Workers' compensation premiums could rise 7.6 percent

By Isaac Bonnell

The cost of doing business continues to rise.

The Department of Labor and Industries recently proposed a 7.6 percent increase in workers’ compensation insurance premiums that has some employers calling for a change in the whole system.

Earlier this year, the Department of Labor and Industries forecasted a rate increase of 15 percent to 20 percent, but decided to use reserve funds to lower that to 7.6 percent. The higher rate would apply to 2010 premiums.

“I know that any increase adds to the challenges that businesses and workers face in this tough economy,” said L&I director Judy Schurke in a statement. “We have pushed this proposed rate increase down to the lowest possible level given the uncertain state of our recovery from this deep recession.”

The state-run workers’ compensation system collects insurance premiums from businesses to cover costs for medical care, wage-replacement and pension benefits for workers injured on the job.

Because Washington premiums are based on the number of hours worked, L&I must  adjust its rates for wage inflation. Other states assess premiums as a percentage of payroll, so wage inflation is already accounted for when payrolls rise.

Besides keeping up with wage inflation, Schurke cited several other reasons for the proposed rate increase: fewer premiums collected due to reduced hours worked, fewer jobs for injured workers to return to, reduced returns from investments and health care cost inflation.

On average, the proposed increase would raise premiums about 4 cents per hour worked, but that may vary per company, said L&I spokesman Steve Pierce.

“A lot depends on the history of the company and the industry that they’re in,” Pierce said. “Companies in particularly high-risk industries that may not have a good safety record may see higher rates. Companies that have a good safety record and an experience factor could see their rates go down.”

Even with a good safety record, companies like IMCO General Construction are spending about $750,000 a year on premiums, said company president Frank Imhof. That could be as high as $1 million a year if the company didn’t manage its own L&I claims.

“We self-manage our claims and we were able to cut costs by about 70 percent,” Imhof said. “We don’t rely on L&I to manage claims.”

The Association of General Contractors (AGC) of Washington, along with several other business groups, is citing the increase as one more reason to reform the whole system.

“I appreciate the fact that the department is using reserves to set the rate lower than it otherwise would have been. But the fact that reserves need to be tapped to prevent an enormous increase is evidence that the system needs to be overhauled,” said David D’Hondt, executive vice president for AGC of Washington, in a letter to Judy Schurke. “In AGC’s view, if the system is not reformed, we will see huge increases in the future as the current approach is not sustainable.”

Before making a final decision about the proposed rate increase, L&I held six public hearings around the state, including one in Bellingham on Oct. 29. Written comments may be submitted to the department by Nov. 7.

2010 rates are expected to be finalized by the end of November.

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