbell s recommendations, perhaps the two most important were, if the Commission has one single take-home message it is the precautionary principle that safety comes first, that reasonable efforts to reduce risk need not await scientific proof. Ontario needs to enshrine this principle and to enforce it throughout our entire health system (Campbell, 2006, pp ). The second was, that the Ministry of Labour conduct a meaningful review of the Occupational Health and Safety Act and related regulations in consultation with workplace parties and worker safety experts to examine how the Internal Responsibility System (IRS) can better be implemented in the unique conditions of the health care system (Campbell, 2006, p. 54). Following the SARS outbreak in the spring and summer of 2003, there has been a fundamental paradigm shift in Ontario hospitals approach to health and safety. Hospitals did not wait for Justice Campbell s final report released in 2006, but initiated system-wide change based on a more rigorous interpretation of the Health Care and Residential Facilities regulation. These efforts have, in turn, led to greater awareness of workplace health and safety, the IRS, the empowerment of joint health and safety committees (JHSC), and improved engagement of individual health care workers. As new challenges emerged in health and safety, Ontario s hospitals took on a leadership role in addressing and researching issues such as workplace violence (Laschinger & Grau, 2011), needle safety (Stringer & Haines, 2011), and biological hazards and communicable diseases (Quach, et al, 2012 and Deonandan, et al, 2012), well in advance of legislation. Hospitals have now begun to consider new frontiers, including the impact of shift work on health and psychological health and safety. Background In December, 2012 the Ontario Hospital Association (OHA) was provided with an opportunity to meet Mr. Douglas Stanley, and discuss concerns related to the current design and cost of workers compensation insurance in Ontario, managed by the Workplace Safety and Insurance Board (WSIB). The recommendations made to Mr. Stanley at that time can be found in Appendix A. In January 2013, the WSIB Consultation Secretariat released the WSIB Rate Framework Consultation Discussion Paper by Mr. Stanley. The purpose of this paper is to engage stakeholders from across all OHA Response to WSIB Rate Framework Consultation Document 4

6 industries and sectors in Ontario, regarding the WSIB s Rate Framework. This includes the classification, rate setting, and experience rating systems. This response by the OHA addresses the specific questions asked by Mr. Stanley in his consultation paper, confirming the positions set out in our discussion from December Structure This paper has been structured to specifically address the questions asked by Mr. Stanley in his consultation paper, with a primary focus on the questions noted for Discussion and Analysis of Options. It should be noted that the responses provided by the OHA do not include the details of all available options provided by Mr. Stanley. Instead, for brevity, we have included only the preferred option of the OHA and our reasoning. In addition, Mr. Stanley asked several questions as points for consideration. Following our responses to the main questions, the OHA has included responses to some of these discussion questions, as they impact upon hospitals. The responses set out in this document are in the order set out in Mr. Stanley s paper. OHA Response to WSIB Rate Framework Consultation Document 5

7 Responses to Questions in the WSIB Rate Framework Consultation Discussion Paper Section 3. Employer Classification Employer Classification As already mentioned, the WSIB s existing classification is based on the SIC codes for business activities. The WSIB has a four-tier classification scheme (CU s, Rate Groups, Sectors, and Classes). While employers are initially assigned to a CU, premium rates are set at the rate group level. A classification scheme can have a single or multiple tiers. Similarly, employers can be classified based on a single or multiple criteria. For workplace insurance purposes, employers are usually initially classified based on their business activity. OHA Response Options 2, the application of the NAICS (North American Industry Classification System) classification used by most other jurisdiction in Canada and North America is the most suitable solution. This system would provide Ontario s WSIB a means to accurately classify all business types in a format understood and comparable to other jurisdictions. This, in turn, would allow for a more accurate comparison of hazards, risks, and claim costs in similar sectors across other jurisdictions. Also, as noted by Mr. Stanley, NAICS is reviewed and updated every five years. This would allow the WSIB to update classifications, following emerging and changing trends in the business environment, without the added cost of continuous internal review and revisions. Using NAICS, hospitals would initially fall into a general classification with other healthcare and social assistance organizations. Further classification levels within the system would categorize all hospitals together, and then break them down into general medical and surgical hospitals, paediatric hospitals, mental health and addiction hospitals, and other specialized hospitals (e.g. complex continuing care). Given our current understanding of the difference in OHS concerns between these various types of organizations, this breakdown would allow for more accurate assessment of risk, based on hazards, and therefore determination of insurance premiums. Section 4. Premium Rate Setting Premium Rate Setting While the WSIB sets and publicly reports an average rate for all Schedule 1 employers, for reasons of premium pricing fairness, as discussed in the section above, employers carrying on different business activities pay different rates. The WSIB, along with other Canadian jurisdictions, takes the position that premium rates should, to some degree reflect the differential claim costs risk imposed on the workplace insurance system. OHA Response Option 3, the use of business activity and cost (risk) is the most appropriate means of setting and adjusting premiums. This approach was recommended by the OHA to Mr. Stanley in preliminary OHA Response to WSIB Rate Framework Consultation Document 6

