Assessing the adequacy of workers’ comp benefits for permanently disabled workers

Workers who suffer permanent impairments from a work injury often receive workers’ compensation benefits to replace lost earnings. Just how well three compensation programs provided adequate benefits is the subject of a new Issue Briefing from the Institute for Work & Health.

Workers permanently impaired by a job injury often earn less than they did before they were hurt. This loss of earnings is due not only to their physical impairment, but also to career disruption, a weaker relationship with their employer, and sometimes the stigma attached to being an injured worker.

Provincial workers’ compensation agencies in Canada are responsible for providing adequate compensation to disabled workers to make up for lost earnings. In Ontario, permanently impaired workers account for about 10 per cent of all claimants.

A new Issue Briefing summarizes research by the Institute for Work & Health (IWH) that explored how well workers’ compensation benefits programs replaced lost earnings among permanently disabled workers. The research looked at three programs: two in Ontario and one in British Columbia.

The evidence suggests that, on average, these programs did well. Based on the sum of post-injury job earnings and workers’ compensation benefits, permanently disabled workers had incomes that were, on average, what they would have been had they not been injured.

Assessing outcomes based on degree of impairment

However, closer analysis reveals that some permanently impaired workers did not fare so well. When post-injury income was examined among groups of workers with similar degrees of impairment, a lot of variation was found within each category of impairment.

In the Ontario programs, about one-third of those with an impairment rating of less than 50 per cent had a combination of workers’ compensation benefits and labour market earnings that was less than 75 per cent of what they would have earned had it not been for their injuries.

IWH Scientist Dr. Emile Tompa, who led the research on which the Issue Briefing is based, explains that the three programs studied reflect common approaches taken by workers’ compensation
boards. The three programs were:

  • Permanent Impairment Program (Ontario, before 1990). This program compensated a worker based on the percentage of physical impairment, applied to the worker’s pre-injury earnings. According to Tompa, this type of program is common in the United States, and benefits are straightforward to calculate.
  • Loss of Earnings Capacity Program (Ontario, from 1990-1997). This scheme provided benefits for earnings losses relative to the worker’s earnings before injury. It is based on an assessment of “future economic loss” (FEL benefit). As well, a lump-sum benefit was provided for pain, suffering and loss of enjoyment of life based on the percentage of physical impairment.
  • Bifurcated Program (British Columbia, until 2002). Two options were considered for each beneficiary in this system: a benefit based on percentage of physical impairment and pre-injury earnings, or a benefit based on an assessment of the worker’s loss-of-earnings capacity relative to pre-injury earnings. The worker received the larger amount.

For each of these programs, Tompa and his research team calculated what permanently disabled workers earned in the labour market after their injury, as well as what they received in workers’ compensation benefits. They then calculated “earnings replacement rates” in one of two ways.

In the first method, they compared the sum of post-injury earnings plus benefits to pre-injury earnings. In the second method, they compared the sum of post-injury earnings plus benefits to the earnings of workers (“controls”) who had similar characteristics as the injured workers but did not experience work injury. The Issue Briefing focuses on the second method.

Overall, Tompa found that the earnings replacement rate for workers, after taxes, was on average close to 100 per cent in each of the three workers’ compensation programs: 99 per cent in both the pre- and post-1990 Ontario programs and 104 per cent in the B.C. program.

Tompa also looked at the results by degree of assessed physical impairment, with categories ranging from one to five per cent impairment to over 50 per cent. He found that the earnings replacement rate was, on average, at least 95 per cent for each category of physical impairment.

However, within each impairment category, he also found a great deal of variation in earnings replacement rates. While some workers experienced very high replacement rates, about one-third of Ontario permanent disability claimants with less than 50 per cent impairment had an earnings replacement rate of less than 75 per cent – and some much less.

It’s critical to think about the variation in earnings replacement rates among individual injured workers, Tompa says. It looks like particular attention should be paid to the adequacy of earnings replacement among those with low levels of impairment, as earnings losses appear to be sizeable even for those assessed as having impairment levels of five per cent or less.

Tompa notes that this study looked at benefit programs that have since been changed in both Ontario and B.C. It also looked at old workers’ compensation claims, dating from 1994 or earlier, in order to be able to collect almost a decade of data on post-injury earnings. Tompa is currently conducting similar research looking at more recent claims and current benefit systems.

To read the full Issue Briefing, go to: www.iwh.on.ca/issue-briefings.

Source: At Work, Issue 64, Spring 2011: Institute for Work & Health, Toronto