L&I Director on Rates: Aiming for Predictability Lower Costs
Editor’s note: We asked the Department of Labor & Industry Director Joel Sacks to answer a few questions for this newsletter about his thinking regarding workers’ comp rates. Click here for a separate article about the proposed 2014 rates including rates for construction classes and info about upcoming public hearings.
Joel Sacks: Thank you for the opportunity to share my thoughts with AGC members on setting rates for workers’ compensation.
Q: In September L&I proposed an average 2.7 percent increase in workers’ comp rates for next year. What was the thinking behind this proposal?
A: The rate proposal for 2014 balances two important goals. One goal is to have more predictable rate levels. In the last decade workers’ comp rates rose as high as a 29 percent increase and fell as low as a $315 million refund. Large rate swings make it difficult for employers to manage their businesses.
My other goal is to gradually rebuild the workers’ comp reserves. During the recession L&I intentionally set lower than adequate rates and spent down the reserves. As a result the reserves are at about 5 percent of liabilities which is low by industry standards. The Workers’ Compensation Advisory Committee which includes business and labor representatives supports restoring the reserves gradually over nine years. The rates proposed for 2014 will add $75 million to $95 million to the reserves.
Going forward I want to maintain this approach of providing predictable rate levels and slowly rebuilding the reserves.
Q: What will you do to reach these goals of having more predictable rates and rebuilding the reserves?
A: Our long-term approach is to benchmark rates against wage inflation. Other states set rates as a percentage of payroll. As wages go up the revenue insurers collect also automatically rises. But because Washington premiums are based on a specific amount per hour worked we must explicitly adjust rates to account for increases in costs due to rising wages.
Another long-term approach is to keep lowering costs. Our actuaries estimate that the workers’ comp reforms passed in 2011 will save more than $100 million in 2014. My goal is to reduce costs an additional $35 million to $70 million next year. We’ll do this by improving medical care for injured workers helping them heal and return to work sooner streamlining claims management improving workplace safety and making it easy to do business with us.
We know that many of the steps we take to reduce costs also improve outcomes for injured workers. For example helping a worker stay employed after an injury helps them recover.
Q: Why will many businesses end up with rates next year that are different from the 2.7% increase you’re proposing?
A: The proposed rate increase of 2.7% is an average. Rates for individual employers may go up or down depending on their recent claims history and changes in the frequency and cost of claims in their industry risk classes. I encourage AGC members to review the proposed base rates for their risk classes on our website at www.Rates.Lni.wa.gov. You can also contact your L&I account manager or call 360â€‘902â€‘4817 for information about your account.
Q: How can people comment on the proposed rates?
A: I’d like to hear from AGC members on the proposed rates for next year and the overall approach I want to take to rate setting. You can offer comments in a couple of ways – you can attend a public hearing or send written comments to Doug Stewart Program Manager L&I Employer Services. Doug’s address is P.O. Box 44140 Olympia WA 98504-4140. You can also email Doug at Doug.Stewart@Lni.wa.gov.