L&I to Announce 2008 Workers Comp Rates

Friday morning, the Department of Labor & Industries will announce its workers' compensation rate proposal for 2008.  The Department will propose an overall increase of 3.2% in workers' comp rates. 

Broken down over the three main accounts that make up the state fund, that will pencil out to a 4.5 percent reduction in the Accident Fund, which pays for lost wages, pensions, and some rehabilitation, a 10% increase in the Medical Aid Fund, which pays for medical benefits, and a 17% increase in the Supplemental Pension Fund, which pays for cost of living adjustments for pensioners.

This is a change in one area from the indicated "break even" rates presented to the Workers' Comp Advisory Committee on August 21st.  L&I's actuaries suggested a 18.8% rate increase in the Medical Aid Fund to break even in 2008.  But the Medical Aid Fund, already the subject of a $315 million rate holiday in 2007, has almost $1 billion in reserves, so there is wiggle room.

And, just as the "break even" rates aren't always the proposed rates, the proposed rates aren't always the adopted rates.  When it comes to something as touchy as L&I and taxes, there's always politics.  Especially heading into an election year.  This rate proposal now goes to public hearings across the state before a final decision sometime in November.

This 3.2% increase is a far cry from the surprising major rate increases of the early 2000s, that brought justified opposition from the employer community because of the total lack of any major system reform addressing the high costs that underlie the high benefits of workers' comp.  The rate has actually been fairly stable since the 2003-04 double-digit debacles, with overall averages of +3.7% in 2005, -0.4% in 2006, and -2% in 2007 before the rate holiday.

Still, this rate announcement will not be popular with everyone.  Workers generally pay half of the Medical Aid premium.  And workers can be held to half of the Supplemental Pension Fund premium.  So the double-digit increases in those two funds have rankled the labor unions, which contend workers shouldn't have to contribute into the system at all.  And employers who self-insure for workers' compensation also pay the Supplemental Pension premium.  So this increase, fueled in large part by unanticipated growth in the State's Average Monthly Wage for 2007-08, could end up costing tens and even hundreds of thousands of dollars in extra premiums for self-insureds next year. 

And that doesn't even get into the issue of how L&I calculates its experience rating upon which premiums are ultimately applied to insured firms.  That's controversial for yet another group of employers, who will see their individual premiums go up despite stellar safety records. 

This is complicated stuff but is also a life-and-death competitiveness issue for Washington businesses.  Stay tuned to see where the final rates end up.

UPDATE Here's the L&I release.