Article by Erik Smith. Published on Monday, May 24, 2011 EST.

Labor Opposition Blocks Lump Sums for Injured Workers – ‘Structured Settlements’ to be Permitted for Older Workers Only

Gov. Christine Gregoire announces the workers’-comp deal Sunday night, flanked by House Minority Leader Richard DeBolt, House Speaker Frank Chopp, Senate Majority Leader Lisa Brown and Senate Minority Leader Mike Hewitt.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, May 23.—After five months of combat, legislative leaders finally shook hands Sunday night on a deal that takes a small step toward major reform of the state’s worker compensation program.

            The plan will give a small number of older injured workers the option of a “structured settlement” rather than a pension for permanent workplace injuries. The settlements and other elements of the deal could save as much as $1.1 billion for the state-run insurance program over four years, reducing pressure for big payroll-tax increases and possibly helping avert its collapse.

 But it is a far cry from the plan advocated by business and most of the Legislature – voluntary lump-sum settlements for all injured workers, and a final solution to the big financial problems the insurance program faces. Labor battled that idea every step of the way, lawmakers on both sides plotted and threatened, and by the time they got done they wound up with a reform bill that one of the negotiators, state Sen. Janea Holmquist-Newbry, R-Moses Lake, described as a “quarter of a loaf,” but better than no loaf at all.

The settlement Sunday night may not end the argument for all time, but it certainly ends it for the year and removes one of the big roadblocks that stood in the way of the Legislature’s scheduled adjournment on Wednesday. Still to come is an agreement on the budget, a thorny matter of its own that will require lawmakers to slash about $3 billion in current state spending. Budget-writers said Sunday they are close and hope to unveil a deal today. That will give lawmakers little chance to debate the matter before they rush for the exits at midnight on the 25^th.

Gov. Christine Gregoire said Sunday the worker-comp settlement gives lawmakers hope of making the deadline. The deal came after she called legislative leaders into her office Sunday afternoon and told them they weren’t leaving the room.

“Let there be no mistake, this was a huge issue, and as I expressed to the representatives who came to the table to negotiate, we are not going to leave here until we get something done, so let’s get to work,” she said. “And they did, and they rolled up their sleeves and they got it done.”

Legislative leaders said a new bill would be drafted and would get a vote on the House floor as early as today.

            Settlements the Central Issue

The final deal contains many elements, including a one-year freeze on cost-of-living adjustments for pensions and a controversial “rainy-day fund” that will allow the state to keep excess payroll taxes in good years rather than returning the money to those who paid it.

But the central issue this year has been whether Washington’s system ought to allow injured workers the option of settling their claims rather than taking long-term pensions. The lack of a settlement option is one of the factors that are causing costs to skyrocket in Washington’s worker-comp program. Employers and workers were hit this year with a 12 percent increase in payroll-tax rates, following a 7.6 percent increase last year, at a time when most other states are standing still.

The result has been that Washington awards pensions at a rate nine times the national average, and “perhaps twice as high as the nearest state,” according to an Upjohn Institute study commissioned by the state Department of Labor and Industries. Though the state’s big losses on the stock market following the Wall Street crash contributed to its financial problems, even the governor and L&I conceded this year conceded that the program needed major reform if it was to remain sustainable over the long haul.

Fixing the program is as much a political problem as it is a policy matter. Labor organizations, led by the state Labor Council, like the system as it is – as something of a business-financed social program that emphasizes benefits to workers with low regard to cost. Settlements might be the single biggest change the state can make to rein in costs. Labor calls them a lousy deal for injured workers.

            No Lump Sums

The idea is this: The state can offer settlements, or workers can propose them through their attorneys, and the state would pay a bit less than it would through lifetime pensions – perhaps 80 percent, according to an L&I estimate. One-time lump-sum payments have proven popular in the 44 states where they are offered. A lump-sum plan favored by Democrats and Republicans in the Senate anticipated that injured workers in this state would flock to the deal, shaving as much as $1.2 billion from the state’s liabilities over the first two years, and $250 million a year thereafter. That would have been enough to put the program back in the black.

Fierce opposition from labor caused sympathetic Democrats in the House to balk. House Speaker Frank Chopp refused to permit a vote on the bill, and only when senators threatened to vote no on the budget did negotiations begin to move.

The final deal mandates “structured settlements” instead of lump sums, meaning that the cash would be paid out over a period of time. Under the deal, workers would get at least 25 percent and no more than 150 percent of the state’s average annual wage per month, or between $982 and $5,976, until the settlement is paid in full.

What’s more, the deal initially limits the settlements to workers over age 55. Over the next four years, the age limit would fall to 50.

Though labor continues to oppose any type of settlement arrangement, Chopp said the unusual approach got his vote. “I was very concerned about the impact of lump sums, a large settlement up front that could potentially take advantage of people in desperate situations,” he said.

            Solves a Political Problem

The other 44 states don’t do it that way. Although structured settlements are permitted in some states, none require workers to take time payments. The approach really isn’t that much different than a pension, which also requires workers to wait for their money, albeit over a longer period. Meanwhile, the deal doesn’t give workers other options – workers will be forbidden from going to third-party firms that cash out long-term settlements at steep discounts.

Gregoire, asked by a reporter if the structured-settlement solution was a matter of expedient politics rather than good policy, said there may be an argument for the unique approach.

“It wasn’t about politics,” she said. “The concern as expressed to me was quite basic, which is that if you give an injured worker a lump-sum payment and they are undergoing difficult circumstances, a spouse is gravely ill or what have you, and they have lost their insurance, they are going to want to pay for that, and they are going to in fact use all that lump-sum payment. And then they’re going to come right back around to state government asking if they could be eligible for other safety-net kinds of programs. So we wanted to do our best to make sure that didn’t happen, and so that’s why the idea of structured settlements.”

            How Many Takers?

The deal anticipates that the settlement portion of the proposal will save $335 million in the first year and a total of $545 million over four – about a third of the amount of the original lump-sum proposal. But it is unclear how popular the new settlement option will be. Labor and Industries figures that about 700 out of 2,800 eligible workers will take it the first year, but it is referring to an earlier estimate for 55-and-older workers regarding lump-sum payments rather than payments over time.

Gregoire said she thinks the program will be a success. She told reporters, “Well, when you basically let the word out that this was being considered, L&I got plenty of calls. So I have a real-world understanding of the fact that there are people out there who are interested in a look at this.”

Others are more dubious. Holmquist-Newbry, for instance, wonders if the limitations set the settlement program up for failure. Workers ought to be able to make choices for themselves, she maintains.

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