Industrial Accident Compensation Insurance in Korea

Transcription

1 Paper prepared for International Seminar on Industrial Accident Compensation Insurance, Seoul, Korea, November 28, Industrial Accident Compensation Insurance in Korea Dr. Hokyung Kim (Fellow, Korea Labor Institute) 1. Introduction Work injury insurance (WII) in Korea, as part of the four social insurance plans that include the National Pension, health insurance, and employment insurance, functions as a major pillar in the country s social safety net. While other social insurances cover old age, health, and unemployment risks, WII addresses work-related injuries or illnesses for workers based on the concept of productive welfare. And by covering the risks of the various work-related injuries, WII functions as a social safety net and inspires workers will to work and helps workers maintain stable work life. Work injury insurance, as an integral part of the social safety net, should maintain a systematic stability for a long term, and this can only be achieved based on financial soundness. Since its inception in 1964, WII has expanded its function as one of the major pillars in the social safety net; it has enlarged its applicable scope and compensation to cover workers job-related illness or injuries. In addition, as part of an effort to extend the physical coverage of the social safety net, the program also widened its scope of recognized illness or injury. However, many challenges still lie ahead before WII can sufficiently play its role as part of the social safety net. Regarding the scope or coverage of WII, there is a rising social demand that the plan should include the self-employed, petty farmers and fishermen, poorly-equipped forestry workers and hunters who have been excluded from its domain, and also special type of workers whose form of work makes it difficult to categorize them as laborers in the - 1 -

2 traditional sense. In Korea where self-employed and temporary workers account for a significant ratio of laborers, expanding the scope of WII program is a very important issue and should be approached from a social perspective, that is, as an extension of the social safety net. With a rapid industrial development, types of work-related illness and disease have been and/are widely diversifying. Therefore, safety control must be enhanced, and the types of occupational diseases recognized by the program should be adjusted as well. Meanwhile, effective measures are called for to ensure long-term stability of WII finance. Insurance benefit cost is skyrocketing due to the cumulative growth of longtreated patients, an escalating number of seriously disabled workers, and an increase in pension recipients with the pension system taking root. Given that, enhancing the function or coverage of WII is desirable as an expansion of the social safety net. However, if done with no definite plan to ensure financial stability, it may rather aggravate WII finance in the near future. This kind of fiscal strain pressured with no appropriate counter measure, will inevitably cause a rapid surge in insurance premium. Work injury insurance plan, as a part of the social safety net, must maintain a stable structure. This paper takes a close look at the current issues of Korea s WII program, analyzes the problems, and discusses the direction for appropriate solutions. It also identifies the cause for the fiscal pressure and the issues to be addressed in securing financial stability for the future. Followed by the introduction in the first chapter, key features and benefit types of the insurance scheme will be explained in Chapter two. In chapter three, I will discuss WII safety management based on occupational injury status. Expansion of WII application, current issues, and possible solutions will be covered in the fourth chapter, followed by raising WII compensation level, concept of compensation, and issues with different benefit types and their improvement in Chapter five. The discussions will be based on the need to relieve current fiscal strain and expand the social safety net. In Chapter six, I will address issues in recognizing injuries or illnesses as work-related. The need to change premium settlement and financing method will be suggested in Chapter seven. The demand for an enlarged social safety net and the cost pressures that may dry up WII fund and thus increase insurance premium make it a legitimate concern to design effective measures for financial stabilization. In other words, new financing methodology ( partial or full funding ) should be adopted to ensure prolonged stability. The last chapter will conclude by summarizing and raising additional issues likely to occur in the future

3 2. WII Key Features and Benefit Types 2.1. Key Features Like other social insurance programs, WII was designed to provide protection against economic insecurity that may be caused by work-related injury and/or illness. WII benefits include medical treatment for work-related injuries or illnesses and wage replacement for the loss of earnings during injury or illness. In Korea, WII differs from other social insurance programs in several aspects. First, employers contribute to WII by paying premiums to government insurance funds. There is no direct employee contribution, although much of the cost may be shifted to employees in the form of lower wage. A considerable ratio (about 85%) of the premium is rated based on experience, and therefore, it is different for each company based on the type of benefit. The remainder (about 15%) of the premium is set at a fixed-rate and is evenly spread among all businesses in an industry. Second, WII is a no-fault system. Employers are liable regardless of fault, and employees qualify as recipients only if the injury or disease claimed is work-related. Employers liability is limited to the benefits of the program, and employees can receive benefit regardless of employers ability to pay. WII is financed mainly by the premiums paid by employers and the returns on managed asset, and some of the operation cost is funded by government budget. Aided by the Korea Labor Institute, the Ministry of Labor estimates the approximate amount to be paid in the following year and subsequently, total premium amount to be collected from businesses. The Ministry of Labor also determines premium rate for each type of business based on its experience rate of the past three years. Once the premium rates for different types of businesses are determined, each firm has to submit its own premium which is adjusted by the variation rate based on an individual firm s experience rate. At present, individual experience rate only applies to businesses with thirty or more employees, which significantly limits its scope of application Benefit Types WII benefits are classified into seven categories according to the different conditions of work-related injury or illness: medical treatment, income indemnity, disability benefit, nursing benefit, survivors benefit, funeral expense aid, and long-term indemnity - 3 -

