L&I Public Affairs

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October 2009

Facts about workers' comp


The Department of Labor & Industries (L&I) administers Washington’s workers’ compensation system, created in 1911. This system provides insurance coverage for employers and workers through either the State Fund or through self-insurance for some of the largest employers. The State Fund covers the vast majority of Washington State employers – about 171,000 – and approximately 2,570,000 workers. Employers pay premiums to L&I for their workers’ compensation coverage. Their workers pay a significant share of the premiums – about one-fourth. This coverage pays medical expenses for workers who suffer job-related injuries or illnesses and, when workers are unable to work due to these conditions, partially replaces their lost wages. This no-fault system also protects employers from lawsuits that could otherwise result from job-related injuries and illnesses.

ADMINISTRATIVE COSTS

Q: Is it true that L&I’s administrative costs increased 28% in the past year?

A: No.L&I’s paid administrative costs for the State Fund went up 7% between fiscal year 2008 and fiscal year 2009. This figure is based on L&I’s cash flow statements.

Q: How do L&I’s administrative costs compare to workers’ comp insurance carriers in other states?

A: L&I’s actual “paid” administrative expenses for the past 10 years were 18% of the total benefits paid on claims. This compares with a national average of 68%. This information is according to A.M. Best, a national authority on insurance company performance.

Another way to look at it is on the basis of “incurred” administrative expenses – that is, claim expenses actually paid during a period of time plus the change in the company’s estimated future administrative costs for all current claims. A.M. Best publishes incurred administrative expenses for workers’ comp insurers. Those costs over a 10-year period as a percentage of total benefits paid are:

  • U.S. workers’ compensation industry: 55.4%
  • L&I: 14.8%

Q: Did L&I’s administrative costs increase by $39 million in the last year?

A: L&I spent $274 million on administrative costs this past year, an increase of $18 million over the prior year. The figure of $39 million does not represent costs for a year, but reflects the change in estimated future costs of administering all L&I claims that have already occurred. Insurance companies have to estimate future costs of benefits and administration. Inevitably, past estimates must be revised as more actual cost information is available because claims mature and new claims are added.

LENGTH OF TIME OFF WORK

Q: Does the average injured worker in Washington miss 266 days of work?

A: It is incorrect and misleading to say the average injured worker in Washington misses 266 days of work. Here are the facts:

  • 72% of injured workers receive no wage replacement for missed days of work and, instead, receive only medical coverage.
  • Of injured workers who receive wage-replacement benefits (also referred to as time-loss), about one-third receive only one payment (two weeks pay or less) and about half receive payment for 40 days or less.
  • L&I’s median time-loss duration is 40 days, which compares favorably to a national study (National Council on Compensation Insurance) of 37 states that shows a median time-loss duration of 45 days. (Median means that half of the time-loss claims are longer than 40 days and half are shorter.)

As for the specific number of 266, this number is not the average for all injured workers. It is an actuarial estimate for only a specific group of workers. It does not include the vast majority of workers who were injured but did not lose time from work. It does not include workers who were kept on salary by their employers, and it does not include workers who lose three days or less of work. The actuarial estimate measures only those time-loss claims in which the worker was out of work for more than three days. This group includes long-term claims, and those kinds of claims drive the system average up – 8% of claims represent 88% of the system’s total costs.

PENSIONS

Q: Is it correct that nearly half of injured workers in Washington never return to their jobs?

A: No, it’s not correct. Here are the facts for State Fund claims:

  • About 1.5% of all claims become pensions.
  • About 5.25% of claims involving wage-replacement benefits become pensions.
  • About 2 to 3% of all claims stay open three years, most having limited return-to-work options. For these three-year-old claims, there is a 50% chance they will eventually result in a pension.

WORKERS’ COMPENSATION PREMIUM RATES

Q: Have Washington’s workers' compensation premium rates “bounced around erratically,” as some assert, since 2001?

A: The contention that rates have bounced around erratically calls out a problem that existed years ago and has been fixed. For the past five years, rates each year have either declined, stayed unchanged or increased less than 4% as L&I has strived to sustain stable and predictable rates. Cumulatively over the past five years, State Fund rates have gone up 7.9%. In addition, $315 million was returned to employers and workers in the form of a rate holiday in 2007.

  • 2009: 3%, or approximately 2 cents per hour worked.
  • 2008: 3.2%, or just over 2 cents per hour worked.
  • 2007: 2% decrease, or approximately 1 cent less per hour worked, plus a six-month rate holiday in which $315 million was given back to employers and workers.
  • 2006: 0% change.
  • 2005: 3.7%, or approximately 2 cents per hour worked.

For two years – 2003 and 2004 – there were significant rate increases in order to bring premium rates closer to cost levels when the economy worsened and the State Fund contingency reserve dropped significantly. Before that, between 1996 and 2002, employers and workers benefited from $1.8 billion in rate reductions and dividends on the basis of very strong investment returns that allowed L&I to hold rates down.

Q: How has Oregon managed to avoid workers’ comp rate increases for the past 19 years?

A: Oregon bases its rates on payroll, while Washington’s are based on hours of exposure (hours worked). This means Washington must increase the per-hour rates to keep up with inflation, even if all other factors that impact rates stay the same. For example, if average wages increase in both Washington and Oregon by 2%, Washington would need a 2% rate increase while Oregon’s would remain unchanged in order to have the same percentage increase in premiums collected.

Because Oregon has not increased rates, the assumption is that employers in Oregon are paying significantly lower workers’ compensation premiums than employers in Washington. According to Oregon’s own study of workers’ comp rates, employers in both states have paid about $2 per $100 of payroll for their workers’ compensation insurance for the past six years (see chart below). Also, from 1995 to 2002, the data shows that Washington employers paid less than those in Oregon per $100 of payroll.

Q: Is Washington’s workers’ comp system among the highest in benefits paid and insurance premium rates?

A: Washington’s total benefits per $100 of wages are in the top one-third in the country based on the 2007 National Academy of Social Insurance study, while its premium rates for employers insured by L&I – based on the Oregon Workers’ Compensation Premium Rate Ranking – were in the lowest third in the nation in 2008. This is possible because administrative costs at L&I are low and L&I is a non-profit, state-run insurance company.


Premium Rate Ranking
Premiums per $100 of Payroll

CLAIMS MANAGEMENT

Q: Could L&I do a better job of resolving outstanding claims?

A: With a recent increase in the duration of claims, L&I has stepped up its efforts to improve efficiency in claims management in several ways. First, it is analyzing the vocational services process to quickly provide help to employers and workers and aid them in getting back to work.

Second, it is modernizing its systems to allow workers, employers and providers to file claims through the Internet and by phone so it can speed up treatment and benefits to workers and help employers keep them on the job. Studies have shown that when claims are filed quickly, they are less likely to become long-term cases.

Third, L&I is expanding its widely recognized program of working with medical providers in the community to intensively manage new claims in collaboration with employers and workers. Studies have shown that this program reduces costs by an average of $800 to $1,200 per claim and lost work time by an average of nine days.


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