The Washington Policy Center blog commented on it first last week, but it's worth taking another look at the Department of Labor & Industries' 2009 rate announcement.
It's an average 3 percent increase, meant to bring in $57 million next year, largely to account for wage inflation and rising health care costs. The percentage is an average across the entire system. Individual firms' rates may vary depending upon risk class and claims experience.
Breaking the figure down among the three state funds, it amounts to a 1.8% increase in the employer-funded Accident Fund, a 3.2% increase in the employer/employee split Medical Aid Fund, and a 7% increase in the employer/employee split Supplemental Pension Fund.
That's about a cut in half from what L&I's actuaries claimed the funds would need to break even next year -- $111 million, driven by a projected 12.3% increase in the medical aid fund, the fund whose premium was dropped by two thirds in the final announcement.
Had the Department taken the break even rate in the medical fund, it would have increased slightly the percentage employees pay into the system, to about 28%. The state's politically potent labor unions bristle at contributing any premium into the system, and are reliable opponents of proposed rates that increase that share.
So, as the Department's press release notes, "Washington is the only state where workers pay a substantial portion of premiums. Next year, their share would increase slightly but will remain just over 25 percent if the proposed rates are adopted."
The reason the Department can take less than break-even for rates is because the system maintains a sizable contingency reserve, currently at about $1.6 billion. So in a certain sense it is using its surplus to buy down the employer/employee share of premium next year.
This might set up the system for a sizable increase this time next year, however. Equity investments are a major part of the non-premium income of the medical aid fund, and a declining equity market means less money in. Buying down rates with surplus reserves may be a politically smart option right now but only hindsight will show if it was economically sound.