4 pension. Most of them are cash benefits with the exception of medical treatment which is provided when an injury requires more than three days of treatment. If an injury requires up to three days of treatment, employers are mandated to pay for the medical expense in accordance with the Labor Standard Act. Income indemnity benefit covers 70% of income loss when a worker is unable to resume his/her job within three days due to a job-induced injury or illness. Disability benefit can be paid either in lump sum or as pension; lump sum payment is provided for those who belong to degrees 8-14 of impediment, and pension payment for those in degrees 1-3 of impediment. Beneficiaries who belong in the degrees 4-7 of impediment may choose to be paid either in lump sum or by pension. Survivors benefit is also paid in either of those manners; if paid in a lump sum, the average income for 1,300 days is provided; if paid as a pension, 47% of the average annual income plus 5% for each additional recipient is paid. Maximum annual pension payment should not exceed 67% of the average annual income. For funeral expense, an amount of 120 days of average income is paid. Longterm indemnity pension benefit is for the injured workers who do not recover after 2 years of medical treatment and fall in the incurable disease classification of degrees 1-3. Figure 1. Benefits of WII Source: Kim, Hokyung, (2000), p. 9. For the recipients of long-term indemnity pension, income indemnity benefit is not applied. Long-term indemnity pension is paid in the form of a pension, the amount of which - 4 -

5 differs according to the severity of disease: for degree 1 beneficiaries, the average income for 329 days is paid; for degree 2, 291 days; and for degree 3, 257 days. The paid amount is the same as those for disability benefit. 3. Trends in Work-related Injury and Safety Management 3.1. Work-related Injury As illustrated in Figure 2, the number of injured workers has generally been in decline for the last decade. The sharper drop in 1998 is due to the recent economic recession. From 1999 however, the number climbs back as the economy recovers and more employees get hired with manufacturing industry increasing its operation ratio. Manufacturing firms in general face a higher risk of work-related injuries. Figure 2. Number of Injured Workers Source: Ministry of Labor, Korea Labor Welfare Corporation database In terms of accident ratio, it seems to have fallen rapidly. <Figure3> below shows that accident ratio also dropped sharply in However, 1999 does not experience a significant increase in accident ratio as with the number of injured workers. It is due to an expansion of WII scope; in 1998, financial institutions including insurance companies were included in WII program; in 2000, all businesses with one or more employees were also incorporated into the scheme. In other words, the denominator in the accident ratio increased

6 Figure 3.Accident Ratio Note: As of Aug. 2002, accident ratio dropped 0.03% compared to that of previous year. 3.2 Safety Management The trend in accident ratio shown above may lead one to believe that occupational injuries or diseases have diminished sharply. However, a study of more detailed data will prove otherwise. Indeed the below chart illustrates that the number of seriously injured and deceased workers has rather increased on a continuous basis. Even if we exclude the records of the unusual gain in the number of severely injured workers possibly due to the major accident in 1995, the number has been generally on the rise up until then. For several years recently, the number has significantly dropped and then made quite a jump in Figure 4. Number of seriously injured workers - 6 -

7 Source : Ministry of Labor, Occupational Injury Analysis, each year The number of the deceased, which had been rising, takes a nosedive in 1998 due to economic recession. It bounces back in 1999 as the economy recovers, particularly in those industries with higher risk of work-related injury such as construction, manufacturing, etc. (Figure 6) Figure 5. Number of death - 7 -

8 Source: Ministry of Labor, Korea Labor Welfare Corporation database. As seen in the historic data, despite the general decrease in the number of injured workers and the accident ratio for the past twenty years, the number of the seriously injured has steadily escalated or at least maintained a similar level as that of ten years ago. Moreover, the number of death has been in a constant rise up to now. Both trends prove that while the industries have been growing through large-scale construction projects equipped with heavy machinery, safety management of their workplaces has been very poor. Then, what is the reason behind the general decline in the accident ratio? Judging from the aforementioned factors, we can safely conclude that minor accidents have been diminishing. Unfortunately, industrial field reports disclose that the decline in minor accidents as studied from the chart are not due to an actual reduction of accidents but mostly due to concealment by employers. 1 Such cover-ups seem to be a negative side effect from the No Accident Campaign that was initiated with an aim to diminish accident ratio, and therefore, the figures cannot be interpreted as representing an actual drop in accident ratio. The campaign was initiated by the Ministry of Labor with the enactment of No Industrial Accident Campaign Guidelines in February 1982, and its authority was transferred to Korea Occupational Safety and Health Agency in According to the 1 See Korea Labor Institute, Industrial Safety and Labor Union During IMF-supervised Recession, Discussion Materials on the Role of Honorary Industrial Safety Supervisor,

