Outside the Echo Chamber -- Washington's workers' compensation advantage

Our state workers' compensation advantage
Washington is considered a low-cost, high-benefit state

One of the most persistent myths about Washington state's business climate is that our workers' compensation costs are higher than in most other states. The fact that many employers and public policymakers believe this to be true is another indication of the power and resonance of the negative internal rhetoric about our competitiveness.

Outside the Echo Chamber

► Part 1 -- Washington: Still a business-friendly state
Our state is consistently ranked among the very best states for business. We have comparatively low business taxes, a lighter regulatory burden, a highly skilled and trained workforce, excellent higher education, and for those reasons and many others, our state outperforms other states.

► Part 3 -- Unemployment Insurance: Saving families AND businesses
In 2010, Washington's unemployment insurance system pumped more than $4.3 billion into our state economy. But some political and business leaders tend to ignore its benefits -- and the many businesses and jobs it has preserved -- and focus on decrying its costs.

As with overall business-climate rankings, analyses from outside the state tell a very different story. In fact, the gap between the truth and the negative rhetoric about our workers' compensation costs is shocking. Washington has lower employer costs than most other states. Meanwhile, our model state-run system is able to provide comparatively high benefits to injured workers.

That's how the myth took hold that Washington is not competitive in this area. Business lobbying groups deliberately decry the level of benefits, not employers' actual costs, in their quest to cut premiums even more.

The danger for Washington's working families is that lawmakers could lose sight of the goal of our workers' compensation system -- "sure and certain relief for workers, injured in their work, and their families and dependents" -- and shred this critical safety net in a misguided attempt to improve our business climate.

WORKERS' COMPENSATION is America's original tort reform. Until this system was established about 100 years ago, workers injured on-the-job could sue their employers for damages. But workers gave up that right to sue in exchange for this no-fault insurance program that pays medical costs and partially reimburses the lost wages of workers who suffer job-related injuries or illnesses.

So it's important to remember that workers' compensation is not a poverty program, nor is it some kind of welfare. It is a mandatory insurance program, and it was sought by American employers as a way to protect them against potentially ruinous lawsuits over an injury or illness caused by their neglect.

Also known as "industrial insurance," workers' compensation coverage for more than 99% of the businesses in Washington state is provided through the nonprofit government-run State Fund. Fewer than 400 businesses, employing between one-quarter and one-third of the state's workforce, are large enough to operate their own industrial insurance programs and are called "self-insured employers." These companies, including Boeing, Weyerhaeuser, Safeway and Microsoft, pay the same benefit levels set forth in state law, but they have more control over the claims administration process. Presumably, these employers' costs are lower than they would be in the State Fund system, or else they wouldn't self-insure.

HOW DO OUR EMPLOYER COSTS COMPARE? The Oregon Department of Consumer and Business Services (ODCBS) conducts a biannual state-by-state study of workers' compensation premiums that is widely cited not only among public policy experts and state labor agencies across the nation, but also by private insurance professionals. The latest edition, published in October 2010, found that Washington state had the 26th highest overall premiums in the nation. So, right smack dab in the middle.

But the news is even better for employers here. Washington is the ONLY state in the nation where workers pay a portion of the workers' compensation premiums, currently estimated to be about 24% of total premiums. When that and the cost of supplemental pensions are factored in -- which the Oregon study does not -- Washington ranks 36th in the nation (see chart).

Business lobbying groups within our state -- where No Good Business-Climate News Goes Unchallenged!™ -- argue that the Oregon study is not reliable because Washington has a unique system of calculating premiums based on hours worked rather than payroll dollars.

ODCBS Research Coordinator and study co-author Mike Manley stands by the rankings. He acknowledges Washington is a unique state that is more difficult to measure, but he says there is no evidence that the hours- to payroll-based conversions artificially help or hurt Washington's performance in the rankings. Those conversions are provided by actuaries at the Department of Labor and Industries and Manley says there has never been any indication this data underreports our premiums in comparison with other states.