8 discussions, as it reduces rate group shopping and stabilizes rates regardless of organization size. Thus small and large hospitals pay a premium consistent with their activities and new claim costs (NCC), not simply their designation as a hospital. For example, a small hospital such as Smooth Rock Falls Hospital, with 14 acute care beds, would have significantly different hazards than Princess Margaret Hospital in Toronto, with over 130 inpatient beds and significant research facilities. At this specialist facility, antineoplastic drugs are used to treat cancer patients, laboratories work with chemical and biological hazards, and radiation treatment is provided. As it relates to hospitals, it is important to note the current system is essentially a payroll tax because it has fixed rates based on payroll, with little incentive to improve performance. The classification system is blind to any differences in practice or risk between organizations. The WSIB policies do not recognize the diversity, capacity and limitations that size and location impose on hospitals, as well as the range of activities which may or may not be ongoing at any given site. There needs to be some recognition of the variability in the operations and capacities of hospitals when setting a premium or applying policies. A business activity and risk based assessment would more accurately classify hospitals based on scope of patient care activities and associated hazards, not simply on the hospital designation. Claims Cost Measure for Premium Rate Setting Every year the WSIB derives an average premium rate for all Schedule 1 employers based on claim costs (current and past), administrative and legislative expenses. Claims costs include charges for: - The UFL - Gains and losses, based on the previous six years of premium rate setting experience by rate group - Bad debt expenses, determined based on the expected bad debts provision by industry class - Expected net payout from experience rating and other incentive programs The WSIB presently relies on the previous six years of claims costs to calculate the average rate per rate group. Other jurisdictions have varying approaches and review periods for their premium setting calculations. OHA Response Option 4, the weighting of accident years for experience rating purposes would generate a more reliable cost measure as it would take into account improvements made by organizations or, conversely, poorer performance over the shorter term. This would allow for a more accurate reflection of true cost to the system and reflect a much more nimble system. This being said, as the true cost of claims becomes more apparent over time (i.e. less of the claim cost is comprised of predicted future costs), the weighting must be based on current, best practice guidelines on the treatment and rehabilitation from injuries. In other words, as the most recent years of weighting will include significant assumptions of future costs, the estimates of these costs must be based on accurate, objective medical understanding of expected outcomes. Currently, Ontario Regulation 175/98 says the WSIB must apply The American Medical Association Guides to the Evaluation of Permanent Impairment (third edition revised) as it read on January 14, 1991 as the rating schedule for OHA Response to WSIB Rate Framework Consultation Document 7

9 determination of permanent impairment. Given the changes in medical knowledge and best practices in rehabilitation and return to work have changed since 1991, it can be assumed the costs determined based on the outcomes indicated in this guideline are out of date. UFL Apportionment The UFL basically measures the monetary difference between future benefits owed to injured workers (i.e. liabilities) and the value of the investments available to pay those benefits (i.e. assets). In accordance with the WSIB s current top-down approach to rate setting, the UFL charge is first determined for Schedule 1 as a whole and subsequently apportioned to each rate group based on their new claim costs. In short, the higher a rate group s expected new claim costs, the proportionally higher its UFL charge. The opposite is also true. The underlying primary assumptions are: i) rate groups with high expected costs also generated high claim costs in the past which were not sufficiently funded; and ii) the rate groups continue to be largely populated by the same employers who generated the old claim costs. OHA Response Option 3, a blended charge / levy, which charges a fixed rate plus a surcharge based on past estimated contribution and responsibility for the UFL, is the most appropriate solution. This rate may be based on the historical contributions to the Unfunded Liability (UFL) by various sectors and industries, while taking into account the fundamental principle of collective liability. This methodology would support the idea of collective responsibility, while still reducing the degree of cross-subsidization currently occurring within the system. For example, as discussed with Mr. Stanley in December 2012, recent information from the WSIB indicated the UFL attributed to Rate Group 853 stands at $ million, or % of the total UFL, as of December In addition, data for Schedule 1 employers from 2005 to 2009 shows hospitals only account for 0.7% of bad debt expenses. Comparatively, the construction sector accounts for 46.5%, the service sector for 17.3%, and the transportation sector for 14.5%. Furthermore, the health and safety record of hospitals, based on WSIB criteria (i.e., Lost Time claim frequency and severity), has been constantly improving over the last several years at a rate of 5% to 7%. Taken together, the high portion of premiums allocated to the UFL combined with the relatively small share of the total UFL contribution; the low percentage of bad debt attributed to hospitals; and rate increases inconsistent with the performance improvement seen in hospitals leads to the conclusion that hospitals are paying for part of the UFL attributed to organizations within other rate groups and sectors. As public sector organizations, the use of limited public funds for the cross-subsidization of costs attributed to other industries and sectors directly impacts funds available for the provision of services. Section 5. Experience Rating Insurance Equity Insurance equity, predominantly an actuarial concept, is about premium pricing fairness. To actuaries, insurance equity and fairness are achieved when the premiums paid by an insured/policy-holder are fairly adjusted to more accurately correspond with the insured s expected claims costs and related expenses. Hence, employers with different perceived risk levels should pay different premium rates OHA Response to WSIB Rate Framework Consultation Document 8