9 guidelines, workplaces that experience more than three industrial accidents are subject to safety management system inspection. Businesses that receive correctional orders afterwards must pay considerable expense to establish and maintain a proper safety system. That is why they tend not to report minor incidents and instead persuade or force their employees to cover their claim with medical insurance. For major accidents, there is little cover up because employees would not accept employers demand in such a case. 2 In Korea, injured workers are calculated as such only when the accidents occurred are recognized as occupational injury by Korea Labor Welfare Corporation. Thus, undisclosed accidents are not included in the accident ratio calculation. Given the facts, the statistics regarding accident ratio seem to considerably distort the trend in minor industrial accidents. In order to reduce WII cost for a long term, more effective safety management is necessary. Following <Figure 6> and <Figure 7> shows annual changes in the number of deaths by industry and the number of the seriously injured. Construction and manufacturing industry produced the highest number of the dead followed by mining industry and transport, storage and communication industry whose figure recently turned downward. It is interesting to note that the number of death soared for the past ten years in other industries. Figure 6. Number of Death by Industry 2 It is difficult for injured workers to be appropriately compensated if they agree not to report the accident, and compensation with WII is greater than medical insurance benefit, so they tend not to accept employers request in case of major injuries

10 As for the seriously injured, the numbers are the highest in construction and manufacturing industry, and mining shows a steady decline for the past 5-10 years. Other industries, on the other hand, have been recording a slow rise for the last 10 years. To be more specific, in manufacturing and construction industry, the number of the injured in degrees 1-3 has soared until 1995 and took a dive in 1996, then has maintained a similar level since. The number of injured workers in degrees 4-7 category in manufacturing has steeply risen until 1995, suddenly fell in 1996, and has continued to decline until recently when it started to go back up. Injured workers in construction have maintained a sluggish rise up to the present. In 1995, the collapse of Sampoong Department Store caused the number of seriously injured workers in all industries to skyrocket. Even if we exclude this factor in 1995, it is difficult to say that the number of seriously injured workers has gone down in general for the past years except for the mining industry. Indeed, manufacturing industry experienced a decline for the recent years but witnessed a sudden rise last year. What this means is that the preventive safety management in the industry has been insufficient or ineffective. Based on these observations, more focused safety management for disaster-prone industries will contribute to reducing the frequency and severity of accidents and thus more effectively cut down WII cost. Simply put, an intensive safety management for construction, manufacturing and other industries is required. Construction, in particular, needs a closer analysis on why its injured workers degrees 4-7 continue to increase

11 Figure 7. Number of Injured Workers in Degrees 1-3 by Industry Figure 8. Number of Injured Workers in Degrees 4-7 by Industry 4. Scope of WII Application WII was launched for a total of 64 businesses and 80,000 employees in mining and

12 manufacturing industry in To be eligible for WII, a company had to employ at least 500 workers. Since then, as represented in Table 2, industries covered by WII have increased, and the minimum number of employees required per firm has been reduced. In 1998, WII was extended to student apprentices and students in vocational schools, and on July 1 st (of the same year), finance and insurance firms with 4 employees or more were included in the WII scheme. On July 1, 2000, the minimum number of employees required was reduced to 1, which meant that practically any firm could now apply for WII. In addition, employers with no more than 50 employees could be WII beneficiaries themselves since most of them also serve as laborers in their own firms. Even with these extensions of the application of WII, certain types of businesses including self-employees are still excluded due to the difficulties in administration and confirmation of employment relationship. Such type of business includes construction firms with less than 20,000,000 won of total expense; private construction companies with total project areas of less than 330m²; farming, fishing, hunting, and home care service firms with less than 5 employees; other types of business or industry in which work injuries are covered by different laws; and firms with no more than one regular employee that use part time workers on a irregular basis. These are the types of businesses not legally covered by WII. Additionally, there are certain groups of workers technically excluded from the scheme based on the fact that their form of work makes it difficult to define them as workers. Some contingent lowincome workers and temporary workers are still uncovered by the social safety net, which raises a serious concern. Insurance solicitors, home-visiting salespeople selling children s test-kits, and golf caddies belong to this category. Since these workers are paid with commissions rather than salaries, their employers tend not to recognize them as employees. It is an issue still under a heated debate. On the one hand, it is argued that since these workers maintain some kind of continuous employment relationship with their respective business owners, they must be considered as employees in the event of work-related injury. On the other hand, some point out that in many cases it is hard to prove that they work for specific companies, and moreover, it is hard to determine whether their injuries are actually work-related. WII program is a social risk management system designed to protect workers from the risks of accidents and diseases that could be induced by their occupation. Korea s WII is structured as a social insurance scheme and its basic direction should be to cover all the employees of industrial risks. However, in reality, it is difficult to bring all types of workers under the WII umbrella since the types of work are not regular or employment

