September 29, 2010

Washington State: Comp Monopoly at Risk with Initiative 1082

In November the voters in the Evergreen state have the opportunity to end one of the few remaining monopolistic systems for workers compensation (the three others are North Dakota, Ohio and Wyoming). As you might expect, there is much fulminating and little rational discourse evident in the pre-election build up on Initiative 1082.

Opponents of privitization project visions of greedy insurers denying claims (Hank Greenberg with an ax?), while proponents lampoon the arrogance and incompetence of a bloated state bureaucracy. (If you want to see what passes for humor in the great northwest, check out this rather lame rap video in support of the initiative.)

It's hardly surprising that opponents of the measure view insurers as a greedy, heartless enemy. On the other hand, it's pretty clear that most monopolies tend to evolve (or is it devolve?) into behemoths slow to respond and slow to innovate. Both visions suffer from inaccuracy and distortion.

Who Pays?
In most states, employers bear the full cost of workers comp: employees pay nothing for the premiums and nothing for the treatments. In Washington, there are three funds supported by comp premiums: an indemnity fund; a medical fund; and a supplemental pension fund. Employees contribute through payroll deduction to the latter two funds. The current deduction is 0.1543 percent of earnings, with no caps. If I've done the math right - a big if, unfortunately! - that's about $76 per year for the average worker. Not a lot of money, but the principle is interesting - employees have a little "skin" in the game. Total employee contribution of premiums does reach the substantial level of about 22 percent.

While you would expect small businesses to embrace competition, some oppose 1082 for the simple fact that it will eliminate the employee contribution to premiums and shift the entire burden onto employers. Costs might go up. On the other hand, competition might bring costs down.

Decision Makers
Currently, costs for workers comp in Washington are modest: they rank 38th for cost in the 2008 Oregon survey, with an average rate of $1.98 per $100 of payroll. If the costs were higher, the pressure for change would probably be much more intense. As it is, voters will go the polls as they often do, with a lot of inflammatory rhetoric (and perhaps an annoying rap song) ringing in their ears. Then they will fill out their ballots. The fate of Washington's comp system is in their hands.



Unfortunately there is an entitlement attitude in today's society. For every employee who has some "skin in the game" comes the attitude that someone owes them something for that "skin". Ask anyone who utilizes medical services through an employer's health insurance plan.

Thanks for this timely post.

My biggest frustration with watching the Washington initiative story unfold is that both sides are consistently misinterpreting their facts, or using irrelevant facts.

There’s nothing magical in the insurance arrangement(monopoly fund, hybrid, or fully private)as the Oregon rate ranking studies can demonstrate. Look at the rankings in the Oregon study. There are states with rates above and below Washington with any of the different types of insurance systems.

Cost differences are mostly due to statutory definitions, benefit levels, case law, dispute processes and allowable paths to manage and settle claims. Initiatives are extremely blunt tools for working on those areas, however. Sort of like tuning up a car using only a hammer.

Every Canadian Province provides workers' compensation coverage through an "exclusive" provincial fund -- just like Washington State, Ohio, Wyoming and North Dakota. Monopolistic is a pejorative term favored by the insurance industry (interesting that you don't see it used in Canada). Liberty Mutual has dumped a cool half a million dollars into the I1082 campaign in Washington. The ultra-conservative Building Industry Association of Washington, the group that paid to get the initiative on the ballot, hopes to establish its own insurance pool to fund its right-wing political agenda.

Sorry, but my frustration, as a representative of the self-insured employer community in Washington state, is that the myth of the Oregon study is perpetuated. (The Oregon study is a study of premiums, not costs.) I'm sorry, but you cannot have high benefits without there being high costs. That's impossible, and any insurance company that operated by paying out $1.61 in benefits while only collecting $1.00 in premium would be out of business in short order. The only two reasons the Washington State Fund gets away with perpetuating that myth is that A) employees pay a portion of the premium, and B) State Fund premiums are based on hours worked and not on payroll. During the good economic times, many hours were worked, premium in excess of expected costs collected, and huge rates of return (ranging from 10% to 25%) were earned on the excess which allowed them to keep premiums artificially low. Those excess dollars paid in hourly premium could very well have been put to work in the economy, rather than sitting horded by the State Fund.

Now that hours worked are in the tank due to the economy, the true cost of our system is becoming more clear. In fact, Washington is a high benefit, high cost state. We're consistently in the top two or three states for benefits. How can you confirm this? Ask any employers (including self-insured employers) who operate in multiple states if Washington is a "low cost state." They'll tell you otherwise.

The Washington Self-Insurers Association, which represents the approximately 360 self-insured entities in the state, is supporting I-1082. Why? Our Association supports the initiative because: 1) many of our members operate in multiple states, and want the option to purchase their workers' comp insurance here; 2) the growing number of pensions and long-term disability claims (in an era of total number of claims declining over the past few decades) is bankrupting the system, as evidenced by a fund that pays Cost of Living Adjustments on these liabilities over $11 BILLION in unfunded liabilities (supplemental pension fund); and 3) even proposed modest changes to Washington's nearly 100 year old workers' comp system have been ignored or stomped on by the Governor, Legislature and Department of Labor & Industries. Our members have had enough.

Rational, reasonable changes to the system to improve better return to work outcomes for injured workers, and to reduce these growing, threatening costs to the system need to be considered. I-1082 will provide the impetus to get changes adopted, since the State Fund will finally have an incentive to do what even they privately acknowledge need to be done.

Dave Kaplan
Executive Director
Washington Self-Insurers Association

We have absolutely no desire to model our system on that of Canada, thanks. We don't want Canada's pathetic medical insurance system with its rationed care and resulting lack of medical innovation, we don't want Canada's gun prohibitions, its taxes OR its worker's comp system. We like freedom from our government down there, thanks, James, even in the left-leaning state of Washington.

The State of Washington has corrupt IME practices they pay doctors for the opinion they want!!!And half of them are retired doctors that dont even have a practice anymore!!!!or a licence to practice!!!

In Washington workers pay about 22% of the cost of workers comp. While the average office worker in Washington pays $76/Yr. the average nurse-aid pays $500/year. The average construction worker pays about $1000 per year. Washington is the only State where workers pay a portion of their own workers comp. (Workers pay hald of the medical aid fund and half of the supplemental pension fund. Employers pay all of the Accident fund. Initiative 1082 will end the workers portion on Jan. 1, 2011. As an employerr in Washington I would be very concerned about shouldering the entire cost of workers comp in two months for the chance to possibly have an insurance company offer me initially lower rates in July, 2012.


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This page contains a single entry by Jon Coppelman published on September 29, 2010 12:28 PM.

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