Both sides pack the house as this year’s worker’s comp war begins.

OLYMPIA, Jan. 24.—On the heels of a reform effort that brought big-yet-small changes to Washington state’s worker’s compensation system two years ago, business is backing a new round of reforms it says will bring the state’s industrial insurance rules in line with other states and help reduce pressure for whopping rate increases over the next decade.

But labor groups, fierce opponents of any proposal that would make it easier for employers to offer settlements to injured workers, say they’re going to fight like it’s 2011. A hearing on a package of bills backed by the new Majority Coalition Caucus in the Senate Wednesday kicked off what could be one of the bigger scraps of this year’s legislative session, though much will depend on the reception given to the measures in the Democrat-controlled House.

The two most important bills, Senate Bills 5127 and 5128, would eliminate age restrictions on the settlements that employers are now permitted to offer older workers to settle long-term disability claims. The latter goes quite a bit further, allowing the settlement of all claims, and permits the lump-sum settlements that are fighting words to labor. Exactly how much the measures would save the state-managed insurance system is a matter of conjecture until the Department of Labor and Industries offers an official estimate, but if the fiscal notes it presented during the 2011 debate are any guide, the savings would be in the hundreds of millions of dollars. That could at least partially offset pressure to increase tax rates as the agency seeks to rebuild reserves depleted during recession. Currently the agency estimates that it needs an additional $1.1 billion.

“We need the Legislature’s help if we are to avoid the prospect of 10 years of approximately $110 million-per-year surcharges on the premium taxes that employers and employees pay into the system to build up L&I’s reserve account,” Association of Washington Business lobbyist Kris Tefft told the Senate Commerce and Labor Committee. “We need to go further or else we are going to be paying these higher tax rates for the next 10 years.”

Settlements a Disappointment

Patrick Connor of the National Federation of Independent Business testifies at Wednesday’s hearing.

It might sound like a dry debate about numbers, but the bills really represent a renewal of an age-old battle in this state regarding settlements for workers who are permanently disabled by on-the-job accidents, particularly those cases where there is some doubt about the cause or extent of the injury. Some 44 other states allow employers to settle claims for less than the amount that must be provided for lifetime pensions – provided, of course, that the injured worker agrees. But until 2011, Washington state required pensions in all cases, one of the factors that business says drives up worker-compensation costs in this state. Two years ago, Washington lawmakers took a baby step toward lump-sum settlements, requiring “structured” payouts that provide only a portion of the money up front and allowing settlements only for workers 55 and older, an age restriction found in no other state. The settlements also may be awarded only if the state Board of Industrial Insurance Appeals rules that the settlement is in a worker’s best interest, and only for long-term disability claims, not for medical claims. The age restriction will be reduced to age 50 by the year 2016.

The result hasn’t been a land rush. The settlements were supposed to save $335 million in 2012 and $545 million through 2015. But in the program’s first year, only 22 settlements were awarded, and savings booked by the department were a meager $47 million. Business contends the problem is that the state made the program so restrictive that few injured workers took advantage. In a state where business notes long-term pensions are awarded at a rate nine times higher than the national average, its advocates say it’s time to the next step. “In 2011, we were told that those modest steps toward reform were the beginning point, not the end point in discussions of the workers’ comp system,” said Patrick Connor of the National Federation of Independent Business.

Rebecca Johnson of the Washington State Labor Council.

Meanwhile, labor contends that any expansion of the program is a bad idea. “In almost all situations, structured settlements will be a bad deal for the workers, because the only way it will save money is that workers are not getting the full protection of the safety net,” testified Rebecca Johnson of the Washington State Labor Council. “They would be taking less money than they are entitled to, and what happens when that settlement occurs is that they are going to fall into the safety net systems. So structured settlements are really not good for the workers, they are not good for their families, they are not good for our communities and in the end they are not going to be good for our state’s economy.”

Said former state Rep. Geoff Simpson, testifying on behalf of the state Council of Firefighters, “Once those people settle for pennies on the dollar, then they go broke, then they run out – who’s going to help them?”

Almost-Instant Replay

Essentially it is a repeat of the argument that played out during the 2011 session – and worth noting is that it prompted one of the biggest, most bruising battles of the year, as both business and labor pressed lawmakers for votes and business-minded Democrats split with their more labor-oriented party leaders. The final bill represented a hard-fought compromise in which labor managed to get a few things as well. Whether lawmakers will have the appetite for a similar fight after just two years is anyone’s guess. Labor makes the argument that the 2011 reforms just haven’t had enough time to succeed. And the fact that both sides managed to pack the hearing room Wednesday with a spillover crowd in an overflow room is an indication that this fight might be just as difficult.

But there are a couple of factors that have brought the issue to the fore this year. The first is that the Department of Labor and Industries has been hammered by the state auditor’s office for drawing down its reserve account in the midst of recession, to reduce rate hikes on business that actuaries suggested were needed to maintain the system. A suggestion over the summer that the department might need whopping rate increases to rebuild its account brought fury from the smaller business owners who participate in the state system, particularly those in the hard-hit construction and logging industries, which pay the highest rates.

Senate Commerce and Labor Committee.

The second has to do with the new wind in the Legislature as a more business-minded coalition has taken power in the Senate. Two Democrats have joined with the 23 Senate Republicans to establish a 25-vote majority in the Legislature’s upper chamber. All sponsors of the worker-comp bills are members of the coalition majority – a fact that bodes ill for the bills’ reception in the House. Prime sponsor of the measures is Sen. Janea Holmquist-Newbry, R-Moses Lake, chairwoman of the Commerce and Labor panel, who said in a statement Wednesday that the measures “will provide the savings and reforms employers need to create and preserve jobs, protect workers and employers from rate increases and provide injured workers the options the options and help they have never had access to before.”

Specific Proposals

The two biggest proposals offer a marked difference in approach. SB 5127 would eliminate the age restriction for structured settlements and the requirement that the Board of Industrial Insurance Appeals second-guess workers and their attorneys when evaluating a proposed settlement. SB 5128 is more expansive, allowing workers of any age to enter into any type of voluntary settlement agreement, lump-sum or structured, on medical as well as disability claims. It also expands employers’ ability to reassign injured workers to light-duty responsibilities, and it requires studies of occupational diseases, state stay-at-work programs and voluntary settlements. But it would retain the requirement that the independent appeals board evaluate proposed settlements. Holmquist-Newbry said the bill essentially is a new version of the Senate’s negotiating position during the 2011 debate over settlement agreements.

The other two bills are SB 5124, which would simplify calculations of time-loss benefits for injured workers, now based on a complex sliding scale, and would provide compensation at a flat rate of  two-thirds of wages, and SB 5126, which would allow employers or L&I to recoup worker’s comp costs from a third party responsible for an injury.

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