Just when the construction industry was starting to feel as if it had weathered the worst of the economic downturn, Washington's Department of Labor & Industries last month proposed a 7.6 percent increase in workers' compensation premiums
The potential rate hike – the fourth in as many years – is just a symptom of the unchecked state-run monopoly called L&I.
Why the rate hike?
Requiring businesses to have workers' compensation insurance is important because it ensures injured workers are protected and helps shield businesses from lawsuits for on-the-job injuries.
However, like other states throughout the U.S., Washington has a workers' compensation system run entirely by a wasteful government operation in Olympia. So while the number of claims made to L&I have decreased, costs to administer the L&I program continue to rise by $39 million just last year.
To make matters worse, the economy has also taken a toll on Washington's program. Increasing unemployment results in fewer premiums to collect, which means that L&I ended up in a budgetary hole this year. While a 7.6 percent increase seems quite steep, it is much lower than the estimated 20 percent needed to break even next year.
Why Washington's system is broken
A Washington employee who misses work with an on-the-job injury misses an average of 266 days – the highest time lost in the U.S, with the national average at 91 days. Across the Columbia River in Oregon, the average time lost is just 70 days.
L&I has raised taxes the last three years, raising premiums 53 percent in the last decade. Last year's hike of 3 percent hit the construction industry especially hard – with premiums for wood-frame construction increasing to nearly three times the state average.
Washington is one of only four states to have a state monopoly on workers' compensation insurance. Only North Dakota, Ohio and Wyoming also refuse to allow private insurers compete.
What can state government do to fix this problem?
Like President Barack Obama says about the healthcare debate, consumers benefit when there is competition. A comparison of the Washington and Oregon workers' compensation systems show that competition does indeed benefit consumers in this arena.
Washington's system pays out the second-highest benefits per covered employee in the U.S. Compared to Oregon, where private insurers are allowed to compete, workers' compensation rates have declined for four straight years, with costs declining more than 60 percent, saving employers $17.4 billion since 1991.
Oregon is a success story not only in keeping costs down for employers. Workplace injury rates have declined by 19 percent state-wide in the last five years.
Conclusion
Though the system urgently needs reform, our state legislators have not adequately addressed the problem. Several bills on workers' compensation reform have been proposed in recent years -not one of them making it out of committee.
It is critically important that Washington fix this mounting problem. Blindly continuing along this path could be another nail in the coffin of an already struggling construction industry.
Kelly Walsh is an attorney in the Vancouver office of regional law firm Schwabe, Williamson & Wyatt, focusing in the areas of commercial and business litigation, as well as employment law.
