Wash L&I Adopts 9.8 Percent Rate Increase for 2004

December 3, 2003

The Department of Labor and Industries announced a 9.8 percent general rate increase in workers’ compensation premiums, effective Jan. 1, 2004.

Even with this rate increase, next year’s average rates will be nearly identical to the rates in Oregon and Idaho and far lower than Montana and California. It’s estimated that 30 states will have rates higher than ours.

The increase is significantly less than the 19.4 percent L&I proposed in September. It comes after a series of statewide public hearings, in which the vast majority of those testifying were employers who urged the department to hold off on such a large increase because of the state’s poor economy, said Paul Trause, director of L&I.

” Much of the testimony we heard was heartfelt and sincere about the effects of a significant rate increase in a tough economy,” said Trause. “Many businesses have seen the cost of their private liability insurance rise dramatically – in some cases as much as 500 percent. Businesses said that while L&I rates are low, a 19.4 percent increase is hard to absorb given other rising costs faced by businesses, such as private liability insurance, private health insurance, and local utilities rates. One of the advantages of our public system is that our customers have a say in their rates. We listened to what they had to say and adjusted our rate increase downward.”

This reduction in the proposed rate increase may require that the State Fund use some of its contingency reserve to pay the projected cost of claims. The contingency reserve is expected to end 2004 at between 2 percent and 3 percent of liabilities, depending on the performance of the stock markets. The long-term goal is to have a 10 percent contingency reserve. The agency will re-examine rates in one year. If adequate reserves are not maintained at that point, an additional rate adjustment may be needed.

The 9.8 percent increase is an average for all risk classes in the State Fund. Individual industries and employers likely will see their rates go lower or higher than that, depending on their claims history. The rate increase is expected to bring in an additional $120 million in premiums next year. As in past years, workers will pay about 23 percent of the premiums collected.

After eight years of stable and declining rates, this is the second year in a row that L&I has had a general rate increase. Last year, the agency adopted a 29 percent increase. At the time, L&I warned that future rate increases would be needed to bring revenues in line with medical and wage benefits paid to injured workers.

Gov. Gary Locke will appoint a panel made up of business and labor leaders to examine long-term changes to the state’s workers’ compensation system and propose administrative and legislative reforms. A subcommittee of the Washington State Competitiveness Council recommended such a panel. Among the things it will review are L&I’s rate-setting and reserving policies. Staff from the Governor’s Office and L&I also will be involved.

Trause said he welcomes the review and the group’s recommendations.

“With lower rate increases, we’re helping our businesses remain competitive in tough economic times,” Locke said. “Our goal is to continue to make internal reforms and explore internal efficiencies to help keep our rates among the lowest in the country.”

Locke also directed L&I to immediately pursue additional internal efficiencies to keep rates down. He called for legislative changes and substantive changes in how L&I manages claims. L&I intends to seek consensus in the next legislative session to overhaul the state’s vocational rehabilitation system. The agency also will propose legislation to strengthen its ability to pursue workers, employers and providers who defraud the system.

Trause said that L&I currently spends about $140 million annually on vocational rehabilitation services and wage replacement for workers in the retraining system. “Not enough of the money actually goes for retraining and, too often, workers are left with no marketable skills and return to their old jobs or jobs that pay minimum wage,” he said.

The legislation L&I will propose would provide more money for training in the form of vouchers for education. Injured workers and the department also would have the option of negotiating a settlement to a claim, giving the worker a lump-sum payment in exchange for closure of the claim.

Internally, L&I also announced that it is making significant changes in how it manages claims. Redeployed staff will target workers and employers who abuse the workers’ compensation system. The agency also will improve customer service by speeding up processing of claims and providing faster and more consistent communication with employers and injured workers.

L&I also is assisting doctors in identifying and adopting best practices for treating injured workers. The agency will form teams throughout the state to work with injured workers, employers and health-care professionals to encourage a timely return to work. As reforms are implemented, they will be highlighted on the agency’s Web site at www.LNI.wa.gov.

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