Thursday, January 24, 2013

Cynism, or Experience - WA Reform Is Just Politics

The State of Washington is demonstrating that a monopolistic system, where the state provides the insurance, the administration and management of claims, and the adjudication of any disputes, isn't necessarily any better than an open competition system.

While Washington's Department of Labor and Industries (L&I) has kept rates flat the past two years, it has done so at the expense of drawing down its reserves.

Now it is floating a 10 year plan to increase rates 5.5% per year on average in order to meet estimated liabilities.

And employer groups active in workers' compensation are making the same noise they make in every other state every seven or so years - the call for "reform," which loosely translated means trimming benefits, disguised as liberalizing system rules to expedite benefit delivery.

The same tired arguments are being tossed around.

Kris Tefft, general counsel and government affairs director for the Association of Washington Businesses, said during the Senate Committee on Business and Labor hearing on Wednesday concerning a package of work comp bills that the cumulative effect of the department’s plan could drive employers out of business or out of the state.

If an employer's margin is so thin that a 5.5% increase in insurance in a year is going to make or break it, then the management of such a business has larger problems than an insurance premium.

Here's what's being floated:

Senate Bill 5127 would make settlements an option in all claims regardless of the age of the injured worker. The bill also states that the Legislature in 2011 intended to require the Board of Industrial Insurance Accidents to rule on whether a settlement was in the best interest of an unrepresented worker before approving an agreement, but does not have to make a determination about the best interest of a worker who has hired an attorney.

Senate Bill 5128 would allow parties to settle all aspects of a claim, including future medical benefits which can't be settled in a lump sum under current law. The bill also calls for a study of voluntary settlements every five years until 2026, a study of a stay-at-work program that subsidizes employers who bring injured workers back to transitional jobs due in 2016 and a study of occupational disease due Sept. 1.

The thinking behind SB 5127 and 5128 is that being able to close more claims, freeing up reserve money that would allow businesses to invest in growth. Injured worker representatives say this would entice claimants to accept lower settlements than they would be entitled to over time, and would push them to other state and federal disability/unemployment programs when the claimant can't get back to work or find work post injury.

I have never seen a study reflecting that reserve money that is released as a consequence of a lump sum settlement actually makes its way back into the economy. It may be true, but I have never seen any publication where a dollar is followed from premium collection, to claim reserve, to reintroduction back into the economy. My guess is that any such dollar, at best, represents a neutral investment and does nothing to contribute to economic growth or stimulation.

Senate Bill 5112 would allow employers who are enrolled in the department’s retrospective rating program to schedule independent medical exams and vocational rehabilitation assessments appointments, provided they notify L&I in writing and use doctors and rehabilitation experts who are approved by the department. L&I would be permitted to intervene in any dispute arising from how a retrospective rating plan employer handles a claim and allow the director of L&I to take corrective action such as requiring additional monitoring, additional training or placing on probation an employer that doesn’t following proper procedures.

The bill does not authorize fines for any violations, and it would not allow the director to remove an employer from participating in retrospective rating.

Supporters of this provision say L&I is too slow in setting exams which increases disability duration and forestalls return to work. Opponents argue that turning this over to employers allows them to game the system with employer friendly physician examiners thus decreasing claimant recoveries or causing a return to work too early.

My opinion - if the employer must choose from a state approved list of examiners there likely is no net impact on claimant benefits and if an employer can be removed from the retrospective rating group as a consequence of abusing the process then that is good incentive to stay clean.

Senate Bill 5126 would calculate an injured worker’s wages based only on monetary payments and exclude from the calculation fringe benefits such as health insurance coverage. The bill would eliminate a provision that calculates benefits using 60% of the wages for workers who are unmarried and 65% for workers who are married, as well as a 2% increase for each of the worker’s children. All benefits be calculated at 66.67% of the injured worker’s wages. It would also cap maximum monthly time-loss and survivor benefits at 100% of the state’s average monthly wage, as opposed to 120% as it is currently calculated.

Here is where the real savings come from - reducing benefits.

Workers' compensation, as I have said before, starts with a bucket. That bucket never gets bigger, on a relative scale. The most that can be done with the contents of that bucket is adjust who gets how much.

This is just part of the grand compromise - and is at the core of the friction between employer and worker groups.

Workers' compensation is a political animal. Though over 100 years old and with some culture behind it, the bottom line is that what comes out of the political process - which means deal making, bargaining, back scratching, and sometimes just plain vindictiveness - is what we call work comp.

Washington just went through a "reform" cycle in 2011. Some question whether it is logical for the state to visit more "reform" topics when the effect of the 2011 legislation has yet to fully materialize.

That is not a proper analysis. The proper analysis is who has the political muscle to implement what any particular interest group deems beneficial at any particular point in time.

And it all comes down to money - the tug and tussle of shifting resources to benefit one constituency or another.

Us jaded professionals in the system have learned to just deal with whatever gets thrown at us. We see the net effect, both in macro and micro terms, where most of the population doesn't because the majority of voters and their representatives don't deal with this day in and day out.

Call me cynical. Or maybe just experienced. At least it makes good news.


  1. David,

    I'm not exactly sure what the difference is between cynicism and experience. In workers' comp they often seem to be directly proportinal. Your comments regarding the process of making workers' comp law tracks very closely with my experience. Having said that, it is still the only game in town (except in Texas and possibly soon in Oklahoma). The professional in the trenches must deal with what is. A balanced syatem that meets the needs of employees and employers stands the best chance of enduring for a while. The pendulum swings from one extreme to the other benefit neither side in the long run.


  2. Washington is an outlier in so many ways. The 2011 mini-reforms allowed for settlements on indemnity benefits for those age 55 and older, and provided protections for workers that NO other states have. But leave it to clever trial attorneys who didn't want settlements at all to make claims at a friendly Board of Industrial Insurance Appeals to restrict them even further. Estimated cost savings from settlements are far below anticipated. Why? The Washington Department of Labor and Industries has only submitted about 25 to the BIIA since the law took effect January 1, 2012, and they haven't submitted a settlement in nearly four months (early October 2012.) Where are the cost savings (on which you base a zero rate increase) if you don't actually use the law?

    Also, that 5.5% per year State Fund rate increase does not include increased costs from year to year (it is solely for building reserves), and it does not include any additional changes that may be required to fund a change in the Pension Discount Rate (and the amount necessary to reserve on existing claims). Total cost is about $3.1 billion to the State Fund, not counting annual claims cost increases.