PART 2 IN A SPECIAL SERIES (updated January 2010) -- Printable PDF version

Our state's workers' compensation advantage
Washington has 5th lowest employer costs of any state

By DAVID GROVES
of the Washington State Labor Council, AFL-CIO

One of the most persistent myths about Washington state's business climate is that our workers' compensation costs are higher than in most other states. The fact that many employers and public policymakers believe this to be true is another indication of the power and resonance of the negative internal rhetoric about our competitiveness.

As with overall business-climate rankings, independent objective analyses from outside the state tell a very different story.  In fact, the gap between the truth and the negative rhetoric about our workers' compensation costs is shocking.  Not only do we have comparatively low premiums, by the national measure most often cited, the workers' compensation costs to employers in Washington state are the fifth lowest of any state in the nation.

Despite these low costs, Washington's model state-run system is able to provide comparatively high benefits to injured workers. That's how this myth took hold that Washington is not competitive in this area.  Business lobbying groups continually and deliberately decry the level of benefits -- not employers' actual costs -- in their quest to cut premiums even further.

The danger for Washington's working families is that lawmakers could lose sight of the goal of our workers' compensation system -- "sure and certain relief for workers, injured in their work, and their families and dependents" -- and shred this critical safety net in a misguided attempt to improve our business climate.

WORKERS' COMPENSATION is America's original tort reform. Until this system was established about 100 years ago, workers injured on-the-job could sue their employers for damages. But workers gave up that right to sue in exchange for this no-fault insurance program that pays medical costs and partially reimburses the lost wages of workers who suffer job-related injuries or illnesses.

So it's important to remember that workers’ compensation is not a poverty program, nor is it some kind of welfare. It is a mandatory insurance program, and it was sought by American employers as a way to protect them against potentially ruinous lawsuits over an injury or illness caused by their neglect.

Also known as "industrial insurance," workers' compensation coverage for more than 99% of the businesses in Washington state is provided through the nonprofit government-run State Fund.  Fewer than 400 businesses, employing between one-quarter and one-third of the state's workforce, are large enough to operate their own industrial insurance programs and are called "self-insured employers."  These companies, including Boeing, Weyerhaeuser, Safeway and Microsoft, pay the same benefit levels set forth in state law, but they have more control over the claims administration process. Presumably, these employers' costs are lower than they would be in the State Fund system, or else they wouldn't self-insure.

HOW DO OUR EMPLOYER COSTS COMPARE?  The Oregon Department of Consumer and Business Services (OCDBS) conducts a biannual state-by-state study of workers' compensation premiums that is widely cited not only among public policy experts and state labor agencies across the nation, but also by private industrial insurance professionals. The latest edition, released in October 2008, found that Washington state had the 38th highest overall premiums in the nation.

But the news is even better for our state's employers. Washington is the ONLY state in the nation where workers pay a portion of the workers' compensation premiums, currently estimated by the Washington 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 costs for employers.

Business lobbying groups within Washington -- where No Good Business-Climate News Goes Unchallenged!™ -- say the Oregon study is not reliable because Washington has a unique system of calculating premiums based on hours worked rather than payroll dollars.

ODCBS Research Coordinator and study co-author Mike Manley stands by the rankings. Although he acknowledges that Washington is a unique state that is more difficult to measure, he says there is no evidence that the hours- to payroll-based premium conversions artificially help or hurt Washington's performance in the rankings. Those conversions are provided by actuaries at the Department of Labor and Industries and Manley says there has never been any indication this data underreports our premiums in comparison with other states.

Plus, other studies confirm Washington's status as one of the least expensive in the nation. 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, conducted in 1998, found that Washington was in the lowest 25% of states in terms of costs.

HOW DO OUR BENEFITS COMPARE?  Washington has comparatively high workers' compensation benefits. The National Academy of Social Insurance's most recent analysis of 2006 data found that Washington paid $1.63 in benefits for every $100 in covered wages, which ranked our state third highest. 

^{Copyright © 2010 --  Washington State Labor Council, AFL-CIO}