10 based on their individual risk profiles, usually empirically reflected using a measure of actual past cost experience. OHA Response Option 3, replacing the current experience rating programs with a rate-setting model incorporating both risk banding and experience rating is the best option for Ontario and Ontario hospitals. As discussed earlier, correctly classifying organizations by business activity and risk would allow for a more transparent, understandable and accurate means of determining base rate. With these measures in place, risk banding could then be used to further distinguish the level of performance, relative to similar organizations. For example, within the hospital sector, after division by the NAICS classification system, organizations could be further grouped by their business activities. This would distinguish the large, multi-faceted hospitals with bespoke services from the community hospitals, and further distinguish the small hospitals which offer a narrower range of services aimed at acute care. With this division in place, each grouping could be individually assessed in comparison to peers within the same grouping, providing a more accurate insight into performance. Premium Rate Adjustments Employer-specific premium rates can be adjusted in one of two ways - through either a retrospective adjustment or prospective adjustment. OHA Response The OHA feels Option 2, a prospective premium rate adjustment system, would be more appropriate for Ontario than a retrospective system similar to the current model. Hospitals require stable, predictable rates in order to plan and administer healthcare provision for Ontario on limited budgets. There are many negative implications when lump-sum surcharges or rebates are required of financiallyconstrained organizations, when these payments cannot be predicted or planned for. In other words, a prospective system allows organizations to budget for known costs and predict potential future costs based on performance. (i.e. poor performers could assume rate increases, and would be able to budget accordingly, while strong performers would be able to maintain or decrease their costs). Conversely, with a retrospective system such as NEER, organizations may have to pay large penalties over a short time period. Hospitals, as an example of financially-constrained public sector organizations, have difficulty incorporating these unknown variables into their budgets. As a result, these lump-sum costs can have an immediate impact upon service provision. While it is understood that retrospective systems provide a means to highlight costs to Senior Management, this benefit does not provide enough positive reinforcement to merit the negative impacts on budgeting and allocation of resources. Prospective insurance systems within workers compensation systems may also positively reinforce good behaviours and prevention activities, similar to the way in which prospective car insurance promotes safer driving, the purchasing of vehicles with safer rating standards, and an understanding amongst all consumers that poor performance or risk taking will lead to higher rates. OHA Response to WSIB Rate Framework Consultation Document 9

11 Special Situations Employers with Limited or No Claim Costs Generally, all employers in the same rate group should pay the same premium rate, subject to experience rating adjustments, which can consider employers claim costs history and frequency. However, three types of employers potentially fall outside of this general rule, at least for experience rating purposes. New and small employers as well as those with limited or no claim costs may not have enough experience to be statistically relevant. OHA Response In these situations, Option 4, the use of sector /industry average as a benchmark would provide a means of determining initial insurance rates. The banding of organizations based on activities and risks, as recommended earlier, should provide a suitable means to initially evaluate new businesses. As these businesses develop, more experience would allow for an accurate assessment of their true costs and performance, which could then be used to refine their costs. Additional Questions for Consideration Throughout the Rate Framework Consultation Discussion Paper, Mr. Stanley poses several Questions for Consideration. The questions, as they are written, fit into the context of the discussion and are not meant to be answered as stand-alone questions. In providing these responses, the OHA has taken into consideration the context of the question and would recommend the related section of the Rate Framework Consultation Discussion Paper be reviewed in conjunction with our replies. 2. Setting the Context for Dialogue Question for Consideration Is there some other viable and objective measure of an employer s relative performance in order to rate their relative contribution to the system? This question addresses the use of past performance and cost to the workers compensation insurance system as a means of determining any given employer s performance and therefore their premiums. And, as mentioned by Mr. Stanley, the use of past performance (i.e. injury cost) as a reliable proxy for risk may only be reliable when an organization is large enough or has a long enough history for the injury rates to be stable. While historical costs and past performance should definitely be considered as contributing factors when determining an employer s relative contribution to the system, there are other factors which should also be considered such as safety initiatives, inter-jurisdictional comparisons and emerging trends in risk prevention. To assess safety initiatives, recognition should be given when employers sustain third-party safety accreditation such as the Canadian Standards Association (CSA) Z-1000 or British Standards Institute (BSi) standards. Similar to the way in which an individual s car insurance may decrease if they have shown participation in driver safety training, or home insurance may decrease if they have a burglary alarm system in place, preventative measures taken to reduce claim costs should be recognized when determining insurance premiums. OHA Response to WSIB Rate Framework Consultation Document 10

