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FRIDAY, MARCH 11, 2011   (printable PDF version)
The TRUTH about compromise & release lump-sum buyouts

The State Senate has passed SB 5566, which would allow employers to settle workers' compensation claims with "compromise-and-release" lump-sum buyouts of injured workers. This would be a radical change for Washington’s workers' compensation system, which is a national model for its low costs and high benefits -- a system that got a resounding vote of confidence from voters last fall. Now, the corporate groups that unsuccessfully sought to privatize it, are playing down the dramatic effect SB 5566 would have and making misleading or false claims about the system.

CLAIM:  Washington’s workers’ compensation system has a 95% probability of going broke and will soon be unable to pay benefits.

This is absolutely false. It is based on December 2010 findings by a private actuarial firm (not the State Auditor, as is often reported) that there is a 95% chance that the Accident Fund Contingency Reserve will be insolvent in the next 5-year period. That fund is like a rainy-day fund and is only a very small portion of the system’s current total assets of $11 billion.

That's why the State Auditor's assessment of the actuary's report says, "It is important to note that insolvency [having liabilities in excess of assets] is not necessarily a key indicator of the accounts' ability to pay claims... The probability that the accounts would not have sufficient cash and/or invested assets to pay benefits over the next 10 years is extremely low."

In other words, the system is not "going broke" and there is very little danger to the system in the short term. The Auditor recommends long-term changes to improve solvency, but L&I is already reporting that the system's fund balance is SIGNIFICANTLY HIGHER today than it was during the 2009-2010 audit period, which reduces pressure to increase rates.

CLAIM:  Workers' comp rates are "skyrocketing" and the system is "unsustainable."

"Skyrocketing" is in the eye of the beholder, but an objective look at the rate history shows that recent increases have actually been LOWER than those caused by previous recessions, despite the fact that the Great Recession of 2008-10 was long and deep, and employment levels have yet to recover.

Those moderate increases would have been even lower -- and the system would be on more solid footing today -- had rates not been reduced 2% in 2007 and a 6-month "rate holiday" granted -- where employers and workers paid NOTHING for the medical portion of their insurance. That cost the system $315 million, or the 2007 equivalent of a 35% rate decrease. By comparison, the 12% rate increase in 2011 brought in $196 million.

CLAIM:  SB 5566 addresses the problem of rising costs of long-term disability pensions.

Compromise-and-release buyouts do NOTHING to address the problem. They don't get people back to work. They don't promote safer workplaces.

Buyouts are simply a benefit cut. The system only saves money if injured workers accept less than what they would otherwise get. Every dollar "saved" comes directly from injured workers' pockets and when the money runs out, the cost of those "savings" are shifted to social services for disabled workers with no income. That's why some states (like Texas and New Mexico) are increasingly regulating and restricting these buyouts because of cost-shifting from workers' compensation to taxpayer-funded public assistance programs.

CLAIM:  Compromise-and-release buyouts are voluntary. No one is forced to take them.

This ignores the reality of families in crisis after losing their income and suddenly facing a disabling injury. Other states have found that injured workers are routinely pressured to settle out of desperation, because they can't afford a decent attorney, due to exasperation with the claims/litigation process, and financial duress. Compromise-and-release buyouts create a financial incentive for employers to exacerbate that duress by appealing the claim and dragging the process out.

Supporters of SB 5566 know this. They are counting on the fact that many workers will settle for less out of ignorance and/or desperation. Otherwise, it doesn't save any money, so what’s the point?

click for background information

Washington is one of only five states that doesn’t allow lump-sum buyouts.

This is true. It's also true that Washington is one of only four states with a publicly run system, and voters in every single county in this state overwhelmingly chose to keep it that way. Washington is a leader in many areas of state government and voters want state policies to be judged on their merits, NOT on whether we are outliers. Otherwise, we would have a state income tax like 43
other states and a corporate income tax like 47 other states.

Solutions that DON'T put injured workers and their families at risk

Here are three substantive workers’ comp reform proposals by Gov. Chris Gregoire that are supported by both business and labor. SB 5801, which has passed both houses, creates a medical provider network and expands the use of Centers of Occupational Health Excellence. Both have proven effective in getting injured workers back to work sooner. HB 2002, which has passed the House, helps employers -- particularly small businesses -- return injured workers to light duty/transitional work via wage subsidies.

These are significant reforms that will save the system more than $450 million between now and 2017 -- WITHOUT putting injured workers and their families at risk, as SB 5566 does.


For more information about Washington's model workers' compensation system, see our January 2011 report: Our state's workers' compensation advantage.


Questions about anything you've read in the WSLC Legislative Update? E-mail David Groves or call me at 206-281-8901. 

PREVIOUS EDITIONS of the 2011 WSLC Legislative Update

Mar. 8 -- Senate compromises injured workers -- By a 34-15 vote on March 5, the Democratic-controlled Senate approved a revised SB 5566 that converts our state's workers' compensation system from one that provides "sure and certain relief" to injured workers into an adversarial process that allows employers to lawyer-up versus injured workers and negotiate lump-sum "compromise and release" buyouts. Twelve Democrats sided with all Republicans in voting for SB 5566.

