Wash. L&I Proposes 19.4% WC Increase for 2004

September 18, 2003

The Washington Department of Labor and Industries (L&I) proposed increasing workers’ compensation premiums by 19.4 percent in 2004. Assuming the economy holds steady, the rate increase will bring revenues in line with the workers’ compensation benefits and expenses next year.

The agency has scheduled seven hearings around the state in late October and early November to give the public a chance to comment on the proposed rate increase. L&I director Paul Trause will make the final decision on rates on Nov. 19. The new rates will take effect Jan. 1 and will show up on employers’ first-quarter billing, which will be sent out in March.

“We realize this rate increase is difficult considering the economic situation,” Trause said. “But the insurance industry nationwide has been forced to increase rates to make up for losses in investment earnings, and L&I is no exception. But our rates are still among the lowest in the nation and over the last 10 years have increased at a rate that is far less than inflation.”

If adopted, the proposal will bring in an additional $240 million next year. Trause said the increase completes a two-year phase-in of a plan to bring premiums and investment earnings in line with benefits and administrative expenses. This is only the second rate increase in the past decade. For much of that time, extraordinary earnings on investments allowed the agency to keep rates artificially low, subsidizing premiums with money that had built up in the State Fund’s contingency reserve. During that time, L&I returned $400 million to employers in cash dividends and held down rates by $1.4 billion.

Historically, Washington’s workers’ compensation insurance rates have ranked among the lowest in the nation. In 2002, only seven states had rates lower than Washington’s, according to surveys done by Oregon’s industrial insurance system. This year, Washington’s rates rank in the lower third of all states. As a percentage of payroll, workers’ compensation premiums in Washington rank far below the national average.

If adopted, this 19.4 percent rate increase will put Washington somewhere in the lower third of states regarding its rates. Where it finally winds up will depend on how high other states raise their rates. Since 2000, California’s rates have risen 89 percent. Private workers’ compensation insurance companies and other states have raised their rates an average of 50 percent over the past three years.

A year ago, L&I proposed a 40.5 percent increase in rates for 2003. During a series of public hearings, employers explained that the increase was too much to absorb in a single year and should be phased in. The agency eventually adopted a 29 percent general rate increase, warning it was inadequate to cover liabilities and that another rate increase would be needed in 2004.

Washington’s workers’ compensation system is divided into three funds. The Accident Fund is the largest and pays partial wage (time-loss) benefits when a worker is injured on the job and can’t work. The Medical Aid Fund pays for the treatment of job-related injuries and illnesses, and for vocational rehabilitation. The Supplemental Pension Fund is the source of cost-of-living increases for workers receiving long-term disability payments.

The increase will be divided among employers and their employees. On average, the rate employers pay will rise 21 percent. Workers will see their rate rise 16 percent. The average combined rate this year is 47.2 cents an hour. If the rate increase is adopted, it will rise to 56.4 cents an hour next year. On average, employers will pay just over 42 cents of that amount; workers will contribute just under 14 cents. Washington is the only state in the nation where workers contribute premiums to the workers’ compensation system.

L&I has taken steps to hold down its costs. It aggressively pursued a comprehensive package of legislative reforms that would have simplified the administration of claims and limited future increases in benefits. The Legislature passed one element of that package, placing limitations on how long workers have to file for permanent partial disability for occupational hearing loss. Other legislative changes, including reform of the vocational rehabilitation system, will be pursued again next session.

Internally, the Insurance Services Division has made dozens of administrative changes designed to more efficiently manage claims and get injured workers back into jobs they are capable of handling. The agency also is working with health-care providers, employers and injured workers to make sure injured workers receive the treatment they need and return to their job as quickly as possible.

Job-related injuries that result in an employee missing work for an extended period of time have the biggest impact on a company’s rates. For example, this year, residential wood-framing contractors pay as little as 85 cents an hour and as much as $5.40 an hour, depending on their claims history over the last three years. Excavation and grading companies pay between 90 cents and $4.50 and hour, depending on the claims and safety record.

“The surest way a company can hold down its costs is by operating safely,” said Trause. “A safe workplace benefits both workers and employers.”

L&I manages Washington’s workers’ compensation system. It provides coverage for about 160,000 employers and 1.9 million workers. About 800,000 workers, representing 30 percent of the state’s workforce, are employed by companies that are self-insured. The self-insurers will be impacted by the 8.2 percent increase to the Supplemental Pension rate, which will go from 6.84 cents to 7.4 cents.

Schedule for rate hearings:

Monday, Oct. 27, 3 p.m.
Airport Ramada Inn, Inland Empire Room
8909 Airport Dr.
Spokane, WA

Tuesday, Oct. 28, 3 p.m.
Double Tree Inn
1507 N. First Street
Yakima, WA

Wednesday, Oct. 29, 3 p.m.
Best Western Cottontree Inn, Fidalgo Room
2401 Riverside Dr.
Mount Vernon, WA

Thursday, Oct. 30, 3 p.m.
Department of Labor and Industries
Tukwila Field Office
12806 Gateway Dr.
Tukwila, WA

Wednesday, Nov. 5, 3 p.m.
Tacoma Rhodes Center, Orcas Room
950 Broadway, Suite 503
Tacoma, WA

Thursday, Nov. 6, 3 p.m.
Red Lion at the Quay
100 Columbia Street
Vancouver, WA

Friday, Nov. 7, 3 p.m.
Department of Labor and Industries, auditorium
7273 Linderson Way S.W.
Tumwater, WA

Written comments on the proposed rate increase should be sent by Nov. 7 to Kathy Kimbel, Program Manager, Employer Services, 7273 Linderson Way S.W., Tumwater, WA, 98501.

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