12 The relative risk of organizations working within any given industry should also be compared to similar organizations in other jurisdictions. For example, if hospitals within Ontario are compared to hospitals in other jurisdictions, and injury rates are lower, it can be assumed that prevention initiatives are in place and effective. Conversely, if injury rates are higher as compared to other jurisdictions, it shows room for improvement in performance. This measure would allow for assessment of performance by sectors relative to their own peers, instead of in comparison to other sectors with significantly different hazards. This would help ensure risks are kept as low as reasonably possible, reducing costs to the system overall. The third factor that could be considered is emerging trends in risk and prevention. In other words, while historical performance is important, implementation of new equipment, techniques or safety practices can significantly improve performance quite quickly. For example, in 2005 the Ontario Government invested in patient lift assists for all hospitals, which help workers lift and move patients. This initiative significantly reduced the number and severity of back injuries to hospital staff caused by lifting patients. However, even with the reduction in hazard exposure, resulting reduction in risk and subsequent decrease in injuries and work-related injury absence costs to the system, there was no change in hospital premiums. 3. Employer Classification \ Question for Consideration Is rate shopping a problem or is it a symptom of a problem? Does it lead to an inconsistent application of the classification policy? While this does not have an impact within our Rate Group (a hospital can only be classified as a hospital), the OHA believes rate shopping is a symptom of inequality within the system, and an employer response to perceived inconsistencies in determination of rates. If, as noted earlier, rate setting is based on the NAICS classification system, and experience rating based on business activity and risk instead of the current classification system, there would be less likelihood of questioning rates. Classifications with similar business activities and risks would have similar rates, reducing inconsistencies in base rates and the reason for many of the current requests to change. Further to this, the application of risk bands would focus employers attention on their own performance and moving to, or remaining in, a low-risk band. Therefore, organizations would have less incentive to request changes. Question for Consideration Does the system today still achieve the objective of ensuring employers pay a fair share of injury costs and align premiums to claims costs? No, the workers compensation insurance system in place today does not ensure employers pay a fair share of injury costs, and does not align premiums to current claim costs. As discussed with Mr. Stanley in December, 2012, several inconsistencies within the current system can be noted when looking at the cost of insurance for hospitals, relative to use. These inconsistencies include: Frequent amendments to the NEER rating tables, reducing rebates and increase surcharges. As a result, these changes have removed safety incentives, fairness, and equity from the system. OHA Response to WSIB Rate Framework Consultation Document 11