Feb. 28 -- Better care, injury prevention cut workers' comp costs -- Organized labor supports efforts to cut Washington's workers' compensation costs associated with long-term disability pensions. But the best way to do that is by utilizing best practices that have demonstrated success in achieving that outcome, NOT by simply cutting off benefits when injured workers reach a certain age or allowing "starve-and-settle" agreements. This week's Legislative Update newsletter includes an explanation of which workers' compensation bills labor supports and opposes, plus post-cutoff status reports on previously reported legislation.

Feb. 18 -- Creating jobs, fixing workers' comp & more -- The deadline for policy bills to pass committee in their house of origin is Monday (Presidents' Day), for fiscal bills to pass committee in their house of origin is Friday, Feb. 25, and for all bills to pass their house of origin is Monday, March 7. See some summaries of important legislation the Washington State Labor Council is following, including providing public-works bid preferences for in-state contractors, creating aerospace apprenticeship opportunities, preventing work injuries and implementing best practices to address the issue of rising long-term disability claims, and more. 

Feb. 14 -- A measure of temporary relief for the unemployed -- After weeks of negotiation, the Legislature approved legislation last week addressing both taxes and benefits in our Unemployment Insurance system. In addition to granting businesses permanently lower U.I. tax rates, it provides federal extended benefits, plus enhancements to the existing training benefit program and a temporary $25 boost in weekly benefits for all new claimants. Plus, news regarding liquor privatization, workers' compensation changes, Washington Film Works, and an opportunity to support state employees on Presidents Day, Feb. 21.

Feb. 8 -- What will we do to help struggling families? -- Having already decided how to help struggling businesses to avoid a Unemployment Insurance tax increase, the question is: what will we do to help families struggling with unemployment? The House is considering amending the Senate-approved U.I. legislation to make its temporary business tax cuts permanent and to provide additional temporary U.I. benefits for struggling families. While it's not the permanent children's benefit increase supported by the United for Washington Families coalition, getting an additional $20-$25 on the kitchen tables of Washington's unemployed families will provide some measure of relief, and create nearly $200 million of purchasing power in local economies. Plus, the WSLC urges legislators not to risk precious jobs in Centralia by imposing an aggressive new timeline for the TransAlta power plant to meet new greenhouse gas emission standards, and some Republicans want to impose the "McKenna Minimum Wage," a creative interpretation of 1998's popular minimum wage initiative that would block its annual increases in certain years. Bad idea.

Jan. 31 -- Don't take it out on ferry workers! -- There's no question about it, the Washington State Ferries system is struggling. But it's not because of its dedicated hard-working employees made it that way. Yet legislation is being proposed to fix the WSF essentially by taking away ferry workers' bargaining rights, unilaterally cutting their wages and benefits, and privatizing parts of the system. These bills are blunt instruments that take out a decade of frustration on the wrong people, trample on fundamental workplace rights, and circumvent the collective bargaining process. Plus, news on legislation to "build a better speed bump" on home foreclosures, putting state money to work creating jobs with a State Investment Trust, and updates on unemployment insurance and workers' compensation

Jan. 25 -- House panel passes balanced U.I. bill -- The House Labor and Workforce Development Committee chaired by Rep. Mike Sells (D-Everett) has amended HB 1091, the governor's initial proposal for changes to the state Unemployment Insurance system, to balance proposed business tax cuts with a children's benefit to help families struggling with unemployment. This change, supported by the growing United for Washington Families coalition of community and labor groups, is a win-win-win to help families, businesses and the economy, which are all suffering right now. Plus, news of a so-called "right-to-work" bill filed by Republicans, Gov. Gregoire's proposal on workers' compensation, and misguided efforts to deal with the immigration issue at the state level.

Jan. 18 -- Businesses AND families are suffering -- Advocates for Washington families support balancing Unemployment Insurance tax cuts (price tag: $478 million) with a $15 children's benefit (price: $202 million) to help 170,000 struggling families, instead of enacting a proposed training benefit that might impact 1,900 people. While many in business lobbying groups remain dedicated to tax cuts without relief for our families, friends and neighbors, this may be one of the only opportunities our state legislators have to make positive change in 2011. That's why we remain hopeful that legislators on both sides of the aisle will set aside historic differences and embrace this win-win-win proposal that helps business, families and our economy. Plus, updates on paid family leave insurance and a referendum to temporarily suspend tax breaks we can no longer afford.

Jan. 13 -- Balance U.I. tax cut with aid for children -- A coalition of unions and other organizations is proposing an alternative more balanced approach to Unemployment Insurance changes that recognizes the shared struggles of businesses, families and communities. While we believe that Gov. Gregoire's initial proposal is a good start to this discussion, it is not the best path to economic recovery. Its modest improvements to training benefits fall short of what is needed to address the immediate needs of families in crisis and our state economy. We strongly believe MORE must be done for families struggling to put food on the table and keep a roof over their heads. Thanks to the relative health of the U.I. Trust Fund, this may be the only opportunity this year to do something positive for struggling families, while also avoiding a U.I. rate increase for employers.


Copyright © 2011 -- Washington State Labor Council, AFL-CIO