Reforming Washington's Workers' Compensation System
2004-08
The phrase "workers' compensation insurance" often elicits vacant stares if not wrinkled brows and frowns from those who hear it. This complex and important social program, which replaces employer liability for workplace injuries with a public system of financial support to sick and injured workers, is often confusing and tedious for employers, workers, citizens and policymakers alike.
It is tempting to dismiss the insurance program as something only business owners need to worry about, but such a reaction is imprudent. The program is funded by over 160,000 employers, covers roughly 1.9 million workers, and collected about $1.2 billion in premiums in 2003. Increasing insurance costs can lead to job losses, layoffs and wage cuts, and have a harmful effect on the economic vitality and business climate of a region. Any citizen who is concerned with the economic well-being of Washington state should regard workers’ compensation insurance as a topic of prime importance.
The Department of Labor and Industries, the state government agency which runs the workers’ compensation program, adopted a 29.4% rate increase in 2003, a 9.8% increase in 2004, and will likely impose a third consecutive increase in 2005. Inflation for these years is around 2%. Since each year’s rate increase compounds previous ones, the average employer’s costs in 2004 are 42% higher than his 2002 costs. This is a heavy increase for employers to shoulder in a weak economy and when health care and liability insurance costs are rising rapidly.
Much of the financial strain in the system is the result of structural weaknesses and lack of competition. Washington is one of only five states where buying private workers compensation insurance is illegal. Except for a few companies that self-insure, all employers are forced to purchase insurance from the sole provider: the state.
With soaring costs, high injury rates and lack of choice, Washington’s workers’ compensation system is badly in need of reform. A new Washington Policy Center study analyzes the current system and presents recommendations for improvement. The full study is available on request or by visiting www.washingtonpolcy.org on the internet. The study’s policy recommendations are summarized here.
1. Make sure workers’ compensation trust funds are used only for workers’ compensation administration and benefits. The Department uses money from the workers’ compensation trust fund to pay for programs that have no relation to collecting premiums or paying out benefits to injured workers. All activities not directly related to managing the workers’ compensation program should be funded through the regular state budget.
2. Require annual financial audits of workers compensation accounts. Currently the system is not subject to regular financial audits. Annual audits would build greater accountability into the system, build public trust and let employers see whether the premiums they pay are being managed wisely.
3. Allow small groups of similar employers to self-insure. Washington law currently bars small groups of private employers from self-insuring, reserving that choice only to large companies and a few public entities. All employers should be allowed equal access to group insurance, as is the case in 35 other states.
4. Legalize private insurance. Washington is one of only five states that make it illegal to buy private workers’ compensation insurance. Legalizing private insurance would bring choice, quality service and price competition to the system, and would benefit both employers and workers.
5. Bring benefit levels more in line with those in other states. Reducing the maximum benefit cap to match the national average would save money and establish a more reasonable level of benefits.
6. Consultation and enforcement should be separated. The Department of Labor and Industries offers to give safety advice while at the same fining employers for violations. One employer said this is “like asking the IRS to balance your checkbook.” Safety services should be provided by another agency or, better yet, employers should receive a premium discount when they hire private consultants to provide safety advice.
7. Workers should report injuries through their employers rather than doctors. Doctors are often slow to file the paperwork injured workers need before receiving benefits. Reporting injuries through employers would resolve claims faster and provide better service to workers.
8. Rehabilitation for injured workers should be geared towards “job placement” rather than “employability.” Workers do not really care whether or not a government agency considers them conceptually employable; they care whether or not they have a source of income. The Department should re-focus its efforts on helping workers return to their jobs or find new ones suited to their skills and physical condition.
9. Clarify the calculation of benefits. No-fault insurance is supposed to keep costs low by eliminating the need for lawsuits. Yet recent lawsuits have built new fixed costs into the system. Policymakers should make the way benefits are calculated clearer and simpler to avoid legal disputes.
The original purpose of workers’ compensation was to provide sure and certain relief for workers in the event of an on-the-job injury. In return for joining a legally-mandated program, employers gained protection against individual lawsuits brought against them by injured employees. For employers and workers the system is intended to provide security, financial predictability and fair treatment.
Yet the “exclusive remedy” aspect of workers’ compensation has been eroded. Workers routinely sue the Department in court to gain a higher level of benefits, and, while they are not suing employers directly, employers must bear the full cost of lawsuits and any resulting awards through higher workers’ compensation premiums. In addition, employers must pay the long-term cost of litigation when court decisions result in a permanent higher level of benefits for all claimants.
Injured workers and lawyers who sue and win realize an immediate economic gain, while the system as a whole is undermined and risks becoming fiscally unsustainable, to the ultimate detriment of employers and workers.
Major reforms are needed to bring the workers’ compensation system back to its original purpose; a true insurance plan which mitigates risk for employers, provides fair and reliable benefits for injured workers and contributes to a stable business environment for all Washington citizens.