13 relationship is unclearly defined. Another reason is that the wage, as the basis for calculating insurance premium, lacks objective standard in case of certain group of workers. Therefore, in order to gradually expand the social safety net, to effectively control accident and disease risks for workers, and to establish a safe working environment, it is necessary to incorporate the group of workers who are currently not covered by WII if their wage and employment relationship is relatively clear. For workers whose wage and employment contract is not clearly defined, more cautious approach would be necessary. With no accurate data on their wage and risk experience ratio, it is difficult to determine an appropriate level of insurance premium, and it may cause a very negative influence on the future financing of WII. Potential number of workers belonging in this category is shown in the <Table 1>. Table 1. Number of Temporary Workers Total Agriculture Forestry Fishery Special type of workers No. of businesses 1,135 1, No. of employees 2,246 1, ,000 (estimate) Note: No. of businesses in agriculture and fishery refers to legal bodies (Korea National Statistical Office, 2000), No. of businesses in forestry and No. of employees are based on corporate labor status data from the Ministry of Labor. No data available for self-employed and hunting industry. To appropriately apply WII for these types of temporary workers, an effective system should be put in place to maintain employment contract records. Meanwhile, to apply WII for these worker groups presently with no records of employment contract, it is necessary to consider a separate WII plan different from the existing scheme. Table 2. Minimum Number of Employees Required for WII Year Required Number of Employees Industry

14 in a Firm Mining, manufacturing only Addition of electrical, gas, transportation, and warehouse industries All existing industries All existing industries except brassware, which requires at least 25,000 employees annually Addition of construction, service, water service, sanitary equipment, telecommunication All existing industries (5) All existing industries except mining, chemical, petroleum, coal, rubber goods, and plastic, which require at least 5 employees Addition of logging industry Addition of agricultural goods brokerage business industries only including veneer plywood 1987 (5) 20 industries, including timber, which require at least 5 employees industries, including electronics appliance manufacturing Addition of mining, forestry, fishery, hunting, retail/wholesale business, real estate brokerage Mining, forestry, fishery, hunting, retail/wholesale business, real estate broker- age industries Addition of education, health, and social work services Addition of financial, insurance, and overseas dispatch industries All existing industries, including owners of firms with at most 50 employees Source: Kim, Hokyung, et al., (2000), p. 13; Ministry of Labor. 5. WII Coverage When WII was first introduced, medical treatment was provided only for those injuries or illnesses that required more than 9 days of treatment (Table 3). However, the required number of days was reduced in 1971 to more than 7, and in 1982 to more than 3 days. Income indemnity benefit, which paid only 60% of average income in 1964, was increased to 70% in Disability benefit paid according to 10 different degrees of disability in 1964 were subdivided into 14 degrees in 1971, and the level of payment was

15 increased as well for each of the different degrees. In 1989, those in the category of degrees 1-3 were mandated to receive benefit in the form of a pension while those in degrees 4-7 were given the choice of receiving the payment in lump sum or pension. However, from 2000 they were also made to receive 50% of the benefit in the form of a pension. Survivors benefit which were paid in a lump sum for an amount of 1,000 days of average income in 1964, were increased to 1,300 days of average income. In 1970, pension type payment was introduced and the amount of payment was adjusted upward in the years 1971, 1977, and Generally beneficiaries were given no choice but to receive in the form of pension, but since 1999 recipients were given the option to receive half the benefit amount in a lump sum. As for funeral expense, the benefit was increased in 1989 from 90 days of average income to 120 days. However, in 1999 maximum and minimum limits were fixed in order to reduce the difference between low and high benefit recipients. Long-term indemnity pension benefit had been paid in a lump sum since 1964, but a pension type payment was introduced in In July 2000, nursing benefit was introduced to cover the care service cost for the severely disabled workers. This benefit is restricted to those who belong in the disability classification of degrees 1-2. Full-time care benefit is 24,775 won/day and part-time benefit 16,516 won/day. Table 3. Expansion of WII Coverage Date of Medical Income Indemnity Benefit / Disability Survivors Funeral

