ADMINISTRATIVE REPORT

Date: October 22, 1998
Author/Local: J.Beckett/7580
RTS No. 100

CC File No. 506

TO:	Vancouver City Council
FROM:	Manager, Employee Health & Safety
SUBJECT:	New WCB Assessment Model

INFORMATION

The City Manager submits this report for INFORMATION.

POLICY

There is no applicable Council Policy.

PURPOSE

The purpose of this report is to provide Council with information about a proposed restructuring of the Workers' Compensation Board Experience Rating Assessment (ERA) system.

BACKGROUND

In June of this year, the WCB sent a discussion paper to employers and employer groups asking for comment on suggested reforms to the current ERA system. The GVRD Labour Relations Bureau has asked all GVRD councils to consider and support the position established by the GVRD on these proposals. Unfortunately, we were unable to provide this report to Council prior to the Labour Relations Bureau approving the position of GVRD staff. The City's representative on the Bureau did have a copy prior to the meeting on October 15.

The WCB divides the Province's 150,000 employers into approximately 71 industrial subclasses for the purpose of establishing payroll tax rates. Each employer within a subclass
group pays the same base assessment rate which is then modified by the ERA system to determine annual WCB costs. The ERA system was established in the late 1980s to provide an incentive for employers to focus on injury prevention and claims management. The ERA system measures the claims experience of the employer against the rest of its subclass and provides a penalty or reward of up to 33% of the employer's base assessment. While good in principle, the ERA system is fundamentally flawed in its current form. The WCB is recommending changes to the ERA to deal with the following problems:

- The system lumps large and small employers together creating unfair comparisons;
- A single large claim for a small employer can move that employer from a maximum merit to a maximum de-merit regardless of its prevention or claims activities;
- The one third merit/de-merit system does not adequately deal with good and bad performers;
- Because some claims can result in payments that go on for several years, the 30-month capture period for claims costs for ERA purposes does not capture all costs per;
- The current process does not set up reserves for each claim as is common practice in insurance schemes, nor does it provide adjustments to the employers if the claim costs are less than anticipated.

Of the 17 municipalities in the GVRD, ten have a de-merit ranging from 2% to 33%. The City has always been in a de-merit situation (currently 15.9%), in part because we dominate the subclass with 27% of the collected assessments from all British Columbia municipalities. While the aggressive prevention and return to work programs implemented in the City helped reduce the WCB costs for the City and the entire subclass - the municipal subclass has experienced a reduction in the base rate from $2.11 per $100 of payroll in 1993 to $1.66 in 1999 - there will never be enough to change our position relative to the other municipalities in the class.

Moreover, because the City is compared with municipalities that do not engage in many of our high risk activities (heavy construction, police or full time fire activities), - the City will always be in a de-merit situation. City staff has met with the WCB for three years to try and rectify this anomaly with little success.

In addition, the City has little if any control over WCB processes which has limited our success. Once a City employee establishes a claim, the City is basically at the mercy of the WCB for costs associated with the claim including a 26% administrative charge.

DISCUSSION

The WCB proposes seven areas of change to the current ERA system. At the request of the WCB, the GVRD Labour Relations group has also reviewed these changes, supports some
and has recommended other options for the rest. Table 1 summarizes the proposals from the WCB and the GVRD's recommendations.

TABLE 1 - Summary of Proposals

#ISSUE WCB PROPOSAL GVRD RECOMMENDATION

1		Different ERA plans for different size employers		3 tiered structure for ERA Large - >$12,000 in assessments Small - < $3,000 in assessments Excluded & below $3,000		Further review required as all GVRD municipalities have greater than $12,000 in annual assessments
2		ERA does not capture full penalties or rewards of all employers. Some large employers have consistently greater than 33% de-merit		Expand the ERA from 33% merit/de-merit to 50% merit and 200% de-merit		Remain 33% merit/de-merit. Municipal experience indicates 50/200 is not appropriate to the municipal subclass
3		Small employers may go from maximum merit to maximum de-merit in one year		Cap of $250,000 per claim		Formula to recognize size difference of employers. Cap should be 5% of three years of assessments to a max of $250,000
4		Small employers may go from maximum merit to maximum de-merit in one year		20% cap on year to year changes in the employer assessment rate		Same
5		Not all claims costs captured for ERA purposes		Expand the capture window from 30 previous months to 45 previous months of claims costs		Same
6		More accurate costing of claims		Use fully reserved costs as a more accurate method		Same