13 Further, these changes have made it impossible for hospitals to predict costs, resulting in significant budget concerns. Between 2006 and 2011, hospitals paid between 39.54% and 61.72% more in premiums than used for benefits payments annually. In fact, there are several cases where the cost of premiums far exceeds the cost of benefits; even then, the hospitals low expected cost factor and 100% rating factor (components of the NEER rebate and surcharges calculation) ensure the hospital will pay a NEER surcharge. These gross inconsistencies undermine the objectives of the program, which is to incent employers to strengthen their occupational health and safety practices and their environment. According to WSIB Premium information, approximately 26% of premiums paid by hospitals are in place to cover the cost of the UFL. However when looking at hospital premium allocation, while funds allocated to payment of the UFL decreased from 2011 to 2012 (35% to 26%), the percentage allocated to administration rose to 29% from 25%. The increase in overhead costs raises the question of how the WSIB calculates these administrative fees, and whether or not the cost of the premium is determined first by the desired, across-the-board rate increase, after which the allocation of funds is determined. This inconsistency again brings into question the fairness within the rate setting process. 4. Premium Rate Setting Question for Consideration Do we still accept the principle that every year employers pay the costs of injuries in that year? As discussed by Professor Harry Arthurs in the WSIB Funding Review, when determining cost allocation it is important for sectors and employers to be charged the cost of claims when they occur. If the cost of claims is not incurred by employers at the time of the injury or within a short timeframe thereafter, the costs may inevitably be passed to future employers, other sectors, and contribute to the UFL. Of course, some discretion may be necessary as annual application of claims charges may not be feasible if based within a prospective insurance system and working towards stability of costs and employer premiums. Currently, the WSIB sets its rates annually, which contributes to short notice for employers and an inability to plan future costs. For this reason, allocation of new claims costs on an annual basis may not be possible, without leading back to the instability seen in the current NEER system. This said, accurate determination of premiums in a prospective system would ensure employers are covering their costs. Questions for Consideration What is your reaction to this comment about a rationale for placing limits on rate increases? To what extent does that infringe on the principle against passing costs to future employers? The OHA agrees with the position stated, that subjective limits placed on the premiums of certain sectors and industries places an undue hardship on others. While we understand the political and economic reasons for placing limits on rate increases, the interference of political and economic interests in the setting of benefit levels and premium rates inhibits the WSIB s ability to manage costs relative to income. This interference, in part, has resulted in costs being passed on from employers no longer in business to current employers. Should the practice continue these costs may be passed on to future employers. More care should be taken to ensure costs are allocated appropriately, as would be OHA Response to WSIB Rate Framework Consultation Document 12

14 expected of any private sector insurance company. Political and economic influences on the system should be addressed through the promotion of injury-reducing preventative measures, not the capping of insurance rates based on true costs to the system. The Issue of Rate Responsiveness Questions for Consideration How important is it that the premium rate be reflective of a rate group s recent cost experience? What kind of rate volatility are employers willing to live with as a trade-off to linking the premium rate to most recent experience? It is very important for premium rates to be reflective of a rate group s recent cost experience. As discussed earlier, significant changes in claims experience, positive or negative, can occur over a short term. This was seen in 2005 with a significant investment in patient lifts. If premium rates do not reflect investments in prevention or significant changes in performance, employers may lose the ability to relate their performance to their costs, reducing incentive to improve. However, with respect to premium rate volatility, recent claims experience should not create such volatility within the insurance system that it disrupts operations. Implementation of a prospective insurance system may help reduce volatility while allowing for the system to account for recent experience. For example, within the current NEER retrospective system there are frequent changes to rating tables. This impacts the ability of employers to determine their costs to the system, and therefore their potential rebate or surcharge. Further to this, within public sector organizations, such as hospitals, the inability to determine these costs directly impact operations as funding is limited. Conversely, a prospective system would allow organizations to budget costs over the year (or a few years, as the system is designed). Should poor performance result in increased premiums, these future costs could be more predictable, and funding could be appropriately allocated. The degree of volatility within the system must take into account the source of the funding; public funds must be accounted for and allocated responsibly, and for this to occur the ability to budget is paramount. 5. Experience Rating Questions for Consideration Could an experience rating plan be an instrument through which workers compensation may be modified towards a fairer allocation of the costs of industrial accidents among employers as a group? If experience rating is simply a further tweaking of the system to ensure everyone is simply paying their fair share should it be integrated into the rate setting process? As discussed earlier, the integration of classification, the rate setting process, and experience rating would best suit the workers compensation system in Ontario. This would help ensure organizations are grouped with others performing similar business activities and with similar hazard profiles, while allowing for movement between risk bands to address performance and costs to the system. Question for Consideration Are the three principles (definition of costs, insurance features, simplicity) that Weiler identified above still valid principles to build experience rating on? OHA Response to WSIB Rate Framework Consultation Document 13