HOW DO OUR BENEFITS COMPARE? Washington has comparatively high workers' compensation benefits. The National Academy of Social Insurance's most recent analysis of 2008 data found that Washington paid $1.69 in benefits for every $100 in covered wages, which ranked our state third highest.

WHAT'S NEW in 2011

Voters reject privatization!
But efforts to cut benefits continue in Olympia

Business lobbying groups financed last fall’s Initiative 1082 to privatize Washington’s workers’ compensation system. Their campaign sought to portray our state-run system as expensive and inefficient. Washington is one of the only states with a "government-run monopoly," they said, implying we were outliers that needed to get with the privatization and deregulation program. In the end, voters rejected their arguments and decided to keep our public system public, rather than hand it over to the insurance industry. I-1082 was rejected by a margin of more than 18 points.

Undeterred, the business groups are supporting legislation in 2011 to deregulate the system. And once again, their efforts are guided not by the law’s requirement to provide "sure and certain relief" for injured workers, but simply by cutting employers’ costs by cutting injured workers’ benefits.

One of the challenges facing our system is the rising incidence of injured workers on long-term disability. Pension rates have gone up and, as Gov. Chris Gregoire points out, those 8% of the claims are responsible for about 85% of the system’s costs. Gregoire has proposed a workers’ compensation reform bill, SB 5566, that includes several proposals.

Organized labor and other advocates for injured workers support some of SB 5566’s ideas that seek to improve the system by reducing the number of long-term disabled, including

Expansion of the Centers for Occupational Health Excellence. Injured workers getting medical treatment at COHEs return to work sooner, saving employers money. Pension incidence is reduced by 55% for those workers who receive treatment at COHEs.
The creation of a statewide medical provider network.
The return-to-work wage subsidy program.

But we cannot support ideas that seek simply to cut costs by arbitrarily cutting injured workers off their pensions or introducing what business lobbyists call "voluntary settlement agreements."

We call it "starve-and-settle." This would allow employers to be absolved of all current and future claims against them in exchange for a lump-sum payment to an injured worker. In states that allow this, employers routinely appeal claims and drag out the process so financial pressures mount for injured workers’ families who have lost their incomes. After this lengthy process, a lump-sum settlement becomes difficult to resist for desperate families, even if it won’t cover their future medical costs, which are difficult to anticipate.

Starve-and-settle cuts costs simply by paying workers less than what they’d otherwise be entitled to. That is not in their best interest, or the state’s.

Naturally, business lobbying groups inside the state decry the high benefits and deliberately avoid mention of the comparatively low premiums. In the context of their continual criticism of our state business climate, they know that their audience -- whether it's fellow business executives, legislators or the media -- will assume that higher benefits mean higher costs. They don't.

Washington's state-run workers' compensation system -- one of only five such systems remaining in the U.S. -- is viewed as a national model for its efficiency. It can afford high benefits while charging low premiums because there are no profit margins, commissions or brokerage fees, as there are in privatized systems. It has significantly lower claims administration costs and no marketing or advertising costs.

But when you're in the business of lowering business costs, low is never low enough, especially when even more could be saved by cutting benefits for injured workers.

That's why advocates for injured workers argue that all proposed benefit cuts must be measured against our values as a state and not a manufactured panic about our business climate.

THE GOAL OF OUR WORKERS' COMPENSATION system, as set forth in Washington state law (RCW 51.04.010): "The welfare of the state depends upon its industries, and even more upon the welfare of its wage worker. ... Sure and certain relief for workers, injured in their work, and their families and dependents is hereby provided."

Organized labor believes all changes to our system should be measured against that goal. Is the motive for a proposed change to ensure "sure and certain relief" for injured workers? Or is it the product of a perceived -- but demonstrably untrue -- competitive disadvantage with other states?

Consideration should be made to ensure our system's costs stay competitive with other states. But it is absurd to make our goal to cut benefits so they are more in line with other states. Washington must not engage in a race to the bottom where injured workers and their families are thrown into poverty with no recourse. To engage in this benefit-cutting race, especially when employers in our state already have below-average workers' compensation costs, is immoral and unacceptable.