In the business world, one workers’ compensation claim can spell disaster for employers and their ability to stay afloat in a competitive market, and the financial effects of addressing a claim can linger for years.
Washington state lacks a private insurance option for workers’ comp, so businesses must purchase protections through the Department of Labor and Industries (L&I) or self-insure, which is only realistic for the most financially stable companies. This leaves many business owners in a financially precarious position.
Companies purchasing insurance through L&I pay premiums based on a company’s “experience rating,” in other words, how well the business competes with others in the same field for how the company handles comp claim costs.
According to L&I’s “Employer Return-to-Work Guide,” the size of a company’s staff, an injured worker’s time-off duration, the nature of work performed and the frequency and cost of claims all factor into future premium rates for businesses.
Under the state’s formula to calculate insurance premiums, a new business starts with an “experience modification factor” of one, i.e., one times the L&I hourly rate per worker for providing workers’ comp benefits.
Over time, that factor can increase due to long-standing or expensive claims, which in turn increases the premium amount the employer pays per employee per hour. Typically, the premiums are set for three years.
“An out of control claim can really put the hurt to a business and the claim costs, and L&I’s calculations on top of the claim cost affect an employer’s experience rate as well as the actual cost they have to pay,” said Mark Shaffer, who is a field representative for Return On Industrial Insurance (R.O.I.I.) Select, the state’s largest retrospective rating group managed by the Building Industry Association of Washington (BIAW).
R.O.I.I. Select facilitates a risk-sharing pool that construction companies can participate in to help with claim-resolution efforts and earning back the premiums paid should the group meet or exceed L&I premium expectations.
According to Shaffer, one or two workers’ comp claims can move a business’ experience factor from 1.0 to 1.5, i.e., 1.5 times the L&I hourly rate.
“It’s very company-specific and depends on the rate class, but it can be dramatic and it is enough to threaten a company’s existence if they have too many claims or claims where it gets out of control,” he said.
In the return to work guide, L&I estimates that an increase of one-fifth of one point of a Washington grocery store’s experience modification factor would result in a $3,168 yearly increase to its workers’ comp premiums. L&I uses the factor to calculate total premiums assessed, based on the company’s assigned risk category.
Assuming an industry standard of a two-percent profit margin, that business would have to earn an additional $158,400 per year to recover from the increase, according to L&I.
The state’s “workers’ comp (system) has some major unfairness towards business,” said Natalee Fillinger, a former self-insured program manager for L&I, and now an attorney for Holmes Weddle & Barcott.
For many small firms, it’s easier to say “yes” than “no” to a worker’s comp claim, or to the next time-loss or magnetic resonance imaging (MRI) scan requests, she added.
“The reality is you have smaller employers who aren’t sophisticated…they are managing their small construction firms, not managing if an MRI is appropriate care. They can’t afford to litigate or fight with people,” Fillinger continued.
If a business could opt into a private insurance option for workers’ comp, they would have access to a large knowledge base, often spanning several states, for determining proper care and checking on whether a certain medical operation meets the appropriate guidelines, according to Fillinger.
Washington is one of four monopolistic states not offering a private workers’ comp insurance option. Other states have reported lower premium costs for employers and greater treatment of injured workers since adding the alternative.
“Washington’s workers’ comp (system) in so many ways has stopped making sense,” said Fillinger. “There’s real harm being done. I think everyone agrees when an employee gets injured they deserve certain relief or medical benefits. It’s been so long with punitive things happening to small employers…and real systematic problems.”
This is part one in a series of stories regarding Washington’s workers’ compensation system and its effect on the business community. Read the second story here.