16 Impleme ntation Treatment Benefit Lapse period: more than 10 days Long-term Care Benefit Benefit Benefit Expense Benefit 60% of average of income Lapse period: more than 10 days Lapse period: Lapse period: more than 7 more than days 7 days Lump sum: Maximum (Grade 1: 1000 days) Minimum (Grade 10: 50 days) Lump sum amount: 1000 days of average income in case of incomplete recovery after 1 year of progress Subdivision of grade: Maximum (Grade 1: 1340 days) Minimum (Grade 14: 50 days) Pension benefit introduced Target: Grade 1-3 Annual benefit: Grade 1 (240 days of average income) Grade 2 (213 days), Grade 3 (188 days) Lump sum amount: 1340 days of average income in case of incomplete recovery after 2 years of progress Lump sum: 1000 days of average income Introduced pension benefit Amount of benefit according to the number of survivors: 1 survivor: 30% of annual income 2 survivors: 35% of annual income 3 survivors: 40% of annual income 4 survivors: 45% of annual income 90 days of average income Increase annual pension benefit: Grade 1 (279 days of average income) Grade 2 (248 days of average income) Grade 3 (219 days of average income) Increase annual pension benefit: 1 survivor: 45% of annual income 2 survivors: 50% 3 survivors: 55% 4 survivors: 60% Increase annual pension benefit: Lapse Grade 1 (313 days of average income) period: Lapse period: more than 3 Grade 2 (277 days), Grade 3 (245 days) more than days Grade 4 (213 days), Grade 5 (184 days) 3 days Grade 6 (156 days), Grade 7 (131 days) Long-term card benefit Amount of payment established Grade 1 (313 days of average Discontinuance of income) lump-sum benefit Grade 2 (277 days of average payment income) Grade 3 (245 days of average income) Mandatory pension payment introduced Increase annual pension benefit: 1 survivor: 52% of annual income 2 survivors: 57% 3 survivors: 62% 4 survivors: 67% Level of income indemnity increased 70% of average income Amount of lump sum benefit increased: Grade 1: 1474 days, Grade 2: 1309 days Grade 3: 1155 days, Grade 4: 1012 days Grade 5: 869 days, Grade 6: 737 days Grade 7: 616 days, Grade 8: 495 days Grade 9: 385 days, Grade 10: 297 days Grade 11: 220 days, Grade 12: 154 days Level of long-term benefit increased: Grade 13: 99 days, Grade 14: 55 days Grade 1: 329days of average income The amount of pension benefit Grade 2: 291days of average Increased. : income Grade 1: 329 days, Grade 2: 291 days Grade 3: 257days of average Grade 3: 257 days, Grade 4: 224 days income Grade 5: 193 days, Grade 6: 164 days Grade 7: 138 days The amount of lump sum benefit increased: 1300 days of average income Amount of benefit increased: 120 days of average income Treatment for aftereffects introduced Pension payment of the 50% of the lump sum amount for grade 4-7 became mandatory Nursing benefit newly established: Full-time: 24,775 won/day Part-time: 16,516 won/day Pension payment became mandatory: either 100% in pension, or 50% in pension and 50% in lump sum Maximum / minimum level of payment established Source: Kim, Hokyung, et al., (2000), pp The level of compensation for WII has steadily improved since its inception as the

17 result of the consistent demand from injured workers and the government s effort to bring up the compensation level to an international standard. Table 4. International Comparison of Compensation Level Country Compensation Korea Full disability: 138~329 days of average daily wage. 55~1,474 days of payment made in a lump sum according to severity of disability. Nursing fee provided. Minimum and maximum level specified. Linked with wage. No limits on the period of payment. Japan Taiwan According to the level of disability (degrees 1 7), daily average wage is multiplied by days Less severe disability: 56 ~ 503 days of average wage is paid in a lump sum according to degree of disability Full disability: 60 months income paid in a lump sum Partial disability: 50 months income or half the amount paid in a lump sum according to degree of disability Singapore Full disability: 6~12 years of income paid in a lump sum according to age Partial disability: payment made in a lump sum according to degree of disability Source: Park, Charnim, International Comparisons of Work Injury Insurance. In Korea, the re-employment rate of disabled or injured workers is very low, and in most cases monetary compensation by WII is their only source of income. Consequently, WII has put greater emphasis on monetary compensation, and to secure living for the recipients, compensation had to be made in the form of a pension payment. However, monetary compensation, while requiring a considerable fund to cover work-related injuries or disabilities, seems to have little contribution on enhancing the recipients quality of life. While WII beneficiaries have made a consistent demand to improve their level of compensation, their re-employment rate turned out to be very low. <Table 5> below is the result of a telephone survey by Korea Labor Institute on WII beneficiaries re-employment status and their willingnees to seek employment. Of the total 2199 respondents, only 48% of them were currently employeed, and 67.1% or 1,105 respondents wished to be employeed

18 Table 5. : WII Beneficiaries Re-employment Rate, Fact-finding Survey Total (%) Degree of Disability (%) Respondents (2,199 people) Employed 1,064 (48.4) 6 (4.3) 93 (30.6) 965 (55.0) Unemployed 1,135 (51.6) 134 (95.7) 211 (69.4) 790 (45.0) Respondents unemployed (1,105 people) Wish to be employed Do not wish to be employed 741 (67.1) 44 (33.8) 138 (68.0) 559 (72.4) 364 (32.9) 86 (66.2) 65 (32.0) 213 (27.6) Source: Lee Hyunjoo, Study on Rehabilitation Program for Home-staying Disabled Workers, 2002, Korea Labor Institute Based on the survey, current WII compensation scheme leaves some room for improvement. That is, while most of the WII beneficiaries are able or wish to be employeed, the current system focuses more on recuperation and monetary compensation rather than occupational rehabilitation. In the future, the concept of compensation for disabled workers should move away from simple recuperation and monetary reparation to medical and occupational rehabilitation. What is necessary is the shift of paradigm in WII compensation by encouraging medical and occupational rehabilitation for disabled workers to reinstate them in the labor market and thus realize the concept of productive welfare. In the long run, it will contribute to a slow down in social cost increase which results from the monetary compensation scheme. Otherwise, a considerable portion of the skyrocketing WII cost will have to be shouldered by the future generation. Presently, WII benefit cost is soaring as a result of increasing pension type payment and long-treated beneficiaries. Pension recipients will show a cumulative growth every year, which means more drastic increase in the benefit cost is to be witnessed. With a gradual transition from the current fiscally-strained compensation scheme to a rehabilitation and productive welfare system, the overall cost structure of WII compensation system can be improved. 3 In Korea, the importance of medical and occupational rehabilitation for WII is being recognized and various rehabilitation programs are being introduced. However, simply introducing new programs will not produce a cost effective compensation system. To prevent the new programs from simply adding another type of fiscal pressure on rehabilitation expense and to secure sufficient fund for the new rehabilitation system, current paradigm needs to be 3 The issue will be discussed more in detail in the Funding and Premium section