15 Yes, these are still valid principles; however they should be incorporated into the entire rate setting and classification system, not just the experience rating component. Further to this, if considering these three principles in conjunction with the premise that workers compensation is morally neutral (i.e. it does not matter why one organization has higher or lower costs; their premiums should be based on their cost to the system), the placement of the WSIB as an arm s length organization overseen by the Ministry of Labour should be reconsidered; oversight by the Ministry of Finance may be more suitable. Question for Consideration Is it possible to test that assumption once classifications are established and make further adjustments based on the results? Yes, it will be important to test any classification system put in place, and refine the system based on results, as well as changes and trends in both risk and business activities. Similar to the way in which the WSIB and MOL promote a continuous improvement cycle for preventative safety measures, the WSIB should incorporate a means to evaluate and improve their classification and rate setting processes. The continuous updating of NAICS every five years will help facilitate these improvements. Question for Consideration Is it clear which category WSIB s current programs fall into? No, when considering the WSIB s current experience rating programs, it is not clear which category (insurance-based or practice-based) they fall into. In some cases, the experience rating programs in place at the WSIB are discussed as insurance-based, used to properly allocate cost of claims between employers. However, at other times the experience rating programs are described as practice-based, and in place to promote positive OHS behaviour and activities. For example, it is our understanding that NEER was put in place to properly allocate cost of claims. However, in April 2011, at a meeting of the WSIB Industrial and Manufacturing Advisory Committee, David Marshall stated that rating tables were amended to reduce the amount of rebates and increase surcharges. This shift runs counter to the presumed fairness within the system, and the premise that NEER is in place to allocate costs appropriately. Question for Consideration What should the WSIB s focus be going forward? The sole focus of the WSIB moving forward should be the retirement of the UFL with sustainable policies going forward and the administration of workers compensation insurance, as an insurance company not a social benefits program or a provider/administrator of prevention programs. The operation of the WSIB should be overseen by the Ministry of Finance, not the MOL, as the WSIB is a financial body responsible for a significant financial portfolio. Should the WSIB want to recognize the importance of prevention activities into the determination of insurance rates, their involvement should be limited to the recognition of initiatives undertaken by organizations who participate in prevention activities, such as hospital accreditation, safety accreditation, or a Safety Groups program run by the Ministry of Labour. This would be similar to the way in which car insurance providers recognize drivers who have taken safe driving training, but do not provide safe driver training themselves. OHA Response to WSIB Rate Framework Consultation Document 14

16 Question for Consideration Could you design ER programs or features within the rate setting process with an insurance equity objective which avoid the incentives for undesirable behavior that are a feature of the existing programs? The design of a rate setting or ER program may lead to some employers to make bad choices when looking for ways to reduce their costs. These activities are not condoned by the OHA, and we would expect the WSIB to administer the penalization system they have available to them accordingly. With that in mind, the only way to incent good behaviour is to make the cost and benefits of good behaviours more lucrative than undesirable behaviours and activities. To this end, the cost of participation in prevention initiatives must be realistically feasible for smaller employers, and the direct cost of non-compliance must be visible and communicated. Question for Consideration Should experience rating be used to correct deficiencies in classification and rate setting systems? As discussed earlier, experience rating should be a component of classification and rate setting, not a separate entity. Retrospective or Prospective Experience Rating? Question for Consideration Do either of these approaches have a tendency to encourage the undesirable claim suppression behavior identified as problematic by Arthurs? No, as discussed earlier, some employers will choose to participate in undesirable behaviours, such as claims suppression, regardless of the type of experience rating in place. To reduce claims suppression, insurance costs must be fair, transparent, and reflect behaviours in such a manner that positive behaviours such as prevention activities are more financially beneficial than undesirable behaviours. Question for Consideration One of the principles underlying experience rating systems identified by Weiler was that they should be simple, easy to administer and to comprehend. Does the current WSIB retrospective system meet those criteria? No, the current WSIB retrospective system does not meet the criteria of being simple, easy to administer and comprehend. This can be seen in the degree to which employers have begun managing the system instead of focusing on return to work. Simplicity within the system would allow for employers to control their costs simply by focusing on returning employees to work as early and safely as possible. However, the intricacies within the NEER system do not allow for this to occur. For example, if an employee returns to work on December 31, the costs of that claim are significantly different than if they return January 1, simply as a result of the claim entering a new year. This could contribute to an employer bringing an employee back to work too early, increasing the risk of re-injury. Clarity and simplicity within the system could help refocus efforts on prevention of injury and safe return to work. Revenue Neutrality in Experience Rating Question for Consideration OHA Response to WSIB Rate Framework Consultation Document 15

17 Is revenue neutrality an important fundamental principle of any experience rating system? Does is it have to be applied on an annual basis? Yes, revenue neutrality is an important fundamental principle of not only experience rating, but the entire workers compensation system. While it may not be essential to apply neutrality on an annual basis, a lack of foresight into future economic conditions would make it risky to assume any losses can be corrected over time. This, in part, has contributed to the current financial situation of the WSIB. The practices of private sector insurance companies should be reviewed and considered with respect to the management of revenue and neutrality. Conclusion The Ontario Hospital Association represents the interests of 149 hospitals in Ontario, with over 198,000 employees. In order to ensure that this document accurately reflects the opinions of a broad range of key decision makers in the sector, we solicited input from health and safety professionals, disability management and occupational health professionals and Chief Human Resource Officers. The recommendations in this report were endorsed by our members. Whatever conclusions are drawn by Mr. Stanley from our response and the responses of other stakeholders across the Province, the OHA would like to reiterate the importance of recognizing the position of public sector employers with limited resources and operating budgets remaining at net-zero increase. Any cost increases, specifically those which increase cross-subsidization with other sectors, disadvantage good performers in the public sector and have a direct impact on organizational operations and services available to the public. We thank you for the opportunity to comment and contribute to this consultation. OHA Response to WSIB Rate Framework Consultation Document 16