7

More accurate costing of claims

Retrospective adjustments to reward disability programs

Same

City staff have reviewed the documents and supports the GVRD position on recommendations 2, 3, 4, 5, 6, and 7 for the following reasons.

Recommendation 2 - The purpose of this change is to rectify the situation for those employers that have a higher than 33% de-merit. The WCB intends to make those that cost the system pay. This situation does not occur in the municipal subclass.

Recommendation 3 - Recommendation 3 proposes a cap on the costs of individual claims. The cap as originally proposed by the GVRD would be approximately $750,000 (based on 5% of annual WCB assessment for 3 years) for each City claim and as low as $60,000 for the smaller municipalities. The only City claims that exceed the $750,000 amount are loss of earnings pensions (disabled employee cannot do own job, WCB pays pension of difference between old & potential job). As the City's rehabilitation program has all but eliminated loss of earnings pensions, there was no advantage to adopting the GVRD recommendation. The GVRD has changed its recommendation to meet our concerns. City staff support the GVRD recommendation of a calculation with a maximum cap of $250,000.

Recommendation 4 - For small employers, one large claim can move you from full merit to full de-merit in one year for one large claim (for which you often have little control). For large employers, it provides a cap on changes as most insurance schemes do.

Recommendation 5 - WCB uses the previous 30 months of claims to establish each employer's ERA level. For large complex claims (e.g. diseases), 30 months will not capture all costs and often misses pensions which can be a significant dollar amount. The WCB propose to expand that to 45 months to capture all costs. This will have a significant impact on the City.

Recommendation 6 & 7 - WCB currently adds health, rehabilitation and wage costs to employer claims cost statements as they accrue. They propose to establish (based on insurance industry norms) a reserve for each claim at the outset. If the employer has an effective rehabilitation program, the cost will be less than the reserve and the employer will be credited. These recommendations are designed to provide an incentive to employers to establish effective return to work programs.

City staff support GVRD recommendation 1 with one caveat:

Recommendation 1

Recommendation 1 of the WCB would use different ERA plans for different size employers. GVRD believes this proposal needs further study.

The City's claim experience drives the municipal subclass. The City currently has a 15.9% de-merit in part because the WCB compares the City to smaller municipalities who have contracted their high-risk activities (construction, police) to other employers. The intent of the WCB to move the capture window for claims costs from 30 to 45 months (Recommendation 5) will remove any and all subsidies from British Columbia employers.

The City may see its WCB costs increase. If our costs are to go up, it is appropriate that we be put in a situation where we can influence these costs through our prevention and rehabilitation initiatives. To that end, staff have met with the WCB to initiate discussions to recognize the uniqueness of the City of Vancouver. Our size and varied work do not correspond to work done in other municipalities and staff believe the comparison is inappropriate.

FINANCIAL IMPLICATIONS

It is the intent of the WCB to have the employers who generate costs for the WCB system pay their full share. The proposed system will have the effect of loading one employer's costs to that employer instead of distributing them over the entire subclass. This may increase the City's WCB costs. Unfortunately, because there is not enough information available at this time, staff are unable to complete a projection of what those additional costs might be.

CONCLUSION

The WCB has asked for comment from a large cross section of British Columbia employers with varied interests. However, there is no guarantee that the City's or the GVRD's positions will be taken seriously. The City's WCB assessment may increase regardless of our position.

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(c) 1998 City of Vancouver