Article by Erik Smith. Published on Wednesday, August 11, 2010 EST.

For First Time in History, Business Groups Worry There Won’t be a Rate Increase

Judy Schurke, director of the Department of Labor and Industries, speaks at a Seattle news conference Tuesday, while Gov. Christine Gregoire looks on.

By Erik Smith

Staff writer/ Washington State Wire

SEATTLE, Aug. 10.—The moon just turned blue, the pigs have taken wing, and there’s been a cold snap somewhere below ground level. Business groups in Washington state are worried there won’t be an increase this year in worker compensation rates.

            You read it right. It’s not the kind of complaint you often hear at the state Capitol. But there’s a good reason behind it – or at least a healthy suspicion.        

Business groups this year are pushing an initiative that would, maybe once and for all, end the eternal debate at the statehouse about worker compensation. Washington is one of four states in the country that doesn’t allow private insurance companies to offer insurance for injured workers. Business says the state program charges too much. Initiative 1082 would allow private companies to compete with the state, and perhaps beat its rates.   

Next month, if all plays out according to pattern, the state will be forced to announce a whopping increase in worker-compensation insurance premiums for 2011. That’s on top of this year’s big increase. The department’s actuaries and the state auditor’s office have said rates must skyrocket to keep the funds solvent. And an enormous rate increase could provide a winning campaign argument for the business groups backing the initiative – the Building Industry Association of Washington, the Association of Washington Business, and others.

But what if the state throws the pattern out the window – and somehow keeps rates low, or doesn’t increase them at all?

“They’ll probably be cooking the books late into the night, drawing it out until well into September like they did last year,” said Patrick Connor of the National Federation of Independent Business.

Keep in mind that nothing has happened yet. The rates won’t be announced until the first week of September. But already there are signs the Department of Labor and Industries is fighting back, as best it can, without overtly opposing the measure. Meanwhile, a task force appointed by the governor is making a last ditch effort to negotiate a compromise between business and labor interests – and that could affect the initiative as well.

            Governor Touts L&I Successes

At a news conference in Seattle Tuesday, Gov. Christine Gregoire and Judy Schurke, director of the Department of Labor and Industries, seemingly talked about everything but the initiative. They pointed to recent successes by the department in combating fraud. They pointed to new efficiencies in the department aimed at getting medical providers paid faster, and workers back on the job sooner. And they announced that a temporary program allowing struggling employers to make payments on outstanding bills will be made permanent.

It’s about time to tell a success story about the Department of Labor and Industries, Gregoire said. The fact that an initiative is on the way is a coincidence.

“What I said to Judy was, let’s put it all together and let’s get the word out, so particularly the legislators and small businesses have a good understanding of what’s going on here. It has absolutely nothing to do with the initiative. Remember, now, if the initiative passes, there is still a Department of Labor and Industries, so what we’ve been doing and have been doing over these years is going to continue. So this is just good business practice… State government fundamentally has to restructure, and Judy is leading the way.”

Whatever the reason, some of the efforts at L&I appear a direct response to the biggest criticisms leveled at the department. Fraud, for example. Employers complain the state has little incentive to crack down on healthy employees who collect disability payments. Meanwhile, they say some employers don’t pay their fair share, and the ones who play by the rules are at a disadvantage.

Schurke said a fraud-prevention effort launched in 2005 has increased collections dramatically. Collections due to L&I investigations have increased 40 percent, to $770 million. The department has invested in advanced computer technology that should make it easier to track down employers who are not reporting fully. The systems will make it possible to compare 20 state and federal databases, including the IRS. If an employer reports different numbers of employees to different government agencies, the state will catch it. The full system goes online this fall.

Meanwhile, a workers’ comp fraud hotline is generating thousands of tips – 2,100 last year, 800 concerning employers and 1,300 concerning employees. That’s about double the previous year. It shows the public is taking an interest in the issue, Schurke said.

“All this money, it is important for you to understand, goes back into our trust fund and offsets the rates we are required to assess.”

Rate Increase is the Issue

Minor reforms are one thing. Business interests leapfrogged far past that point when they filed the initiative this year. Their main worry is that the department will set rates so low for 2011 that it will undercut their campaign.

The worker compensation program covers about 168,000 employers in the state of Washington – all but the largest employers who have the ability to self-insure. About 120,000 new claims are filed every year.

The program is financed by employer premiums, and the actuaries who watch the bottom line say big increases are needed. That’s partly because the state took a bath in the stock market collapse, wiping out hundreds of millions of dollars the department had invested. But it’s also because claims costs increased dramatically during 2008. Last year actuaries for the Department of Labor and Industries said a rate increase of about 23 percent would cover its losses. The state auditor’s office countered that an increase of about 33 percent was needed in the largest insurance fund – and the program was at high risk of becoming insolvent.

Employers howled, of course, and the department increased rates only 7.6 percent. It can disregard actuarial recommendations because the insurance funds are backed by the credit of the state of Washington.

Department officials aren’t saying how much they’ll raise rates this year. Employers just made their second-quarter payments, and the department won’t be able to assess the data until the end of the month. Said Schurke, “One of the things we will always have to take into consideration is not only how much the trust fund needs, but where the economy is and what we need to do for Washington citizens.”

            Task Force Meets Behind Closed Doors

Meanwhile, the governor’s task force continues to meet – and some business interests worry it will be used to manipulate the outcome of the election. There’s nothing new about the talks. Last year the governor convened a similar panel. Business presented a few ideas aimed at reducing rates, labor said no, the Legislature refused to do anything on its own, and it’s the main reason an initiative is heading to the ballot this year.

This time around the meetings are closed, in hopes that might bring a few heads together. On the panel this time are representatives of the state’s biggest labor organizations as well as the Association of Washington Business. So what’s the matter with talking?

Suppose the panel comes up with something, says Connor – some sort of modest reform that makes it possible for L&I to reduce its rate increase, or propose none at all. That undercuts the initiative. But any changes still have to go before the Legislature next year, and there they could be defeated – after the election takes place.

“When the governor convened a similar work group last fall, the union bosses sat back with their arms crossed and said “no, no, no” to every proposal the business community brought forward,” Connor said. “There is absolutely no reason to believe those same union bosses will suddenly embrace any meaningful changes to our failing government-run workers’ compensation system except as a cynical ploy to derail Initiative 1082.  And once the election is over, and the Legislature convenes in January, we can count on Big Labor and their friends the trial attorneys to once again put their boots on the throat of any real reform effort – unless we elect a legislative majority with the courage to take on these entrenched defenders of L&I’s failing status quo.”

           Has Happened Before

If that prediction seems a bit paranoid, it has happened before. Back in 1995, the Building Industry Association of Washington and the Washington State Farm Bureau, among others, backed a property rights ballot measure. Democratic lawmakers promised to address the same concerns in a more moderate way during their next legislative session. It was one of the hottest initiative campaigns in years, and the promise became a key issue. It helped defeat the initiative, 61-39. And when lawmakers came back to town in 1996, they said the margin was so big they didn’t see a reason to do anything. So nothing happened.

 For her part, Schurke said it is unlikely the task force will come up with anything in time to affect the 2011 rate proposal. The department has to propose rates in September, and the task force is scheduled to continue meeting until December. An AWB representative refers inquiries to Schurke.

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