To: Director Judy Schurke, Director, Department of Labor and Industries

From: Carl Gipson, Director for Small Business, Washington Policy Center
Re: Written Comments Regarding the Department’s 2011 Proposed Rate Hike
Date: January 4, 2011

Dear Director Schurke,

The Department of Labor and Industries finds itself stuck in an unenviable corner. The last
several years have not been kind to the employment market nor the stock market, and both
have wreaked havoc on the financial stability of Washington’s workers’ compensation system.
However, placing an average 12 percent cost increase on the backs of the struggling business
community may only serve to further dampen the economic recovery our state so desperately
needs.

A newly-released financial audit by the State Auditor’s Office (SAO) confirms Washington Policy
Center’s recommendations that the old way of doing things simply must end. As of June 30,
2010, the Accident Fund was $358 million in the red and the Medical Aid fund’s contingency
reserve, although slightly rebounded from the ultimate low of a year before, is still a paltry $539
million; less than half of what it was in 2007.

The State Auditor’s report attributed the dismal financial situation in the workers’ comp funds to
the following factors:

● The reverberating effects of the downturn in employment, leading to decreased

premiums into the system.

● Increased spending on insurance claims. The SAO report cited “The growing duration of
time loss claims and frequency of pension awards,” as contributing to this problem.

● Insufficient premium rates for at least the past three years have underfunded the
workers’ compensation system.

Obviously no forecaster, L&I’s or otherwise, could have predicted the calamitous fall in
private sector employment between 2007 and the present day. However, the Department
and policymakers must share the blame for increased spending on insurance claims and
underfunding the system.
For years the business community has warned that Washington’s time loss system is overly
generous, resulting in a disproportionately expensive system that is funded by workers and
employers alike. The latest figures place the average time loss duration at over 280 days. This
falls far outside the normative range of other states (45 day mean, 125 day median). Indeed,
even your own Department’s analysis show that eight percent of claims account for 88% of
system costs.

Though the State Auditor recommended that the Accident Fund should increase by about five
percent more than the proposed 2011 rate (29.8% increase) and the Medical Aid Fund should
increase by 12% as opposed to your plan of reducing the rate by 10%, we feel that raising the
funds by the suggested amount will not solve the structural problems inherent in the system and
will only provide further disincentives for private sector businesses to increase employment.

There is no silver bullet solution, but there have been several legislative proposals in the last
few years that would directly address some of the underlying problems. These include: 1)
Allowing for Medical Provider Networks, 2) allowing for final settlement agreements, and; 3)
better defining what constitutes an “occupational disease.”

These three options garnered bi-partisan support in the legislature in 2010, but received no
support from leadership and no support, from what we could tell, from your office.

The state legislature has failed time and again to show leadership on this issue. This 2011
rate increase is a symptom of the larger problem of policymakers refusing to act with the best
interest of Washington’s economy in mind by reforming the system.

The three recommendations included here will not solve the system’s financial problems
overnight. But it will accomplish two important goals: 1) demonstrate to the business community
that policymakers and the Department are serious about addressing the problems they have
acknowledged for years but have refused to act on, and; 2) steer the workers’ compensation
system towards the long-term goal of financial sustainability while protecting and helping injured
workers who need rehabilitation in order to return to the job site.

Submitted respectfully,

Carl Gipson
Director for Small Business
Washington Policy Center
206.937.9691
cgipson@washingtonpolicy.org

cc: Ronald Moore, Employer Services Program Manager, Department of Labor and Industries