The Workers Comp Chokehold

Economic crises tend to expose flawed systems. The current crisis surrounding the financial markets and housing bust displayed the weaknesses of mortgage-backed securities. The recession a decade ago brought overexposed dot-coms to their knees. A decade before that saw the trials of savings and loans.

Here in Washington, our down economy revealed regulatory policies that are causing the business community unnecessary headaches-for instance, the mandatory workers’ compensation system. Run by the state’s Department of Labor and Industries (L&I), it recently announced a 7.6 percent average rate increase, which caps off a 54 percent increase over the last 10 years. This amounts to a $120 million tax increase on employers and employees next year. Both pay into the system.

Washington already has the second-highest level of benefits paid per worker in the nation. And this increase comes after claims have decreased 55 percent in the past 20 years even as administration costs climb steadily.

The result is an increase in the cost to hire an employee during a time when the jobless rate continues to grow.

To control costs, policymakers should open up the industrial insurance market to competition. With the exception of a few large corporations that can self-insure, employers are stuck in a government-run, monopolized system. Washington is one of only four states where the government option is the only option. However, there are short-term tweaks the Legislature can implement to save employers and employees money now and keep Washington’s business climate competitive.

First, the definitions for occupational diseases need to be clarified. What qualifies as an on-the-job injury has been growing over the last two decades, which makes the system more expensive, particularly to industries such as construction and manufacturing.

Second, in the same time that claims have dropped by 30 percent, pension awards increased more than 150 percent. Under current Washington law, there is no way for an employer or employee to negotiate a final structured settlement. Settlement agreements are financial arrangements that result in periodic long-term payments to injured workers if it is determined their injury is career-ending. This system actually gives the worker more control over the settlement and lets the employer clear the books, making the process both faster and less expensive.

Third, allow for the control of health care costs by encouraging the formation of provider networks that specialize in best practices and treatment guidelines for industrial injuries.

L&I is considering expanding an old pilot project to aggressively manage cases, and that’s a good thing. Its Center for Occupational Health Excellence program in 2005 reduced workers’ compensation claims by 25 percent through better medical case management. Under this approach, injured workers are 65 percent more likely to be working six months after filing a claim.

These suggestions will not solve the problems inherent in the system. What L&I is not sharing widely is that the 7.6 percent increase was less than half the increase needed to keep the industrial insurance fund solvent. Fortunately, the state has reserves for the short term, but if the economy does not turn around drastically-and no one is saying that it will-businesses and workers can expect an even more painful rate increase in 2011. It may be time for more drastic measures.

Carl Gipson is small-business director at Washington Policy Center, a non-partisan independent policy research organization in Seattle and Olympia. Learn more at washingtonpolicy.org or 206.937.9691.