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3.1 Departmental Allocations Versus Costs

Allocations to funded departments for the 1998-99 fiscal year were based on the average total cost of new claims for 1995 and 1996, including Workers' Compensation Board Administration fees. A provision for accumulated or "carry over" claims was made in the allocations for subsequent years of the Cost Recovery Program. However, given the historical rates of increase in new claims, the annual increase of approximately 20 percent appears to have covered new claim costs only and not the "carry over" claims costs.

Comparing allocations for each department with the actual costs provides an indication of the risk of departments going over their allocations. Exhibit 3.1 summarizes allocations, actual costs and the ratio of allocations to actual costs for each of the 25 funded departments. A value of less than 1 in the right hand column of the exhibit indicates that the department spent more than its allocation on workers' compensation benefits. For the first year of the Cost Recovery Program, 7 departments spent more than their allocation, 15 spent less and 3 spent exactly their allocation. The overall ratio of allocations to actual costs, for all funded departments, was 1.2 for fiscal years 1998-99 indicating that overall funded departments spent less than their allocation. Departmental representatives from funded departments interviewed generally indicated that their workers' compensation costs did not go over their allocations in the first year of the program (1998-99).

For the second year of the program, the results are very different. Eighteen departments spent more than their allocation and only 7 have spent less than (or equal to) their allocation. The overall ratio of allocation to actual costs falls to 0.5. This is an indication that most funded departments spent more than their allocation on workers' compensation benefits. The results for the third year indicate that 18 departments spent more than their allocation and 7 spent less than their allocation. The overall ratio falls to 0.4.

Based on information provided by HRDC Program staff and departmental representatives from funded departments, two possible explanations exist for why so departments have gone over their allocations. Firstly, increases in number and/or cost of new accidents outpaced the increases in allocations. Secondly, the accumulation of costs from claims made in 1998-99 (for 1999-2000) and 1999-2000 (for 2000-01). Program staff believe that this is because departments may have been slow in establishing claims and case management programs in this new environment. In particular, Return to Work Policies and alternative work arrangements.

View Exhibit 3.1

3.1.1 Average Cost per New Claim

An analysis of the average cost per new claim does not entirely explain the rising cost of workers' compensation claims. While 14 departments experienced a higher cost per claim in 1999-2000, overall across all funded departments, the cost per new claim decreased in 1999-2000 relative to 1998-99 by 2.8 percent. Again, the lack of additional data points and the nature of workers' compensation data make this result tentative.

3.1.2 Accumulation of Claims

The accumulation of costs from claims made in 1998-99 was the explanation provided by departmental representatives during interviews for why costs related to workers' compensation were increasing faster than their departmental allocations. According to departmental representatives interviewed, there is a tendency for the long-term costs associated with workers' compensation claims to cause total workers' compensation costs to "creep up" each year as a result of long term claims being accumulated. This belief is supported by program staff at HRDC Labour. One of the short term objectives of the program is to improve case and claims management and thus decrease the number of cases carried over from previous years.

In the case of departments that have been able to maintain their workers' compensation costs at or below their allocation levels, a number of explanations emerged during interviews with departmental representatives. Firstly, some of these departments experienced unusually high workers' compensation costs in 1995 and/or 1996 (the years used in the calculation of the allocation amounts). One such department was the Clerk of the Senate. This department had one very large claim in 1996. This was, according to the department an unusual occurrence. According to departmental staff interviewed for this study, the Clerk of the Senate should not have been included in the group of funded departments since it has generally had very few claims for workers' compensation benefits and the costs of these claims were low before 1995 and 1996. According to departmental representatives interviewed, were it not for the one large claim, the Clerk of the Senate would have been well under the $10,000 threshold. Other such departments include the Solicitor General.

The explanation for why Transport Canada has maintained its costs below its allocation is in part related to departmental reorganizations. In 1997 the Coast Guard was moved from Transport Canada to the Department of Fisheries and Oceans. The pro-rated allocation for these employees, according to both these departments, was not entirely moved from Transport Canada to the Department of Fisheries and Oceans. Both departments agree that employees in the Coast Guard tend to make more frequent claims for workers' compensation because of the nature of their job.

3.2 Summary

The following summarizes the findings relating to the adequacy of the allocation formula.

• Departmental allocations do not keep pace with increasing costs resulting from carry over claims. Most (18 of 25) departments exceeded their allocations in the second and third year (18 of 25 departments) of the program. Program staff did not intend the allocations to keep pace with the rising costs resulting from accumulated claims, the expectation was that departments would improve case and claims management and thereby decrease costs associated with carry over cases. According to program staff, the departments should increase efforts at returning workers to the job.
• At the time of calculating allocations, only two years worth of reliable data were available. As a result, allocations do not necessarily reflect the long-term workers' compensation cost trends in departments. As more data points become available, allocations will better reflect the costs associated with new claims.
• Overall, the cost per new claim decreased by 2.8 percent in the first year of cost recovery. More data points are required in order to identify whether this decrease reflects an overall trend within funded departments.