Comparative benefits adequacy and equity of three Canadian workers' compensation programs for long-term disability

Researcher(s): 

Tompa E, Scott-Marshall H, Fang M, Mustard C

Abstract: 

Objective: To investigate the labour-market earning recoveries of workers’ compensation claimants sustaining a permanent impairment from a work accident and the adequacy and equity of benefits received from three distinct long-term disability programs that have existed in Canada over the past 25 years.

Methods: A novel linkage of workers’ compensation data with Revenue Canada tax records was undertaken for this study. For the purpose of estimating earnings losses post accident, a cohort-control matching approach was used to identify uninjured comparison group. Ten years of post-accident earnings and benefits were considered in the assessment of benefits adequacy and equity.

Results: Claimants in each impairment stratum (1-5%, 6-10%, 11-20%, 21-50%, and > 50% impairment) experience lower levels of labour-market earnings post-accident relative to their control counterparts. Furthermore, the ranking of the proportion of earnings recovery and its counterpart, earning loss, is consistent with severity of the impairment stratum, i.e., higher impairment strata experience greater earnings losses. Noteworthy is the fact that the distribution of earnings recovery within each stratum is very polarized. With regards to benefits adequacy and equity, all three programs provided adequate benefits based on an earnings replacement rate target of 90% after-tax earnings. Furthermore, all strata considered in the analysis achieved this target. In general, the bifurcated program had the most favorable earnings recovery, the loss of earnings capacity program the next, and the permanent impairment program the least favorable.

Conclusions: Workers’ compensation authorities have struggled with identifying an approach to compensating long-term disability claimants that is adequate and equitable, so our study provides them with important insights into the labour-market realities experienced by claimants and the merits of three program options that warrant consideration in long-term disability benefits determination. The three programs reflect approaches considered for long-term disability compensation in jurisdictions across Canada, the United States and elsewhere.