Washington Defines Compromise

Washington is one of the few completely state run workers' compensation systems in the country - from setting rates, collecting premiums and administrating claims; everything is done by the state.

One of the basic tenets of the Washington system for a long time was that there were no lump sum settlements allowed. Most state systems allow settlement of claims via some full release mechanism.

In 2011 reform legislation allowed injured workers 55 and older to enter structured settlements, which the Department of Labor & Industries through its Board of Industrial Insurance Appeals would oversee to make sure that such settlements were adequate.

Next year the age limitation decreases to 50.

The Washington State Flag

Earlier this month the Washington state Court of Appeals ruled in BIIA v. South Kitsap School District – commonly called the Zimmerman case - that this provision applied only to claimants not represented by attorneys, and that the Board did not have jurisdiction over claims where an attorney represented the injured worker.

BIIA has approved just 10% of settlement agreements it has reviewed, according to officials with the state Department of Labor and Industries. Because fewer settlements than expected are being approved, L&I has reduced projected savings from the settlement provision to $140 million between fiscal years 2012 and 2015 from $545 million.

There are arguments for and against Washington's maternalistic overview of work injury settlements.

Those in favor of liberalizing availability of lump sum settlements point to system savings, arguing that being able to close claims releases cash that can go towards relieving some of the burden on employers.

Those against lump sum settlements say that they allow employers to take advantage of injured workers and their families at times of increased vulnerability.

Recently the Seattle Times editorial board said the Zimmerman case removes one obstacle to an effective program and that lawmakers should further reform the state's system to remove other prohibitions against lump-sum payments and settling medical claims.

“Potential for huge savings remains if age restrictions are eliminated and lump sums are permitted,” according to the editorial board. “One state estimate put potential savings at $1.2 billion over the first two years.”

The Washington State Labor Council said in opposition that the Times has always been against workers' compensation and that even when the system was created in 1911 the paper opined that it places a burden on all industries in the state that will put many out of business and prevent new businesses from entering the state.

Obviously that prognostication wasn't accurate.

I can't say whether the Labor Council's argument against lump sum settlements - that such settlements will increase employer gaming by taking advantage of vulnerable people - is accurate either.

When we look at statistics from states where lump sum settlements are allowed for unrepresented injured workers it is clear that they get less money than if they had attorneys; but most of these settlements are required to go through some administrative review process before they are approved, so there must be some meritorious adequacy to these agreements.

Ergo, I also believe there is some merit to the Times' argument that there could be significant savings if the settlement restrictions were liberalized.

Really it all comes down to a matter of culture. The Washington State culture seems, to me, to favor a more maternalistic participation of state in pretty much everything, not just workers' compensation.

How much the population actually understands workers' compensation and its financial underpinnings is another matter, but that's not the point.

According to the Labor Council, every county in the state in 2010 voted against privatization of Washington's work comp system, and that vote suggests that the people of the state don't trust the insurance industry or business when it comes to the population's health and welfare.

Last December L&I announced that premiums will increase for the first time in three years with a newly adopted 2.7% rate increase for 2014.

The department said the 2011 reforms reduced its costs, but it needs the increase primarily to rebuild a surplus account that was depleted in recent years because rates have not been in-line with the agency’s operational costs.

Washington also has a unique system in that workers pay a portion of comp premiums. As part of the premium hike, L&I increased the workers’ contributions by 1.7 cents per hour worked, accounting for about 25% of the 2014 premium increase, according to the department.

In addition, while wages increased in the state by an average of 3.4% last year, L&I did not see any additional revenue because premiums are based on hours worked and not payroll.

The department projected the 2014 rate increase would bring in about $55 million in additional premiums.

Employers point to this rate increase as demonstrative that the 2011 reform did not go far enough to put a check on costs.

And apparently employees, who participate in financing the system, are content with system costs as their representative voices have opposed any changes.

Seems to me that the state has it just about right - no one seems truly happy, and that's the definition of compromise that was taught me in law school.