Last week the Department of Labor and Industries revealed to its Workers' Comp Advisory Committee that the workers' comp system faces a $3.1 billion gap in funding. Eliminating that gap would require a 19% annual surcharge over and above annual "break-even" premium increases over the next ten years.
AGC is concerned about the impact of such a huge increase. L&I won't be making a formal rate hike request until September at the earliest. AGC will take an official policy position then but believes a 19% hike is unnecessary and a hindrance to job creation at a time when the construction industry is still reeling from the bad economy. AGC also believes that such a large funding gap is a sign that the system is in need of additional reforms.
The $3.1 billion gap refers not just to what is needed to cover costs, but the amount needed to significantly grow reserves as well. The Contingency Reserve has been rightly used to lessen the need for larger premium increases in past years, helping workers as well as employers.
While appreciating the need for reserves, AGC does not believe that the time is right to build them back up so dramatically. "The Contingency Reserve shouldn't be a static target," says AGC Director of Government Affairs Rick Slunaker. "Reserves should be considered as a range, to be built up when times are good and drawn down when times are bad. Hitting employers with a 19% increase now would obviously be bad timing in this economy."
Slunaker adds that the reserves, although low by historic standards, are already growing. Reserves shrank to $181 million in 2010 but are expected to reach $592 million by the end of this year.
"There are also reforms the Legislature should continue to implement to help control costs," Slunaker added. "Reforms passed last year were indeed helpful, but they are just one step. For example, last year's reform provided the structured settlement option in lieu of lifetime pensions to workers over age 55; that option should be available to more workers as it is in most states."
In addition, last year's bill mandated studies of occupational disease and claims management issues, and Slunaker believes those issues will be ripe targets for reform.
Finally, Slunaker said the State Fund could get more assistance from Retro programs such as AGC Group Retro. "Retro programs could be given more responsibility for managing claims," he said. "This would supplement L&I's resources, give injured workers better service and help them return to a productive lifestyle more quickly, and reduce costs."
For more information, contact Rick Slunaker at 360-352-5000.