Decision #150/99 - Type: Workers Compensation

Preamble

An Appeal Panel review was held on July 15, 1999, following receipt of an appeal by the employer. The Panel discussed the appeal July 15, 1999, and October 15, 1999.

Issue

Whether or not the employer's rate of assessment for 1999 should remain at $3.81 per $100.00 of workers' earnings.

Decision

That the employer's rate of assessment for 1999 should remain at $3.81 per $100.00 of workers' earnings.

Background

Each year, the assessment rate model and the rates to be charged to Class E employers are established and presented to the Board of Directors for their review and approval. For the 1999 year, the Board of Directors approved a rate decrease of 20%. 15% was to be applied within the experience rating model and 5% to be applied to all firms, after taking into account the 1999 Rate Model and current year's cost experience.

Accordingly, this employer was assigned the rate of $3.81 per $100.00 of workers' earnings. The employer's 1998 rate was $4.72 per $100.00 of workers' earnings. The rate for 1999 was calculated in the following manner: $4.72 x .85 = $4.01; $4.01 x .95 = $3.81. As specified, the employer's 1998 rate was reduced by the maximum allowable of 15%, and then by a further 5% given to all employers.

In an appeal, dated January 29, 1999, the employer stated the Workers Compensation Board (WCB) is not abiding by its policy to keep rates within 40% of the category base rate as outlined in the WCB's fact sheet. The base rate was set at $2.63 per $100.00 of workers' earnings. Consequently, the rate should be $3.68 (2.63 x 1.4 = 3.682). The employer referred to the WCB's fact sheet for its rationale.

Portions of the fact sheet highlighted by the employer read as follows:

    "To maintain the WCB's philosophy of collective liability of the spreading of risk, the individual firm's rate (the amount per $100 of assessable workers earnings payable to WCB) is within 40% of the category base rate.

    The assessment rate range for an individual firm can vary by a maximum of plus 40% or minus 40% from the category base rate.

    To prevent 'rate shock' WCB places a limit of the amount a rate can increase or decrease from one year to the next. The current limit is 15%. Also, in order to ensure the system is collective, all firms rates must be within 40% above or below the category base rate.

    Before experience rating, all firms would have paid this category base rate, regardless of their individual experience. However, with experience rating, each individual break even rate is compared to the category base rate. Based on this comparison, individual rates can be up to 40% below the category base rate (when claim costs are low) or up to 40% above the category base rate (when claim costs are high.)

    With the potential of an 80% swing for firms (40% up and 40% down) within the same industry classification, there is a distinct cost advantage for a firm to invest in workplace safety and accident prevention."

On April 29, 1999, the Assessment Committee rejected the employer's appeal and stated that the employer's assessment for 1999 will remain at $3.81 per $100.00 of workers' earnings. In reaching this conclusion, the Assessment Review Committee stated the following:

    "The Assessment Committee acknowledges the WCB's fact sheet on rate setting can be misleading, particularly in cases where there is a large drop in the category base rate from one year to the next, as is the case here. The fact sheet is being edited to provide a better explanation to employers.

    However, the WCB model to hold employers' rates to 40% above or below the category base rate in any given year applies to most situations, all things being equal. Should there be a drop in the category average or a large drop in costs for an individual employer from one year to the next, the WCB model holds changes to 15% from year to year. Limiting increases and decreases from year to year reduces 'Rate Shock' and upholds the integrity of the rate setting model...".

On May 10, 1999, the employer completed an application of appeal requesting consideration by an Appeal Panel. On July 15, 1999, a non-oral file review was convened at which time additional clarification was requested from the WCB's assessment department. A response from the assessment department was later received, dated September 3, 1999, and was forwarded to the employer for comments. A submission from the employer, dated September 10, 1999, was submitted to the Appeal Panel and a further meeting was held on October 15, 1999 to discuss the issue under appeal.

Reasons

The employer appeals its 1999 rate of assessment arguing that its rate of $3.81 per $100 of each worker's earnings is too high. The employer's written submission focused on two WCB policies that deal with the WCB's rate setting model. The employer suggested that these two policies were in conflict with each other and as such the employer should be afforded the most favorable interpretation.

The WCB's current rate setting model states that all firms within an industrial classification will have individual firm rates that are no more than 40% higher or lower than their industry classification's annual base rate. There is as well a "transitional" policy which is designed to protect individual firms from "rate shock" which can be caused by a major movement in the firm's industry classification base rate, a reclassification of the industry group to another category, or by a sharp increase or reduction in an individual firm's WCB cost experience. This policy limits an individual firm's annual assessment rate from rising or falling by more than 15% of its previous year's assessment.

