Proposed 2011 workers' compensation rates

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Questions and answers

Why is L&I proposing a 12 percent rate increase?

L&I is proposing a rate increase to meet the expected costs of future workers’ compensation claims incurred during 2011. Every year in Washington, more than 100,000 claims are filed for medical treatment and lost wages due to work-related injuries, illnesses and deaths. Each year, L&I must collect enough in premiums to pay the total cost of the claims that will be filed in the coming year.

The proposed rates take effect Jan. 1, 2011, under an emergency rule that is effective for 120 days. Public hearings on the proposed rates will be held in Spokane and Tacoma on Jan. 4, 2011, before adopting a permanent rule.

Why did L&I file an emergency rule to raise rates?

This year L&I postponed the rate adoption until after the general election because a voter initiative would have changed the way rates are calculated if it had passed. The emergency rule allows the rates to be effective on Jan. 1, 2011, while we continue the permanent rule adoption process. The public is invited to testify at public hearings in January. The final rule will be adopted later in January after the public comment period ends.

Two public hearings will be held at 10 a.m. Jan. 4:

Tacoma Convention Center
1500 Broadway
Tacoma, WA 98402

CenterPlace Regional Event Center
2426 N Discovery Place
Spokane Valley, WA 99216

Written comments may be sent by e-mail to Ronald Moore, Employer Services Program Manager, or regular mail to him at the Department of Labor & Industries, P.O. Box 44140, Olympia, WA 98504-4140. Faxed comments should go to 360-902-4729. The deadline for written comments is 5 p.m., Jan. 4, 2011.

How would this rate increase impact employers and workers?

The proposed rate of 12% is an average. An individual employer’s rates can go up or down, depending on a number of factors, including their recent claims history, the number of hours reported, and the frequency and cost of claims for their industry. Those changes also can increase or lower premiums paid by workers because workers in Washington pay a portion of the total premium.

To see how your business classification is affected, see the 2011 base premium rate tables. Here are some examples:

  • Building construction and trades: 16% increase
  • Restaurants: 6% increase
  • Agriculture: 7% increase
  • Retail stores: 10% increase
  • Convenience grocery stores: 5%

Why is a rate increase necessary?

Unfortunately, just like any businesses, our workers’ comp system is being hit hard by the recession. The same economic factors that affect workers’ compensation insurers nationally are impacting Washington’s workers’ comp system:

  • Injured workers are staying on benefits longer.
  • Fewer premiums paid to the system because of fewer people working.
  • Medical costs and wage inflation are up.
  • Investment earnings are down.

Last year, L&I kept the rate increase as low as possible by cutting costs wherever possible and by using reserve funds to offset the rate increase. Unfortunately, the economic recovery has been slower than predicted, which continues to impact workers’ comp costs, and there is less contingency reserve to use to hold down rates.

In the most recent Oregon premium rate study, Washington’s rates were right in the middle with about half of all the states. Washington’s workers’ comp system provides some of the best benefits in the nature to injured workers, and workers will contribute about 24 percent of the premium costs in 2011.

Are workers’ comp premiums taxes?

Because employers are required to pay premiums, and L&I is a government agency, some people refer to them as “taxes.” However, unlike general taxes, with workers’ comp employers are buying insurance that allows them to pay a fixed amount no matter how much an injury at their workplace may cost. L&I is actually running a not-for-profit public insurance fund, which offers insurance coverage to all Washington businesses regardless of their prior claims history. Premiums – paid by both the employers and their workers – cover insurance benefits when there is an injury, just like what occurs with medical or auto insurance.

The trade off for mandatory workers’ compensation coverage is that employers are protected from employee lawsuits when a workplace injury occurs.

What is L&I doing to help businesses meet their obligations?

L&I’s Employer Assistance Program is here to help employers who are having trouble paying their premiums. We can set up a payment plan and in many cases we can waive late penalties and interest. L&I has already helped more than 5,000 businesses since we started this program in 2009.

What are the next steps?

  • November 17: L&I will file an emergency rule to raise rates by an average of 12 percent, effective Jan. 1. The same day, L&I will file a proposal to adopt a permanent rule.
  • December: L&I will mail employers their individual rate notice using the rates from the emergency rule.
  • January 4: Public hearings will be held.
  • January: Final decision on rates. Final rule adopted.

Why did L&I postpone the rate increase this year?

If the initiative had passed, the basis for calculating rates would change from a rate per hour to a rate per $100 of payroll. It would have been too confusing to propose a rate based on one method and then have to change it to a completely different method if the initiative had passed.

