Understanding Workers' Compensation
in Washington
1997
Early in this century the federal government and states throughout the country wrestled with the expense and often the seeming imbalance of the justice system in the way it handled on-the-job injuries. The economy had become more industrial and less agricultural. Injuries were becoming more frequent and the litigation through the common-law system, which was required for adequate restitution, was prolonged, expensive and uncertain. Employers and workers alike were dissatisfied.
Beginning in 1911, states began to adopt workers' compensation laws as a way to handle the legal responsibility for wage losses, medical treatment and on-the-job injuries.
Washington was among the first states to act in 1911. Language from our originating legislation captures well the concerns and strong sentiments of the day regarding worker injury:
"The common-law system governing the remedy of workers against employers for injuries received in employment is inconsistent with modern industrial conditions. In practice it proves to be economically unwise and unfair. Its administration has produced the result that little of the cost of the employer has reached the worker and that little only at large expensed to the public. The remedy of the worker has been uncertain, slow and inadequate. Injuries in such works, formerly occasional, have become frequent and inevitable. The welfare of the state depends upon its industries, and even more upon the welfare of its wage worker. The state of Washington, therefore, exercising herein its police and sovereign power, declares that all phases of the premises are withdrawn from private controversy, and sure and certain relief for workers, injured in their work, and their families and dependents is hereby provided regardless of questions of fault and to the exclusion of every other remedy, proceeding or compensation, except as otherwise provided in this title; and to that end all civil actions and civil causes of action for such personal injuries and all jurisdiction of the courts of the state over such causes are hereby abolished, except as in this title provided." (RCW 51.04.010)
In Washington's industrial insurance system, state government, through the Department of Labor and Industries (DL&I), acts as both insurer and administrator of the workers' compensation system. Today, Washington is one of only five states with these unusual authorities.
In addition to its administration and insurance functions, DL&I monitors and oversees the actions and decisions of its own insurance operation, called the "state fund." The legislature, in 1949, created an independent, administrative mechanism for appealing a departmental decision. The Board of Industrial Insurance Appeals (BIIA> is a state agency separate from DL&I, that hears appeals of DL&I decisions and attempts to settle claims disputes administratively.
In 1971 the Washington legislature granted individual employers the right to self-insure for industrial insurance claims. At the same time it made DL&I responsible for monitoring the self-insurance activities of these employers to assure their compliance with state workers' compensation laws and regulations.
During the same 1971 legislative session the state began a new era in workers' compensation. Benefits were increased by an estimated 80 percent, according to DL&I reports, and compensation for injured workers was indexed to inflation. In 1983 the legislature voted to require that injured workers receive vocational rehabilitation. A controversial and expensive decision, it was repealed in 1985. Vocational rehabilitation, however, had become an integral benefit for injured workers and has continued to contribute to the rising costs of insurance claims.
Staffing and expenses in both the DL&I and the BIIA expanded during this period to respond to the increase in claims and disputes that followed. DL&I spending averaged about 10 percent growth per year from 1986 through 1992, while BIIA grew at nearly 12 percent annually.
Since 1990, on-the-job injuries and the resulting number of claims have both declined. Although DL&I and BIIA grew more slowly after 1992, they still continued to grow. As a result, average overhead cost per claim in recent years has increased. From 1989 through 1995 overhead cost per claim has grown at an average rate of about 10 percent per year.
The following sections provide a more detailed look at workers' compensation in Washington state. Since this state's system is dominated by the state fund, the report necessarily provides a lot of data on that portion of the system. However, the report is intended to provide insight into the workers' compensation system generally in Washington state. Therefore, where the information is available and may be aggregated to include other elements of the system, like self-insurance and industrial appeals, this is done in a way that provides both the whole picture, as well as an ability to separate the major elements from one another for more detailed inspection and evaluation.
outlines the organization and governance of DL&I, the agency primarily responsible for running the system.
presents information on the revenue that is collected by DL&I to run the various elements of the workers' compensation system, the rates that are levied on businesses and workers to provide the system's revenue and some insight into how Washington's rates have compared historically with other parts of the country.
provides information on the costs of various elements of Washington's worker's compensation system - what they consist of, the primary cost-drivers in the system, their relationship to benefits approved by the legislature and to the number of claims, and how each area of cost has grown over time.
brings together all of the system costs to provide a total figure for Washington's workers' compensation system. This figure does not include the costs that individual employers must pay to administer their own workers' compensation activities, nor any private legal expenses that may be required during the course of settling a claim dispute. However, it does include the overhead expenses of administering the state fund, overseeing the self-insured fund, the benefit payments of the state fund, the expenses of negotiating, mediating and defending the state fund claims decisions through the appeals process, as well as the legal costs of defending these decisions in the civil courts, if necessary.
evaluates these costs on a per claim basis over time.
Throughout the report, and especially in those sections discussing dollars over a period of a year, we indicate what general consumer inflation was doing over the same period of time. The inflation trend in this context is provided primarily to indicate the value of the dollars that are being collected or spent. Accordingly, growth rates in revenues collected or spent can be adjusted downward by the degree of inflation over the time period being evaluated. When the data is available and other statistics help the reader understand various elements of the system better, an additional indicator might be presented. For example, the cost of providing medical treatment grew rapidly through the 1980s and contributed to more expensive workers' compensation claims. In this case, we also give information for medical inflation.
Section VII summarizes the importance of workers' compensation as a public policy issue. It draws conclusions, where possible, from the main observations and concerns identified in the report. And it suggests those areas of workers' compensation that require additional research.
Economist Elaine R. Davis has spent more than 20 years in public policy research and program development. She is a Senior Research Fellow for the Washington Institute Foundation.