Even as the Department of Labor and Industries (L&I) projects a 2.5-percent decrease in workers’ compensation premiums paid by Washington employers for 2018, members from the business community argue the rates could be even lower, according to L&I data on break-even estimates.
At the end of last month, L&I projected the reduction would save businesses $67 million in premiums, or $34 less in workers comp coverage per employee, annually. This is the first projected decrease since 2007.
“We’ve made some very positive steps with our initiatives to help people who are hurt on the job recover and start working again,” said L&I Director Joel Sacks in the department’s news release. “These and other workplace safety and health improvements have allowed us to build our reserves, while at the same time propose a cut to the average premium rate employers and workers pay. It’s a win‑win.”
However, business stakeholders argue the decrease could be greater, and employers should receive more relief while the funds are available.
“The first reaction an employer paying the premiums should have is not ‘what is the rate the department is proposing to adopt,’ but what rate of premiums for next year do they need to forecast to break even,” Kris Tefft, executive director of the Washington Self-Insurer’s Association, told Lens.
“The first piece of good news is rates are going down,” he added. “The possible puzzling piece is that it could have gone down by more. Why isn’t the department taking the full measure of the forecasted decrease in rates of almost six percent?”
The department is proposing a 2.5-percent reduction in workers’ comp premiums, however L&I would break even at a 5.9-percent decrease, according to data provided during a September 25 L&I Workers’ Compensation Advisory Committee meeting. The forecast is based on the estimated benefits and the cost to administrate those benefits. Leftover funds are deposited into reserves for the medical aid and accident funds.
The department is proposing a 4.5-percent rate decrease for the accident premium fund, with the ability to drop it to 15 percent. The fund is used to pay for employees who are off from work while recovering.
Tefft said the spread between the projected and break-even rates for the accident fund was “astonishing,” considering employers pay fully into the fund. He added employers are still receiving higher premium rates that are necessary, and the department should look into passing on larger savings.
L&I also is proposing a 3.5-percent decrease for premiums paid into the medical aid fund, that is, money used to pay into worker healthcare costs as part of workers’ comp claims. In reality, the department could have raised 2017 rates by 3.9 percent and still have broken even.
“It’s great and hopefully it’s a trend that could intensify, and hopefully we are embarking on something new for Washington workers’ comp, but certainly it should be kept in perspective,” said Tefft.
He added employers would be interested to discuss why the rates could not have been lower. “The more informed the business community is about those details, the better-quality feedback they can give to the department.”
At the advisory committee meeting, Sacks walked panelists through the anticipated benefits for the lowered rates.
“What we will see is that on average employers are paying less…and workers are paying less, without putting at risk at all the overall size off the reserve, assuming the assumptions are correct,” Sacks said.
However, Bob Battles questioned the department’s ability to better allocate employer-funded aspects of the workers’ comp system. He is government affairs director for the Association of Washington Business (AWB).
“Thank you for the decrease in funds, we appreciate that. We believe there is still a need for more reform in the workers’ compensation system that would allow for an even greater decrease in funds.”
However, Sacks argued the department’s rationale takes into account both employer and department concerns, saying L&I’s primary focus is on the health of the reserves, not necessarily the break-even point.
“What we are trying to do is ensure we are collecting a little bit more than our projected break-even to keep that fund fiscally sound. That’s the rationale behind it,” he added.
He said the reserves for the accident fund paid by employers stood close to 12 percent this year, while the medical reserves were close to 40 percent.
Sacks said the department’s strategy is to grow the reserve while proposed rates and costs are decreasing, to plan ahead.
“When the economy shifts, the actual cost we have to pay… would require an increase of 5, 6, 7 percent, and we would have enough in the reserves to say, ‘We are not going to take that, we are going to draw down the reserves, because we did the right thing in good economic times.’”
Tefft said the department will likely stick with the projected rates moving into 2018.
“I think they are proud of the rate… it is the only rate reduction in over 10 years and it’s the product of good results and trends,” said Tefft. “I would expect informed business organizations to share commentary… that the department should probably drop it even further, and share even more of those savings.”
L&I will be holding a number of public hearings from October 24 through November 1, and is also accepting written and electronic commentary on the proposed 2018 premium rates. Final rates will be adopted in early December, with an effective date of January 1, 2018.