Article by Erik Smith. Published on Tuesday, March 01, 2011 EST.

System in Danger of Collapse if no Action From Legislature, State Agency Warns

Department of Labor and Industries headquarters in Tumwater.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, March 1.—Midway through this year’s legislative session, it is becoming clearer and clearer that no big reforms are likely for the state’s workers’ compensation system – even as the governor’s office warns that the system will collapse if nothing is done.

            A broad reform proposal from Gov. Christine Gregoire is meeting stiff opposition from labor. The unions say it goes too far. Business interests say it doesn’t go far enough, and if labor’s going to draw the line, they will, too.

If you squint a little you can almost see the trenches on the House and Senate floors.

“I’m telling people that if it comes to my committee, it ain’t moving,” said House Labor Chairman Mike Sells, D-Everett, a strong labor ally. “It’s just going to sit there.”

Said state Rep. Cary Condotta, R-Wenatchee, the Republican lead and just as strong a supporter of the business community, “both sides are digging in.”

            What it means is that the most significant reform push in years may not get anywhere. And it’s a big frustration to the governor, who has been meeting privately with legislative players since the session started in an attempt to get things moving – “five corners” meetings with the leadership, breakfast meetings at the mansion with committee chairs. She warns that business will either face enormous tax increases every year as an unsustainable system struggles to pay its bills, or more likely the entire system will fall apart – and labor’s going to hate what takes its place.

            Gregoire Tries Going to China

“No one disagrees on my statement of the problem,” Gregoire told reporters. “And it is a real problem, and it cries out for a solution, so now we need to get to work. I have asked labor and business, I have met with them, I have asked them to be a part of the discussions for the solution. But they really had their chance, and now it is up to the Legislature working with the governor to come up with a solution.

“We’ve got to move forward. We simply can’t keep a non-sustainable system going.”

            It ought to tell you something that a Democratic governor is leading the charge, however modest business critics might consider her effort. Workers’ comp is one of those issues over which business and labor do battle every year. For the last two years, the governor has convened talks that aimed for compromise, and her veto pen offered insurance that nothing would pass without it.

           But this year she gave up waiting and introduced a reform plan of her own. There’s something in it for both sides to hate – increased payouts for permanent partial disabilities, the option of lump-sum settlements for workers over age 55, termination of some pensions at retirement age. The governor explained, “What I say to them is that you don’t have to go with my bill, but you do have to put us on a trajectory that is going to be sustainable in the future.”

           The striking thing about it is that now even Gregoire is echoing the arguments that business has made for years – that costs are out of control, that procedures within the Department of Labor and Industries need reform, and that Washington should adopt some of the cost-cutting practices that are widely used by other states.

            Washington System in Trouble

            Washington is one four states that maintains a totally state-run system. What it means is that all employers, except those that are large enough to self-insure, are required to purchase insurance through the state in the form of payroll taxes.

            The problem is that Washington offers a generous set of benefits – the most generous in the nation, by some measures. Labor says that’s the way it ought to be, and business says it’s giving away the store. It can be a mind-numbing issue to outsiders, because the focus is on numbers and on detail – things like the rules governing the definition of occupational disease. 

But the results are clear enough. Average time-loss per claim keeps going up, and the percentage of lifetime pensions awarded has doubled over the last 10 years, even though injuries have declined and are less serious than before.

            L&I has imposed steep tax increases over the last couple of years – an average 7.6 percent last year and 12 percent this year. They brought howls from business but they weren’t enough to cover costs – L&I was reluctant to raise rates the full amount in the middle of a recession. And so last year it ate $360 million into its reserves, and will likely have another deficit this year.

            The clearest public statement of the problem came at a state Labor Council legislative conference in Olympia last week.

            A Warning to Labor

            Ernie LaPalm, assistant director of the Department of Labor and Industries, entered the den at the Red Lion Inn and told the assembled union officials that something’s gotta give. He noted that last year the Building Industry Association of Washington ran an unsuccessful initiative, I-1082, to allow private insurance companies to enter the market – a plan that would have siphoned business from L&I and forced it to operate just as lean and mean as the competition. With no action, he said, someday an initiative is going to be successful.

