This week's Puget Sound Business Journal features a piece by Dierdre Gregg exploring the severe hike in workers' compensation taxes forecast for Washington employers once the Department of Labor & Industries sets 2010 rates later this fall.
Using preliminary financial and actuarial data, L&I currently projects a need for 15-20% in higher premiums, which as Gregg notes, would be the largest increase in workers' comp rates since 2003. It's early in the process. The rate indication could drift higher or lower because there are still two more quarters of financial activity yet to occur before the rate is adopted.
The big picture need for a big rate increase is based on two primary factors: a recession-driven drop in investment and premium income on the one hand, and increased costs for claims administration, disability benefits, medical costs, and pensions on the other hand.
Even though workplaces are safer and the total number of workers' comp claims filed has declined consistently over the years, the claims are lasting longer, cost more to manage, are more likely to turn into expensive pensions, and are experiencing health care costs well above the predicted rate of inflation. The average workers' comp claim in Washington results in 257 days of disability payments, up 38% this decade and up 10% in the last year alone.
We are quoted in the piece pointing out how difficult higher workers' comp taxes are for employers to swallow. Apart from the B&O tax, payroll taxes like workers' comp and UI are among Washington employers' biggest labor costs. Higher costs here undeniably affect our employers' ability to save and create jobs. A spokesperson for Boeing is quoted as well, wondering “How hard are we going to make it for these companies to create jobs?”
Gregg notes correctly that "[t]he increase will likely spur the business lobby to press the 2010 Legislature for changes to the workers’ comp system."
There are a lot of ways in which Washington's workers' comp system is different from just about every other system in the country. For example, we are the only state where injured workers lack the flexibility to settle a workers' comp claim for a lump sum or an annuity. We have one of the most complicated methods in the nation of calculating disability payments, which results in arbirtary results for injured workers and delays and headaches for employers and L&I claims managers.
Our state is also relatively unique in that it is one of only a few workers' comp systems that exists primarily as a state-run monopoly. Other states with private competition in the workers' comp market are experiencing something very different right now. Oregon, for example, has had 19 years with no rate increase and rate decreases over the last three years. West Virginia, which was until only recently a monopoly state fund, has reported incredible improvements in the health of its system in the year since it allowed private competition in the market (including a 30% drop in premiums). Similarly, national insurance industry consultant Conning notes that premiums are in decline across the country due to market competition in a weak economy, and are projected to remain flat in 2010.
A big increase in workers' comp taxes here when premiums elsewhere are declining will only renew questions about why we do things so differently in Washington and whether it's working for the people the system is meant to serve. Whatever the rate turns out to be, the challenges facing our workers' comp system will continue to underscore the need for common-sense corrections to improve the quality and performance of the system for injured workers and employers.
