Determinations of firm workplace health and safety and claims management practices.(Statistical Data Included)

TERRY THOMASON and SILVANA POZZEBON (*)

The authors examine workplace health and safety practices and workers' compensation claim management at some 450 Quebec firms in 1995. An analysis controlling for factors such as firm size and risk of injury finds that experience-rated employers--those whose workers' compensation insurance premiums were tied to their own injury rates--were more likely than non-experience-rated employers to implement measures to prevent workplace injury and disease. They also were more likely to engage in aggressive claims management, that is, practices for reducing compensation costs by means other than disease and injury prevention, such as hastening the injured worker's rehabilitation and challenging claims. These dual efforts appear to have resulted in a reduction in injury claims. There is also evidence of a systematic relationship between wages and compensation cost reduction strategy, with high-wage firms more likely than low-wage firms to emphasize improvement of health and safety over claims management.

Like other forms of social insurance, workers' compensation benefits are financed through a payroll tax, sometimes referred to as an insurance premium, paid by employers. To varying degrees, the firm's tax rate is related to its risk of occupational injury or illness so that employers with more hazardous working conditions pay higher rates than other employers. At one end of the continuum, the tax rate is based on the risk of injury in the firm's industry; that is, firms are classified into groups based on industrial sector and a rate is determined according to the accident experience of all firms in the group. At the other end, the firm's insurance rate depends solely on its own experience. To the extent that the rate is based on the firm's own experience as opposed to the experience of the industry as a whole, the firm is said to be experience-rated.

The link between the employer's claims experience and workers' compensation assessments provides employers with incentives to reduce the frequency and severity of claims. Broadly speaking, there are two ways in which employers may do this. They may improve the health and safety conditions at the workplace, which reduces the probability that a worker will suffer a workplace injury or disease and possibly the severity of injuries that do occur. Alternatively, firms may engage in a variety of practices known as claims management, which reduce the cost of injury or disease without necessarily affecting workplace health and safety.

Claims management practices include measures to hasten the injured worker's return to work, such as monitoring the worker's recovery and providing rehabilitation or otherwise accommodating the worker's injury. They also include challenging the worker's claim for benefits. Importantly, claims management is a substitute for employer health and safety initiatives in the firm's quest to reduce workers' compensation assessments. That is, as the "price" of health and safety practices--expenditures per unit reduction in claim costs--increases relative to the price of claims management, we may expect to see a reduction in firm health and safety efforts and a concomitant increase in claims management.

There is substantial research examining the relationship between experience-rating and the frequency and severity of injury, although most studies rely on proxies rather than direct measures of experience-rating (Durbin and Butler 1998). The implications of this research are controversial. Advocates of experience-rating argue that these empirical results demonstrate that "experience-rating works," that is, that experience-rating results in increased workplace health and safety. Critics claim that reductions in claim frequency or severity are illusory; the underlying risk of injury remains unchanged at best, and only claims reporting is affected. That is, experience-rated employers have incentives to hide workers' compensation claims or discourage workers from declaring injuries or occupational diseases. Furthermore, it is alleged that aggressive claims management practices have deleterious effects on worker health. A recent review of the literature concluded, "Increasing the responsiveness of workers' compens ation premiums to injury incidence is policy whose risks outweigh its potential benefits" (Boden 1995:287). However, few studies have directly examined the effect of experience-rated workers' compensation assessments on firm policies and practices with respect to claims management or workplace safety.

Theory and Prior Research