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By JOSHUA CLIFTON, a Chicago-based writer who covers workers' comp and disability issues

How healthy is the workers' compensation system in Washington state? Well, that depends on whom you ask.

According to the office, which is required by law to annually audit the financial statements of workers' comp funds administered by the state Department of Labor & Industries (L&I), there is a nearly 75 percent chance of insolvency in the state's Accident Fund within two years. The workers' comp audit found that contingency reserves for the fund--which pays nonmedical claims costs such as wage replacement benefits, vocational rehabilitation, disability pensions and survivor benefits--have declined substantially as a result of the economic recession, increasing loss and loss-adjustment-expense liabilities, and insufficient premium rates in 2008 and 2009.

Lobbyist organizations, ranging from the Building Industry Association of Washington (BIAW) to the Association of Washington Business (AWB), are calling for lawmakers to enact reforms to prevent a collapse of the state's workers' comp system and to curtail rising costs.

DEFENDING THE SYSTEM

But Judy Schurke, director of the L&I, said the groups are mischaracterizing the audit's findings about the fund, which covers nearly 2.5 million people and 168,000 employers. The insolvency, she said, refers to the contingency reserve, which is only a very small portion of the system's current total assets of $11 billion.

Steve Pierce, affairs manager for the L&I, said the department made a deliberate decision to draw down the contingency reserve to keep premiums low in the midst of the recession. The report's prediction that the contingency reserve could be drawn down in the near future isn't the same thing as the entire workers' comp system going insolvent, he said.

"I understand we're cutting it closer to the edge this year, given the economy," said Schurke. "That's why we are looking intensively at every way to cut costs while still providing protection for injured workers and employers."

THE PRIVATE-MARKET REBUTTAL

Erin Shannon, director of public relations for the BIAW, said that simply isn't the case.

"We're shocked that the department continues to maintain that everything is fine," she said. "Our state's system is broken and on the road to insolvency. In fact, the audit found that rates need to be increased by 33 percent in order for the Accident Fund to break even. Of course, they are maintaining their position because they can increase rates. They are a government monopoly."

Shannon said businesses simply can't afford to continue shouldering the burden, pointing to the L&I's announcement that it will be increasing workers' comp rates by 7.6 percent in 2010.

Despite calls from a handful of lawmakers and Gov. Chris Gregoire's assurance that reform is on her agenda in the coming year, Shannon said, the BIAW decided to take matters into its own hands. The group recently filed paperwork with the state to begin the process of collecting more than 241,000 signatures calling for the matter of reform to be placed in the hands of voters in November.

If approved, the initiative would require the state to create a task force to explore the option of allowing private insurers into the workers' comp system, which is currently prohibited under state law, although some larger employers are permitted to self-insure.

"The business community has attempted for years to put forward meaningful reforms and has failed," Shannon said. "At this point we are ready to put the issue before voters, and we're confident that we have the energy and momentum to make it happen."

Don Brunell, president of the AWB, said the recession has exposed the ugly truth that the state's system has been in jeopardy for some time. When the economy was thriving and workers' comp funds were invested in strong portfolios, he said, the rates of return "masked some growing problems with amount of time injured workers were off the job and receiving time-loss payments, the higher number of pension awards and the claims that remained open with no resolution."

Brunell pointed to L&I's own data that shows that the average injured worker is off the job an average of 266 days, almost three times the national average. In addition, workers who miss more than two years have a nearly 50 percent chance of never returning to work. Washington, he said, also leads the nation in the number of lifelong pensions awarded each year, a rate that has ballooned more than 300 percent since 1996.

The AWB calls for lawmakers to pursue reforms that include creating a settlement option for complex or long-term claims as an alternative to pensions. In addition, according to the state business group, Washington should also join the 42 other states that allow and encourage the use of medical provider networks that treat injured workers according to treatment guidelines at costs that can be negotiated and stabilized.

"These reforms would help establish a system that gets injured workers the treatment and benefits they need to get them back to work, at costs that are fair and affordable for employers and workers," Brunell said. "Workers' comp costs are a major competitiveness issue, and the long-term viability of Washington jobs depends on it."

Read more at the WORKERSCOMP Forum^TM homepage.

February 18, 2010

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