In addition to considering how the initiative would have impacted proposed rates for employers, L&I also continued to question and analyze how the economy has affected the workers’ compensation program. For example, how does the significant drop in construction work and reported claims impact overall costs? How does the reduced number of jobs influence return-to-work after an injury for employers, workers, and medical providers?

With regard to the initiative, we considered various options, the importance of our role as a public agency to not influence the election outcome, and discussions with our attorneys to make the right decision about announcing rates.

What are L&I’s legal obligations when it sets its rates?

For the accident and medical aid funds, under statute (RCW 51.16.035), L&I is required to have the lowest possible rates while maintaining solvency of the system. We are required to design a premium rating system that limits rate fluctuations, follows recognized insurance principles, and stimulates and encourages accident prevention. For the supplemental pension fund, the statute (RCW 51.32.073) requires L&I to set premium rates on a pay-as-you-go basis.

How much have the overall average rates risen, on average, in the past five years?

  • 2010: 7.6%, or approximately 4 cents per hour worked
  • 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
  • 2006: 0% change
  • 2005: 3.7%, or approximately 2 cents per hour worked

What is L&I doing to keep costs under control?

According to AM Best, a worldwide insurance-rating agency, L&I spends less than half of what a comparable for-profit insurance company would spend on the administration of the workers’ compensation program. For example:

  • L&I has had an aggressive, and successful, effort over several years of controlling medical costs, with our prescription drug costs historically below the national average.
  • L&I’s fraud program has returned over $128 million to the fund. For every dollar spent, this program returns $8 to the workers’ comp insurance fund
  • Our Centers for Occupational Health and Education (COHE) use best practices that substantially reduce medical and time-loss costs while improving the quality of care. COHEs have substantially prevented long-term disability, reducing costs by an average of $800 to $1,200 per claim and lost work time by an average of nine days.
  • We have increased our online services and invested in technology, contributing to lower operating costs than many private insurers.
  • We offer employers a claim-free discount that can save them up to 40 percent on their claim costs.
  • We offer free workplace-safety consultations, and a wide range of educational resources, to help employers keep their workers safe and, as a result, their workers’ comp insurance rates as low as possible.

What is L&I doing to ensure that all employers pay their fair share of premiums?

It’s important for all employers to pay their fair share so that honest businesses aren’t undercut by those who cheat the system. In recent years, L&I has reorganized and dramatically increased its anti-fraud effort. In addition to an increased focus on work and medical provider fraud, much of the anti-fraud effort is focused on finding employers who aren’t registered and paying workers’ comp premiums and bringing them into compliance.

How do Washington’s workers’ comp rates compare with rates from other states?

It is difficult to compare workers’ compensation rates state by state. Workers’ comp systems have many other differences, such as different hazards workers are exposed to, benefits they are entitled to by law, and whether or not workers pay part of the premium.

Nevertheless, most insurance professionals rely on the respected Oregon Workers’ Compensation Premium Rate Ranking study. The latest study shows that Washington’s workers’ comp rates are right in the middle at No. 26, along with half the other states that all have rates that are within 20 percent of the median.

Why aren’t private insurers allowed to offer workers’ compensation insurance in Washington? Wouldn’t that bring competition and lower rates?

If the Washington Legislature or the people of the state voted to allow private insurance companies to sell workers’ comp coverage, we would have competition, but it wouldn’t necessarily result in lower rates.  The state of Alaska, which does not have a State Fund, has the highest rates in the nation. California has a combination of private companies and a state-operated system and its rates are among the highest in the nation. Also, Washington is one of only two systems that require workers to contribute to the cost of premiums (some $440 million last fiscal year, or about 27% of the cost.) Under private insurance, that contribution would go away.

What is the State Fund’s contingency reserve?

The State Fund contingency reserve is the difference between assets and liabilities. Assets are the value of investments that are being kept to pay claim expenses in the future. Liabilities are the amount owed and expected to be paid out. The difference between assets and liabilities is similar to a “surplus” that all private insurance companies are required to keep to remain solvent.

Washington State Fund’s measure of solvency is the percentage of contingency reserves to liabilities. Washington has among the lowest ratios of contingency reserves to liabilities compared to other workers’ compensation insurance companies.

Who do I contact if I want to comment on rates?

The public can provide verbal or written comments through the public hearings, which will be held January 4 in Spokane and Tacoma.

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