MONDAY. FEBRUARY 1, 2010
Why the grass is greener on THIS side of the fence

Washington's public workers' compensation system considered high-benefit, low-cost by industry analysts

By DAVID GROVES
Washington State Labor Council, AFL-CIO

Friday's edition of the WSLC Legislative Update newsletter reminded all that the goal of our state's public workers' compensation system is "sure and certain relief for workers, injured in their work, and their families and dependents," and that focus has been sorely missing from the current debate over how to improve the system. Indeed, the state law also reminds us, "The welfare of the state depends upon its industries, and EVEN MORE upon the welfare of its wage worker." (Emphasis added.)

Our state's system isn't perfect. There are ways it can be improved that benefit both injured workers and employers. Some of those ways will be discussed at today's 10 a.m. work session by the Senate Labor, Commerce & Consumer Protection Committee on the issue. We will report on that hearing tomorrow.

But today, the committee will likely focus more on the welfare of industries, and in particular, whether the system costs employers too much money. 

Labor has repeatedly pointed to a national study, conducted by the State of Oregon, that ranks Washington as having some of the least expensive workers' compensation rates in the nation. In-state business groups have attempted to discredit the Oregon study. They point to evidence that benefits for injured workers are higher here than in many other states (which is true), and therefore premiums must be more expensive as well (which is not). Plus, they point out that premiums in Washington increased an average 7.6% this year at a time employers are struggling.

Here is some additional information to consider:

BUSINESS OBJECTIONS TO THE OREGON STUDY: Most industry experts consider the Oregon study to be the definitive analysis for comparing states' programs. The latest edition, released in October 2008, found that Washington state's premiums ranked 38th in the nation. (Only 13 states were less expensive.) Moreover, Washington is the ONLY state in the nation where workers pay a portion of the premiums, currently estimated by the state Department Labor and Industries to be 28% of the costs. Factoring that in -- which Oregon's study does not -- Washington ranks 5th lowest in the nation in terms of the premiums employers must pay.

In-state business lobbying groups say our state system is unique and the Oregon study is flawed. Instead, they usually describe the system's "costs" as being its benefits for injured workers, implying that high benefits necessarily mean high premiums. 

First of all, the Oregon study isn't the only study that declares Washington a low-cost state. In addition, national workers' compensation experts have identified state systems, including Washington, that are both high-benefit and low-cost states: 

• Risk and Insurance magazine is the leading national publication for risk managers and workers' compensation industry insiders. Its November 2009 report, States of Disparity, points out that "generous benefits don't preclude low insurance costs." The report assigned letter grades to each state's workers' compensation system, and Washington was one of three states to get an "A" for both high benefits and low costs.
   

• The Insurance Information Institute, "recognized by the media, governments, regulatory organizations, universities and the public as a primary source of information and analysis concerning insurance," reported in 2008 (see first column) that Washington has the third lowest premiums per worker of any state.
   
• The most recent comprehensive performance audit of our workers' compensation system by the Joint Legislative Audit and Review Committee, conducted in 1998, found that Washington was in the lowest 25% of states in terms of costs and the highest 25% in terms of benefits.

But most industry experts consider the Oregon study to be the definitive analysis for comparing states' programs. In-state business lobbying groups say it is not reliable for two principal reasons: one, Washington's unique system of calculating premiums based on hours worked rather than payroll dollars, and two, the Oregon study does not include payments Washington employers must make into the Supplemental Pension Fund.

Mike Manley, Oregon Department of Consumer and Business Services Research Coordinator and co-author of the study, stands by the rankings. He acknowledges that Washington is a unique state that is more difficult to measure, but he says the study has accounted for the hours- vs payroll-based premiums and there has never been any indication that actuaries' conversions of this data underestimate or overestimate our premiums in comparison with other states.

As for the Supplemental Pension Fund costs, the Department of Labor and Industries recently prepared a chart explaining where Washington would rank using the Oregon study and including those costs. (See chart below.) It finds that Washington would rank 25th in the nation with that cost included, but again removing the workers' share of the premiums, Washington would still rank 42nd in terms of employer costs.

The bottom line: All independent national evidence points to Washington as having both high benefits and low costs when compared to other states. In-state business groups that insist costs are too high have never produced an independent national study that ranks Washington as a high-cost state, they have only presented anecdotal "evidence" from individual employers who operate in multiple states and say they pay more in Washington than elsewhere. If true, this could happen for a number of reasons, including that the employer has had a higher incidence of work injury in this state and therefore its experience rating is higher.

THIS YEAR'S RATE INCREASE:  The Department of Labor and Industries increased premiums for our public workers' compensation system by an average 7.6% in 2010. (Remember, this increase doesn’t affect large self-insured employers like Boeing, Microsoft and about 400 others covering about one-third of the state’s workers, only those that participate in the public State Fund system.)

L&I says the increase is needed because the national recession has taken its toll: an estimated $1 billion hit on the State Fund reserves. Investments have suffered, unemployment is up, and work hours have been cut, so less money is flowing into the system. But in-state business groups say the increase is evidence that our system is broken.

First of all, it's important to put the 2010 premium increase in perspective. In the five years prior to this increase, premiums had risen a total less than 8%. Premiums have been unchanged or decreased in 8 of the past 16 years. 

It's also important to remember that employers in Washington have been receiving rebates and dividends that have significantly lowered their workers' compensation costs. L&I estimates that during the 8-year period from 1995-2002, when investment returns were high due to a booming stock market, employers and workers got about $1.4 billion in rate reductions and one-time dividends, averaging $175 million in savings per year.

Compare that to the 2010 premium increase, which will raise an estimated $117 million. Just three years ago, the state granted a 6-month "rate holiday" -- where employers and workers paid NOTHING for the medical portion of their insurance -- saving an estimated $315 million. The 2007 rate holiday saved employers more than 2½ times the cost of the 2010 increase. Had that rate holiday not happened, there would have been no need to increase rates in 2010.

The bottom line: In-state business lobbying groups are being opportunistic, seizing upon the current economic downturn and the resulting workers' compensation rate increase as an opportunity to turn Washington from a high-benefit, low-cost state into a lower-benefit, even lower-cost state. As we pointed out in our session-opening WSLC Legislative Update, There's Blood in the Water in Olympia, "they know that the best time to increase private profits by cutting wages, benefits and regulatory costs is when unemployment is high, working people are desperate and the government is broke."

Business lobbying groups' efforts to exaggerate problems and misrepresent Washington state's nationally recognized competitive advantage in this area are counterproductive to the state's efforts to recruit and retain good jobs in Washington. 

Today's hearing will examine proposals to make our system even better. First and foremost, all those proposals should be judged by whether they maintain or increase our success in providing "sure and certain relief" to injured workers. If they do, and they also increase our existing competitive advantage in this area by lowering costs, organized labor will support them.