A major contention in reform negotiations is a change to state law to permit lump sum settlements of claims. Washington, one of the few remaining state-run work comp monopoly systems, is also one of the few states that don't permit lump sum settlements.
Rep. Deborah Eddy, D-Kirkland, a sponsor of a lump sum settlement bill, said she thinks that allowing compromise and release agreements would address a legitimate problem with the state’s workers’ compensation system. Without any settlement mechanism, the number of open claims continues to climb and that requires an increasing amount of reserves in the accident and medical aid funds.
Washington is finding out what the insurance industry has always known through actuarial calculations - that the life of a comp claim outlives the financial life of the investment vehicle it rides on. If a claim can not be settled out the need for increases in rates and premiums ultimately outpaces the present value of claims due to the exponential rise in open claims and medical inflation.
While Washington has been raising rates with double digit increases over the past years, it still has held back adequate rate increases, instead relying upon cash in various funds to provide the money. Now the state is facing depletion of those funds because the size of the claim pool has outpaced investment rates.
Curiously, in light of the recent Health Care Reform law that prohibits discrimination in health care insurance based on pre-existing conditions, Labor in the state opposes lump sum settlement of the medical portion of claims.
While settling only the indemnity portion of claims would save some money, medical needs to be part of the settlement for any meaningful savings since medical expenses comprise well over half of all claim expenses.
The WorkCompCentral story by our reporter Greg Jones on this show down was published today: "Comp Reform Showdown Looms for Special Session".