19 shifted into rehabilitation-oriented plan. The existing monetary scheme and rehabilitation program should be amended together in its totality as a single compensation system, not separately. Such a shift of paradigm can hardly be achieved in a short term. A long term outlook with a design to establish rehabilitation and job reinstatement program would be required to save WII cost and realize productive welfare. 6.Work-related Injury Recognition 6.1. Scope of Work-related Injury Recognition According to ILO Resolution in 1982, work-related injury (generally referred to as 'occupational injury') is defined as "accidents causing death, disease or injury that occur during execution of work". However, countries vary in what they acknowledge as an occupational injury. In case of Korea, when a worker suffers a work-related injury and takes 1 3 days off including the day of the injury, WII does not recognize it as an work-related injury nor include it in occupational injury statistics. However, such worker is entitled by the Labor Standard Act to be compensated by his/her employer. Other countries standards of acknowledging work-related injury are as follows. Germany, the USA, and the UK recognize an injury as work-related if it requires suspension of work or affects normal execution of work. Japan and Singapore recognize only the injuries that make one unable to show up for work. Table 6. Scope of Calculating Injury Statistics in Major Countries Country Korea Japan Germany US Singapore UK No. of days including the day of injury 4 days or more 5 days or more 4 days or more 2 days or more 4 days or more 4 days or more Source: Work-related Injury and Statistics in Major Countries, Korea Occupational Safety and Health Agency,

20 6.2. Scope of Occupational Disease Recognition The scope of occupational disease in Korean WII is well defined in Article 40-1 of Labor Standard Act Enforcement Ordinance; occupational disease, as with occupational injury, is only recognized as work-related if it requires 4 days or more of treatment. Recognition of occupational disease is a very sensitive issue. Recent changes in industrial structure and job characteristics are diversifying the type of occupational disease. In particular, musculoskeletal diseases, which occur on specific parts of body and muscle due to a long repetitive work, are growing rapidly. Therefore, analysis of such occupational diseases, introduction of preventive measures, and appropriate compensation scheme should be put in place. <Table 7> distinguishes occupational disease from occupation-related disease, and it shows that cerebral and cardiovascular diseases account for the highest ratio of occupational disease in Korea. Table 7. Status of Occupational Disease in Korea 2000 Total Occupational Disease Occupation-related Occupational hearing loss Pneumo coniosis Chemical substance, etc. Cerebral & Cardiovascul ar disease Bodystraining work Back pain Diseased 3, , Deceased Source: WII Annual Report, Korea Labor Welfare Corporation, It is practically impossible to directly compare the number of occupational disease cases in different countries since their standard or definition of occupational disease varies. Some countries excluding Korea and Japan include all diseased workers regardless of the number of days required for treatment. The UK announces not the number of the diseased but the cases reported. In addition, it is difficult to clearly distinguish the standards for recognizing occupational disease in different countries. In Japan, occupational disease requires more than 4 days of business suspension, and the scope of disease is defined in the country s Article 35 of Labor Standard Act Enforcement Regulation. The definition lists a total of 35 different diseases including diseases induced by occupational injury. The number of the deceased are not counted

