L&I Public Affairs

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Jan. 8, 2010

Editorial: The facts about the financial health of workers' compensation in Washington state

By Judy Schurke

A News Tribune editorial, "Workers comp audit should set off alarms," (Jan. 5) left the mistaken impression that the workers' compensation system may soon become insolvent. The editorial also questioned the way the Department of Labor & Industries estimated how much money it will need to operate.

These assertions are alarmist and misleading.

The fact is the state's workers' compensation system is sound. It will continue to provide important medical, time-loss and pension benefits to workers when they're injured on the job and insurance protection for employers from costly claims and litigation.

L&I carefully estimated how much money it needs to fund the workers' comp system in 2010. We deliberately decided to keep premiums as low as possible this year as we come out of the worst economic recession in over 70 years. We know that businesses are struggling to meet payrolls and stay open.

We also didn't want to overreact to temporary conditions in the economy by charging businesses too much. This was a deliberate and well-thought-out decision. We worked with the Workers' Compensation Advisory Committee and business and labor, held hearings around the state in a deliberate and transparent process, and conducted a comprehensive review of our investment portfolio with our economic advisers.

How were we able to keep the rate increase at only 7.6 percent? We were able to do this by drawing down our contingency reserve, which is like a rainy day fund. We and others felt this was the right thing to do given the state and national economic climate.

The claim in the News Tribune editorial that funds in the workers' comp program may become insolvent confuses a negative contingency reserve balance with financial insolvency of the whole system. It's important to recognize that the contingency reserve is only a fraction of the system's current total assets of $11 billion.

Drawing down the contingency reserve is not unprecedented in Washington. Over the years, the department has used it to keep workers' comp premiums stable and predictable, as required by the Legislature. In fact, the contingency reserve has fluctuated from a high of more than $2 billion to below zero, depending on the economy. When it has been unusually high because of robust investment returns, we have returned hundreds of millions of dollars to employers and workers. In 2007, we returned $350 million.

We also take issue with the suggestion that we lowballed the anticipated shortfall in one of our benefit funds. The auditor's report uses much more conservative results on our investment yields – 4.2 percent vs. our assumptions of 5 to 5.5 percent. Our estimates are consistent within our actual historical yields.

This is a prudent assumption because our investment portfolio, beginning in January 2008, was restructured to be less exposed to volatile stock market fluctuations and more invested in federal securities and investment-grade bonds.

If you are hurt on the job today, the 98-year-old workers' comp system in our state will be here to provide your medical and time-loss benefits and we will be here to provide insurance coverage for all employers. We've been here in the past and we’ll continue to support Washington's 2.5 million workers and 171,000 employers in future.

We welcome serious discussions about Washington's workers' comp system and any changes to it. It's important that these conversations be based on accurate information.

Judy Schurke is director of the Washington State Department of Labor & Industries in Tumwater.

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