In the present case, the employer had a rate of assessment in 1998 which was at the top of its industry classification. For the calendar year 1999, the WCB made adjustments that reduced the employer's industry classification base rate by 23% from the 1998 rate. The WCB in turn reduced the employer's rate from $4.72 to $4.01 which amounted to a decrease of 15%. The WCB then further reduced the employer's rate by an additional 5%. This additional 5% reduction had been approved by the WCB for all firms as part of a three year rate rebate program. These reductions resulted in the employer's 1999 assessment rate being set at $3.81 per $100 in insurable payroll.

The employer argued that its 1999 assessment rate of $3.81 left it nearly 45 % above the industry base rate. The policy to keep rates within 40% of the category base rate should result in a maximum assessment rate of $3.68. Therefore, the 40% maximum policy must take precedence over the "rate shock policy" which only allowed a decrease of 15% or an assessment rate of $3.81.

We have reviewed the documentation dealing with the development of the rate setting model which is established annually by the WCB's Board of Directors. We note that the rate setting model and the transitional policies were developed after full consultation with the employers. The rate setting model has been developed over time to ensure that an individual firm's assessment rates are more and more reflective of its recent cost experience. Employers' concerns that a rate setting model highly sensitive to recent cost experience could possibly lead to economic uncertainty in forecasting costs were met by the transitional policy which in effect buffers any firm up to a maximum 15% variance in assessment rates from year to year.

The rate setting policy has been in place for many years, and has been equally applied to all employers. In a letter to the Appeal Panel, dated September 3, 1999, from the Secretary to the Assessment Committee, the procedure employed by the WCB for the implementation of this policy was stated as:

    "The rules entered into the computer for the rate setting model to calculate individual firm rates are as follows:
    1. Based on the firms experience they are assigned an initial rate within the parameters or 40% above or below the base rate.

    2. The model then ensures the firm has not received greater than a 15% increase or decrease. If they have, they are then limited to that maximum increase or decrease whether they fall within the 40% variance guidelines or not.
    3. Based on the firms experience they are assigned an initial rate within the parameters or 40% above or below the base rate. The model then ensures the firm has not received greater than a 15% increase or decrease. If they have, they are then limited to that maximum increase or decrease whether they fall within the 40% variance guidelines or not.

The 40% variance and the 15% rate shock provisions must be viewed separately. While, the 40% variance limits the potential differences between competitors assigned to the same industry code. The 15% 'rate shock' provision insures firms will not be excessively effected (sic) in any one year. The 40% variance is a general state to which individual rates will trend. While the 15% shock rate limit is a limit on rate movement from year to year."

We note these policies provide that all firms will have an assessment rate calculated for them annually. The model clearly contemplates that this calculation could result in a significant rate shift for an employer and therefore provides a degree of protection from the impact of such fluctuations, both positively and negatively. It is clear that in any given year, there will be a number of employers who will require more than one year to reach their "actual" assessment rate, and as such will pay, for one year, a "transitional" assessment rate that is not truly reflective of their actual assessment rate for that particular year.

With respect to this anomaly, we note that the WCB has clarified in the "WCB Rate Setting Model Fact Sheet", which is distributed to all employers, the manner in which it deals with the two provisions:

    "To prevent "rate shock" WCB places a limit on the amount a rate can increase or decrease from one year to the next. The current limit is 15%. Also, in order to ensure the system is collective, all firm rates will trend to within 40% above or below the category base rate." (emphasis ours)

After reviewing the evidence on file and the submissions provided by the employer, we do not find that the WCB's policies in respect of the 40% variation in rates and the 15% limit in individual firm rate movement are in conflict with one another, but rather are complementary. The model recognizes that many factors, some global, some industry-based and some employer-based can lead to major swings in assessment rates at an individual firm level, and as such it attempts to reduce the overall effect in both instances of rate increases and rate decreases for an individual employer. Accordingly, we find that the WCB has correctly calculated the employer's assessment rate for 1999 at $3.81 per $100.00 of workers' earnings, and therefore dismiss the employer's appeal.

Panel Members

R. W. MacNeil, Presiding Officer
A. Finkel, Commissioner
M. Niekamp, Commissioner

Recording Secretary, B. Miller

R. W. MacNeil - Presiding Officer
(on behalf of the panel)

Signed at Winnipeg this 29th day of October, 1999

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