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AGC Opposes Workers’ Comp Premium Increases for 2012

AGC of Washington calls on the Department of Labor and Industries to keep 2012 workers’ compensation premiums at their current levels.

AGC and partner organizations worked hard to enact workers’ comp reforms in the last legislative session. That labor is now bearing fruit: L&I announced that for 2012 premiums the break-even rate (premiums equal expected costs) would be a 0.3 percent decrease. Without the reforms the break-even rate next year would have been an 8.1 percent increase.

However just because the break-even point suggests that premiums could remain level that does not mean that there would not be an increase as L&I proposed rate increases between five and eight percent for 2012.

“The construction industry continues to be hit hard by the economic downturn” said AGC Government Affairs Director Rick Slunaker. “Construction employment has decreased 35 percent since 2007 and a significant rebound is not expected anytime soon. We applaud the efforts of the Governor and L&I Director Schurke to secure the important workers’ comp reforms and they are working. Keeping next year’s premiums at the current level would allow L&I to meet expenses and still have funds in reserve. Holding the line on premiums would help businesses add not subtract jobs.”

Actuaries recently told L&I’s Workers’ Comp Advisory Committee (WCAC) that Washington State’s system has reserves but they are low by industry standards. L&I proposed the rate increases to increase reserves.

Slunaker said that AGC understands the value of enhancing reserves over time but believes now is not the time to increase premiums. “Because of the reforms the actuaries indicate that a level premium rate would not further draw down reserves in 2012” Slunaker said. “Given that fact plus the down economy the prudent thing is to hold the line on premiums and the reserves and let the reforms continue to work their way through the system.”

Slunaker added that employees and not just employers would benefit from level premiums as employees pay about 25 percent of workers’ comp premiums. “Those in the Building and Construction trades have been hit hardest by recent increases including 16 percent in 2011” he said. “Holding the line on premiums means that people who are already working significantly less hours can keep more of their hard-earned money.”

As a reminder these are the changes to the workers’ comp system that were passed in the last legislative session:

CLAIMS RESOLUTION STRUCTURED SETTLEMENT OPTION: Currently many older injured workers never return to the work force. Under this proposal they would be eligible for a structured settlement. This option would apply to those injured workers older than 55 and be phased in to allow workers 50 and older to participate in structured settlements by 2016. The option will allow workers to resolve their claim by taking structured periodic payments equal to at least 25 percent and no more than 150 percent of the state’s average wage per month or from $982 to $5976 until the settlement is paid in full. Structured settlements would be approved by the Board of Industrial Insurance Appeals and a judge must decide it is in the best interest of an unrepresented worker. This settlement option would exclude medical and could be initiated only after 180 days from the receipt of the claim and after the claim is allowed. This option for a select population of workers is in addition to two options already available: staying in the workers’ compensation system and receiving appropriate benefits; or participating in a retraining plan if eligible. A structured settlement option should have a significant impact on reducing future rate increases and will bend the cost curve of the workers’ compensation system. Minimum savings based on age 55 and older: will increase with phase-in. Savings: FY 2012: $335 million; FY 2012–15: $545 million.

STATEWIDE PROVIDER NETWORK: The legislation focuses on getting the highest quality care to injured workers. Doctors who treat injured workers are required to possess certain credentials to do so. Health care providers are encouraged to follow occupational health practices to return workers to work as safely and quickly as possible. Savings: Fiscal Year 2012: $41 million; Fiscal Years 2012–15: $164 million.

CENTERS OF OCCUPATIONAL HEALTH AND EDUCATION: These centers offer proven and effective treatment of injured workers. The legislation expands the number of these specialized facilities so services are available to all injured workers no matter where they live. Savings: FY 2012: $0; FY 2012–15: $55 million.

WASHINGTON STAY-AT-WORK PROGRAM: The Stay-at-Work program offers wage subsidies to employers who bring workers back to a job quickly. Under the legislation half of an injured worker’s wages would be covered for up to 66 days when an employer immediately offers transitional or light-duty work. Savings: FY 2012: $16 million; FY 2012–15: $111 million.

PRIOR DISABILITY AWARDS: Benefits for prior disability awards paid to a worker are deducted from the worker’s pension award. When permanent partial disability awards are paid over time interest on the unpaid balance will no longer be included. This will help keep costs down and make payments fair. Savings: FY 2012: $99 million; FY 2012–15: $133 million.

COST-OF-LIVING ADJUSTMENTS: COLA payments would be frozen for one year. This change affects the cash-funded pay-as-you-go Supplemental Pension Fund. The COLA that would be effective July 1 2011 is eliminated. The first COLA payment following an injury would be delayed until the second July 1 following an injury. These changes reduce the amount of premiums charged to employers and workers. Savings: FY 2012: $31 million; FY 2012–15: $124 million.

RAINY DAY FUND: The purpose of insurance is to protect employers from huge swings in the economy and unpredictable rate increases. This is why a fund in addition to the State Fund’s contingency reserve makes sense. It will require the transfer of workers’ compensation funds whenever the reserves are greater than 110 percent of liabilities. These funds would be available to reduce rate increases during economic downturns or when liabilities unexpectedly increase. Savings: No fiscal impact.

OTHER ELEMENTS: A fraud prevention initiative claims management performance audit by the Joint Legislative Audit and Review Committee occupational disease study and safety and health investment grants.

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