21 separately but included in the number of the affected. In Germany, all laborers affected by legally defined occupational disease are covered by work injury insurance scheme. The country s scope of occupational disease is quite comprehensive and includes a total of over 70 diseases including chemical factorinduced disease stated in BGBI S2623. The number of workers died of disease can be calculated either separately or inclusively and the affected workers currently living and dead are both maintained. The US defines no clear scope for acknowledging occupational disease and records all work-related injuries or accidents regardless of their severity. The standard for recognizing a disease as occupationally induced is when the disease causes abnormal state or loss of physical or mental ability. They do not calculate the number of workers died of work-induced disease and instead only announces the morbidity rate. This is due to the difficulty in relating the latency period with occupation. The number of occupationally diseased workers is announced separately for suspension and non-suspension cases and the number of diseased workers who suspend work are maintained for comparison. It can be said that US is relatively strict in recognizing occupational disease. The UK recognizes occupational disease based on the occupational disease report mandated by the RIDDOR Regulation regardless of job suspension. Occupational disease lists a total of 47 diseases including skin disease caused by radioactive leakage as defined in RIDDOR Regulation Schedule 3 Part 1. The number of occupational diseases defined in different countries is listed in <Table 8>. It illustrates how comprehensively each country recognizes occupational injuries or diseases against the backdrop that occupational disease is recently being acknowledged of its significance as part of work-related injury or illness. As is seen from the table, Korea recognizes only 38 kinds of occupational disease while Germany, where more than 70 occupational diseases are identified, allows a more comprehensive definition. country. <Table 8> below explains what occupational diseases are common in which In general, pneumoconiosis is common in all five countries. In Japan, injuryinduced disease, which is recognized in Korea as well, accounts for an absolute majority of the cases reported. In Germany and the US, majority of the diseases is caused by physical condition or repetitive work, which implies the enlarged scope of occupational diseases defined with the growth of tertiary industry. In the UK, hand-arm vibration syndrome

22 followed by dermatitis is ranked as the most common occupational disease. Various diseases common in different countries implies that the kind of occupational disease differs according to the level of industrial development in a nation. In advanced countries including the US, musculoskeletal disease is spreading towards different occupations and already ranked as one of the most common occupational disease. It shows that as the scope of recognized occupational disease expands, it can be recognized more easily as work-induced or related. Table 8. Type of Occupational Disease in Major Countries Frequency Korea Japan Germany US UK 1 Cerebral and cardiovascular (41%) Injury-induced disease (70%) Disease by physical condition (44%) Disease by repetitive work (65%) Hand-arm vibration syndrome (28%) 2 Pneumoconiosis (24%) Pneumoconiosis & complications (14%) Respiratory and pneumoconiosisrelated disease (36%) Skin disease (14%) Occupational dermatitis (23%) 3 Hearing loss (13%) Disease by physical factor (7%) Skin disease (9%) Others (12%) Tenosynovitis (18%) 4 Body-straining work (8%) Disease by work position (4%) Infectious disease (7%) Respiratory and pneumoconiosisrelated disease by harmful factors (7%) Hand and forearm spasm (9%) 5 Back pain (4%) Disease by chemical Disease by chemical substance excluding substance (3%) cancer (4%) Disease by physical factor (4%) Occupational asthma (7%) 6 Others (4%) Pathogen-induced disease (2%) Others (1%) Disease by poisoning (1%) Carpal tunnel syndrome (5%) Organic solvent poisoning (3%) Metal and heavy metal poisoning (1%) Chemical substance poisoning (0.8%) Anoxemia (0.2%) Others (0.1%) Others (10%) Source: Korea Occupational Safety and Health Agency, Occupational Injury Status and Statistics in Major Countries, p.42. As industrial structure, type of work and characteristics change, the scope of

23 occupational injury and disease changes as well. Occupational disease in particular may vary greatly in its scope in different countries depending on how progressively a country acknowledges its industrial accidents. Musculoskeletal disease is notably increasing in Korea but no accurate status of the disease has been identified, and relevant authorities are yet to come up with far-sighted counter measures. With little solution in place against the severity of the problem, workers demand for disease compensation and ergonomically designed working environment is heightening. Continuous research is required for reduction of occupational hazards to cope with changes in the job features and to expand the scope of occupational injuries and diseases. Nevertheless, no matter how well the scope of occupational injury or disease is defined, appropriate compensation for affected workers cannot be done unless the problem of accident concealment is completely rooted out. 7. Funding and Premium As discusssed in the previous chapter, allowance paid in the form of a pension resulted in a cumulative increase of WII payment cost and is currently causing a very serious fiscal stress. To make matters worse, long-treated patients are increasing and the number of severly injured workers which has recently fallen is climbing up again. Cumulative growth of the total number of the injured or disabled is likely to aggravate the fiscal pressure on WII funding. Figure 9. Increasing Pension-type WII Recipients

24 Figure 10. Period of Treatment for Occupationally-injured or disabled Note: The number of treated patients and treatment duration was summarized based on a specific point of time in the year, and workers treated before or after the given period were not included. Source: Ministry of Labor, WII Annual Report, each year Figure 11. Trend of the Seriously Disabled Source: Ministry of Labor, Occupational Injury Analysis, each year

25 As illustrated, augmenting long-term patients, cumulative growth of the seriously disabled, and a rise in pension-type payment are causing exponential growth in WII benefit cost. At present, the growth is in its early stage, but if unchecked, it will result in WII benefit payment to skyrocket. Figure 12. Insurance Benefit Amount At present, WII is funded on a pay-as-you-go basis, and the increase in the benefit amount will inevitably result in a rapid surge of insurance premiums in the future. This will not only aggravate businesses burden but also mandate the authorities to pass on the insurance cost to future generations. What it means is that a business newly entering the market with no history of occupational injury will have to shoulder the burden of previous generation s WII cost. In order to stabilize the pension liability to be paid in the future, WII financing should change to be partially or fully funded. That is, by accumulating the necessary amount for compensation at the time of injury, required money for the future can be filled to