18 OHA Response to the WSIB Rate Framework Consultation WSIB Redesign Project December

19 The Ontario Hospital Association The Ontario Hospital Association (OHA) is the voice of Ontario s public hospitals. Founded in 1924, the OHA uses advocacy, education and partnerships to build a strong, innovative and sustainable health care system for all Ontarians. The OHA is a not for Profit organization representing 149 hospitals in Ontario. We welcome opportunity to provide insight and thoughts on Policy and Operational decisions. The OHA has consulted with: OHA Safety Group members Hospital Occupational Health and Safety Professionals Hospital Chief Human Resources Officers Based on these consultations we are offering seven recommendations made on behalf of our member hospitals 18

20 Table of Contents Executive Summary Introduction: Health and Safety in Ontario s Hospitals WSIB Costs to Hospitals Practice-Based Insurance System NEER Rebates and Surcharges Concerns Regarding Transparency Costs under Schedule Premium Setting The UFL as a Component of Premiums Other Hospital Concerns and Recommendations Amend the Locked-in Clause, Section 44 of the WSIA Operational and Administrative Issues Cost of Care and Drugs Conclusion References

21 Executive Summary In this response to the Workplace Safety and Insurance Board (WSIB) Rate Framework Consultation, the OHA outlines a number of important concerns raised by Ontario hospitals with respect to the current WSIB system and its practices. These include: Hospitals represent the largest publically funded sector remaining in Schedule 1, which is an outdated designation and costs hospitals more. Hospitals have been classified under the Workplace Safety and Insurance Act (WSIA) as Schedule 1 employers dating back to Ontario s original Workers Compensation Act of WSIB premiums are a payroll tax on these publically funded institutions. The projected premium increases for hospitals is up to $175,000,000 by 2020, which comes directly from the public purse. Since 2003, Ontario s hospitals have achieved significant reductions in both the number of WSIB claims and claim persistence. They have been dependable, early adopters of preventive measures including the introduction of ceiling lifts, needle safety, and workplace violence prevention programs. Yet, hospital WSIB premium rates continue to increase and hospitals have been required to pay large New Experimental Experience Rating (NEER) surcharges even when safety records show marked improvements year over year. NEER rating tables have been amended to reduce rebates and increase surcharges, and as a result, these changes have removed safety incentives, fairness, and equity from the system. Further, these changes have made it impossible for hospitals to predict costs, resulting in significant budget concerns. From 2006 and 2011, hospitals have paid between 39.54% and 61.72% more in premiums than have been used for benefits payments annually. In fact, there are several cases where the cost of premiums far exceeds the cost of benefits; even then, the hospitals low expected cost factor and 100% rating factor (components of the NEER rebate and surcharges calculation) ensure the hospital will pay a NEER surcharge. These gross inconsistencies undermine the objectives of the program, which is to incent employers to strengthen their occupational health and safety practices and their environment. Issues related to, but not directly addressed by the Rate Framework Consultation, include significant customer service related issues that directly impact the duration, complexity, and cost of claims; and the cost differences between health care services for WSIB workers compensation claims versus similar health care services provided through the Ontario Health Insurance Plan (OHIP). OHA member hospitals believe the current insurance system requires serious reform. As such, we support the Stanley Report as an appropriate effort to address significant issues within the WSIB. The OHA offers the following recommendations to help support effective reform: 1. Development of a Practice-Based Insurance System and a reclassification of organizations within their respective Rate Group. 2. Adoption of a Prospective Experience Rating system. 3. Establishment of a Transparent Premium-Setting process, which takes into account the practice-based assessment. 20

