It's no secret that Washington's industrial insurance system is broken.
AWB has been in the forefront of business groups urging lawmakers to make some big changes to a system that will cost employers an average 7.6 percent more this year, just as businesses are struggling to emerge from a major recession.
But it turns out things are worse than we thought.
An actuarial firm contracted by the state Auditor's Office to study the system has concluded that the state accident fund -- one part of the system -- has a nearly 75 percent chance of becoming insolvent in the next two years.
And this is after the rate hike. Without the increase, the odds would have been more than 82 percent, according to the report by Towers Perrin.
And even those odds are generous. At the last quarterly meeting of the state's Workers' Compensation Advisory Committee in December, department officials states the accident fund will go insolvent for an unknown period of time later this year. The fund's reserves were at a mere $63 million at the end of the last quarter, down almost three-quarters of a billion from $776 million at the end of 2008.
In order to remain solvent, the accident fund would need a 33 percent rate increase, Towers Perrin estimated. That compares to the 4.5 percent increase it will actually receive as part of the 2010 rate hike.
UPDATE: State Auditor Brian Sonntag spoke about the workers' comp audit Wednesday on KUOW's The Conversation. Sonntag told host Guy Nelson: "It's really an issue for the Legislature to tackle, along with L&I, to set rates and make sure that it's sustainable and the fun can carry on."
To listen to the interview, click here.
The picture is slightly better for the medical aid fund: It has just a 4 percent chance of becoming insolvent within two years, and about a 25 percent chance of insolvency within five years, according to the report.
In order to remain solvent, the medical aid fund would need nearly a 25 percent rate increase, the firm estimated. Its share of the 2010 rate hike is just 8.4 percent.
Officials at the Department of Labor & Industries understood when they made the decision to raise rates 7.6 percent that the increase would not be enough. But they also realized that raising rates to the level required would be devastating to business.
Still, it's hard to see how this can end well without some significant changes.
The poor economy only partly explains the huge difference between assets and liabilities. The compounding quarterly costs of providing such high benefit levels on claims that are going on longer and longer without resolution is also a major factor.
Simply hoping that the economy will improve enough to restore lost earnings and increase contributions to the workers' comp fund will not solve the problem, according to The News Tribune.
"Businesses have long complained that Washington's program is one of the most generous -- and expensive -- in the nation," the paper writes in an editorial entitled "Workers comp audit should set off alarms." "It's also looking increasingly unsustainable."
The Washington Policy Center makes the same point with a posting on its blog entitled "Audit hammers state's Workers Comp sysem."
Businesses were worried that this year's 7.6 percent increase was not enough, Carl Gipson writes. "No, businesses don't want an even higher increase in workers' comp taxes," he says. "The point is that the system is broken ..."
One of the ways to begin fixing it is to allow workers to settle claims so they don't go on forever. It's one of the solutions advocated by AWB's Kris Tefft, and it's an idea that's been embraced by The Spokesman-Review.
In an editorial published today, the newspaper comes out in favor of the idea, saying that it will be an important piece of a package of bills introduced in the legislature this year aimed at reforming industrial insurance.
"The settlement option doesn't save the system money by shortchanging workers," the editorial states. "It does so by avoiding years of administrative overhead expenses incurred to manage lifelong cases."
Exactly.