            “Is this increase [in costs] sustainable?” he asked. “Yes it is, if we are willing to have double digit increases in rates almost every year. Rate increases are the most visible costs as the number of lifetime pensions continues to grow, but rate increases are not the only cost. Other costs include fewer jobs, lower wages, more initiatives like 1082, initiatives that are better written better than 1082 and are more persuasive.

“Now, there are a number of active bills that are game changers in workers’ comp that will change the system from one that guarantees broad coverage and high benefits to injured workers to a system where injured workers will have to bargain to get the benefits they are entitled to today. The governor’s proposal protects workers’ comp by getting out in front of future legislation and initiatives that would turn the current system upside down, to be more restrictive and have lower benefits.

“It preserves high benefits and reduces costs, a thoughtful approach, and of all the options being discussed today on the Hill, it is the most fair and balanced, and so as you go up on the Hill today, I ask you to think about all the options and weigh them carefully. I really believe that the future of our workers comp system is at stake.”

            Don’t Hold Your Breath

It didn’t exactly win over the crowd. Not long after, Jim Justin of the governor’s office made another pitch for the bill, and as he stepped from the podium he was surrounded by a crowd of union members angered by some of the details of the governor’s proposal.

 There are a few elements in the governor’s bill that labor can live with, but really, major changes are too big to contemplate this year, said Jeff Johnson, president of the Washington State Labor Council. Labor can support changes if they improve services to workers as they deal with workplace injuries, he said. But cutting pensions at retirement age? Allowing business to settle claims with a lump sum for a fraction of the cost? Forget it. “All the other things in the bill don’t touch long-term disabilities,” he said. “They’re just benefit cuts. They just cut costs to government. We’re not going to go there.”

What it’s looking like right now is that only one small part of the governor’s proposal is going to make it through – the single element on which business and labor agreed during their two years of talks. That’s establishment of a “provider network” – really a mechanism by which the state can monitor doctors and try to make sure that they are doing their best to get workers back on the job quickly. If they aren’t, the idea is that the state can cut them off from workers’ comp payments. Also part of the proposal is an expansion of the Centers for Occupational Health and Education – treatment centers that in pilot form around the state have helped reduce costs and gotten workers back on the job faster.

            Battle May Rage in Session’s Final Weeks

There are a few details about the battle that are of keen interest to legislative insiders. Both the House and the Senate have broken out the provider-network portion of the proposal and passed it in the form of separate bills. But the two chambers didn’t pass each other’s bills – meaning that nothing has reached the governor’s desk, and lawmakers are free to battle over the bigger pieces of the puzzle while holding that element hostage for a deal later in the session. Meanwhile, the Senate labor committee also passed the governor’s bill, without recommendation, as a way to keep the broader issue alive for further negotiation. But no one expects it to pass in the form the governor proposed.

If labor digs in, so will business, Condotta said. Lump-sum settlements at 55 aren’t enough, he argues; they ought to be available for all workers. He’s working on a bill that stakes out the business-community stand, more as a statement of position than something with a prospect of passage. Condotta says the real problem is that the system has been skewed so much in favor of labor over the last decade that labor has no incentive to compromise.

“I think we have to look at the bigger political picture,” he said. “The fact of the matter is that the labor movement has no reason to modify the system. They have year-by-year quite effectively and incrementally made it their system. It absolutely is tilted as far to their side as they can go, and they have no interest in changing, so they are dragging their feet every which way they can.”

Sells may not put it quite that way, but he expresses a similar thought. At the labor council conference last week, he said dealmaking on workers’ comp might have to extend to other issues. He said some trading might be possible on other bills, such as a proposal that would restrict contractors’ use of independent contract workers – a measure strongly opposed by business. That kind of horsetrading is likely to come down to the session’s final hours more than a month from now.

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