22 4. Allow hospitals the option to pay off their share of the UFL individually and immediately be provided with a lower insurance premium to reflect the fact that amortization costs are no longer being paid. 5. Amendment of section 44(2), No Review After 72-Month period, of the WSIA; the so called locked-in clause. 6. Resolve operational and administrative issues; in particular, the need to ensure consistent adjudication practices, improve the quality of customer services and communications. 7. Review cost of care and drugs to match industry standards and improve control of health care costs for employers. Practice Based Insurance System Prospective Experience Rating System Transparent Premium Setting Introduction: Health and Safety in Ontario s Hospitals It has been recognized by several sources that Ontario s hospitals have invested considerable time and resources to continually improve health and safety for both patients and employees (Tullar, et al, 2010, p. 200), most recently by the Chief Prevention Officer for Ontario (Gritziotis, 2012) and others. This has not always been the case. In his report, The Spring of Fear, Justice Archie Campbell (2006, p.13) reprimanded hospitals by stating, Hospitals are dangerous workplaces, like mines and factories, yet they lack the basic safety culture and workplace safety systems that have become expected and accepted for many years in Ontario mines This statement was based in part on WSIB indicators such as Lost Time Incident (LTI) frequency. In 2003, the LTI frequency for hospitals was 1.8, a rate higher than mines (1.6). This simple comparison suggested hospitals were statistically more dangerous than mines. Among Justice Campbell s recommendations, perhaps the two most important were, if the Commission has one single take-home message it is the precautionary principle that safety comes first, that reasonable efforts to reduce risk need not await scientific proof. Ontario needs to enshrine this principle and to enforce it throughout our entire health system (Campbell, 2006, pp ). The second was, that the Ministry of Labour conduct a meaningful review of the Occupational Health and Safety Act and related regulations in consultation with workplace parties and worker safety experts to examine how the Internal Responsibility System (IRS) can better be implemented in the unique conditions of the health care system (Campbell, 2006, p. 54). 21

23 Following the SARS outbreak in the spring and summer of 2003, there has been a fundamental paradigm shift in Ontario hospitals approach to health and safety. Hospitals did not wait for Justice Campbell s final report released in 2006, but initiated system-wide change based on a more rigorous interpretation of the Health Care and Residential Facilities regulation. These efforts have, in turn, led to greater awareness of workplace health and safety, the IRS, the empowerment of joint health and safety committees (JHSC), and improved engagement of individual health care workers. As new challenges emerged in health and safety, Ontario s hospitals took on a leadership role in addressing and researching issues such as workplace violence (Laschinger & Grau, 2011), needle safety (Stringer & Haines, 2011), and biological hazards and communicable diseases (Quach, et al, 2012 and Deonandan, et al, 2012), well in advance of legislation. Now, hospitals have now begun to consider new frontiers, including the impact of shift work on health and psychological health and safety. WSIB Costs to Hospitals Practice-Based Insurance System It is important to note that the current system is essentially a payroll tax because it has fixed rates. The classification system is blind to any differences in practice or risk between organizations; therefore, a hospital is a hospital. The WSIB policies do not recognize the diversity, capacity and limitations that size and location impose on hospitals. There needs to be some recognition of the variability in the operations and capacities of hospitals when setting a premium or applying policies. A practice-based assessment would more accurately classify hospitals based on scope of patient care activities and associated hazards, not simply on the hospital designation. Practice- based systems review the hospital s overall practice and assesses the scope of services provided. Premiums are then based on this assessment. Because hospitals are in the health services industry, this system should be similar to professional liability insurance programs. Recommendation: 1. The WSIB develop a practice-based system, which will reflect hospital s overall practice and assesses the scope of services provided. This review of the current classification system within Rate Group 853 would match the diversity, capacity and limitations resulting from hospital size and location. The proposal would retain the hospital rate group as a practice group. Each member of the group would have their individual experience rating assessed to place them in a high-, medium-, or low-risk experience rating for premium-setting purposes. NEER Rebates and Surcharges Most of those required to participate in Schedule 1 workers compensation insurance are subject to one of three Experience Rating (ER) programs: The Construction Industry Plan (CAD-7), which covers approximately 17% of organizations in the Schedule 1 premium pool; 22

24 The Merit Adjustment Premium Plan (MAP), which covers all small organizations (about 16% of the premium pool); and, The New Experimental Experience Rating (NEER) program, which covers approximately 62% of the premium pool 1. Hospitals premium rates are determined through the NEER program. As seen in Figure 1 below, The NEER program compares the expected and actual claim costs attributed to an organization and multiplies the result by a rating factor to determine the size of the rebate or surcharge. These amounts can be significant: rebates may be up to 40% of premiums paid, and surcharges may be up to 100% of annual premium. The data used to determine the actual claim costs include the benefits already paid and the projected future costs of all claims that have occurred in the past four years, subject to claim and firm limits. This four-year timeframe is often referred to as the NEER Window. Until 2010, the NEER window was three years long. Figure 1: WSIB NEER Determination 2 1 Workplace Safety and Insurance Board (May 16, 2011). Follow-up Questions & Information Requests to Funding Review Technical Sessions. Retrieved from 2 Workplace Safety and Insurance Board (June 2012). New Experimental Experience Rating (NEER) User Guide. Retrieved from 23