26 prevent fiscal drainage and sudden rise in insurance premium and hence maintain a stable premium level for a prolonged period. 8. Conclusion: Summary and Remaining Challenges All workers are potentially exposed to occupational hazards. In real life, the probability of such risk would be very low, but when an accident actually takes place, it will have a very serious impact on the career and life of the affected worker. Hence, the necessity to maintain and prevent such risks. WII has done much since its inception to control occupational risks for workers, but several challenges still lie ahead. If we recognize that every worker faces the risk of injury, even if the probability is very small, the role of WII is very important to ensure the economic stability of employees. First, monitoring and controlling for investment made in preventive safety management should be more sophisticated. There is no system to effectively monitor and determine whether the cost incurred to prevent occupational accidents actually prevented accidents and resulted in the reduction of premium greater than the prevention cost. And, there is no definite ground to justify the investment in accident prevention. Such being the case, although a complete prevention against industrial accidents is critical, it is difficult to prove the effectiveness and necessity of preventive investment. Based on the current accident ratio, there is no legitimate reason to argue that the preventive investment has effectively prevented occupational accidents. Therefore, to secure efficiency of preventive investment in the future, an intensive safety management should be put in place for accident-prone industries. Second, to expand the social safety net, WII coverage should be extended to those currently excluded from the scheme. Nonetheless, it is not easy to apply WII to temporary and contingent workers because of the difficulty in determining whether their disease or injury was actually caused by their job. To benefit these types of workers through WII, institutional improvement should be made so that all kinds of work be performed based on labor contract. But realistically, institutional change and reform of existing practices cannot be achieved in a short-term. Rather than including the entire less privileged workers in the existing WII program, it may be worthwhile to consider a separate WII plan for them. Under the separate plan, individual worker may be mandated to report one s

27 wage to claim WII and may benefit accordingly. However, too much dependency on this kind of approach will change the role and scope of the social safety net for occupational accidents according to a worker s attitude toward WII program. Thus, more practical solution would be to conduct a rough analysis on the average income level by worker group and mandate compulsory collection of premiums for each of them. Third, as a result of the many efforts to upgrade compensation, the level of cash compensation in Korean WII is not lower or may be higher than that of other countries with similar economic condition. Moreover, recent increase in pensioners, cumulated growth of seriously disabled workers, increasing deaths and long-treated patients are causing the total WII benefit amount to soar. Korean compensation system is not effectively linked with medical and occupational rehabilitation to generate re-acquisition of productivity and re-employment. Rather, it is focused on monetary reparation to enable accident-affected workers sustain their living. This kind of approach will not cut down WII cost in the long run. Furthermore, under the compensation system that provides lifetime pension benefit for disabled workers, the accumulation of beneficiaries may cause accident cost expense to dramatically surge. By shifting the focus of the system onto securing re-employment opportunity for disabled workers through medical and vocational rehabilitation, pressure to provide life-long pension can be relieved and at the same time productive welfare can be realized. Fourth, although it is hard to make an international comparison on the scope of occupational injury recognition, current system in general seems quite reasonable. However, the scope of recognizing occupational disease should be reconsidered in terms of industrial development and specialization. In addition, as is recently being argued, it should be positively considered to include musculoskeletal disease in occupational disease category. Fifth, against the backdrop of exploding insurance claims, the present pay-as-yougo approach should be changed to fully or partially funded financing in order to avoid financial insolvency or a sudden increase in insurance premium. In addition, the concept and standard of policy reserve should be amended to lay aside sufficient reserve for future liabilities. By presenting a stable premium level to secure necessary fund in the future, sudden escalation of premium can be avoided. There are challenges to be considered in the future that are not addressed in this paper due to limited space; WII benefit adjustment in linkage with the National Pension

28 program and measures to address the growth of long-term patients. While WII pays lifetime pension for occupationally disabled workers, in a strict sense, pension payment for the elderly of ages 65 or older (65 being the maximum working age) should be shouldered by the National Pension scheme. When a WII recipient becomes of certain age, it will be necessary to transfer their beneficiary status as National Pension recipient with no responsibility on WII to pay for the elderly. If reasonably designed, new WII applicants could be presented with a new plan. Current WII program pays job suspension benefit only during treatment, which may motivate its recipients to unnecessarily prolong their treatment. Consequently, this not only increases the benefit expense but also incurs additional hospitalization cost, and a systematic improvement is required to prevent unnecessary spending. Furthermore, collection of WII premium should be made more efficient. For the past year, the ratio of the amount charged against the amount actually collected turned out to be 84.8% 4. More effective measures to enhance the collection ratio should be devised to ensure financial stability and fairness in premium collection. 4 Refer to Korea Labor Welfare Corporation data