This editorial will appear in Wednesday’s print edition.
The state Department of Labor and Industries didn’t endear itself to the business community last year when it announced a 7.6 percent average increase in workers’ compensation premiums.
The rate hike – critics called it a $117 million tax on employment and a major threat to competitiveness – prompted fresh calls to reform the system that assists injured workers and their families.
Expect those calls to intensify in the wake of a state audit suggesting that Washington’s workers’ compensation fund is in worse shape than originally thought.
L&I officials set the rate increase knowing it was far less than what was needed for the state fund to break even. They reasoned that the recession was the wrong time to try to make the fund whole. They bet on economic recovery and internal improvements to stave off a fiscal disaster.
But the department apparently underestimated just how big the hole in the workers’ compensation balance sheet is.
An actuarial firm hired by the state auditor’s office found that the department lowballed the shortfall in one of its workers’ compensation accounts by nearly 45 percent.
The actuaries figured that the state’s accident fund – which pays for lost wages, vocational rehabilitation, disability pensions and survivor benefits – would need a 33 percent rate increase to break even. If nothing changes, the accident fund alone has a nearly 75 percent chance of becoming insolvent within two years, according to the state audit.
The medical fund that pays for health care expenses is in better shape, partly because it received a bigger share of the recent rate hike. But even it has a 25 percent chance of insolvency in the next five years.
Again, that’s if nothing changes. State officials will no doubt raise workers compensation rates again in 2011 and 2012, as they do every year. But they’ll invite a mutiny if they try to make up all of the lost ground.
The audit provides several reasons for the widening gulf between workers compensation contributions and benefits: a recent history of insufficient rates, poor investment returns and an increase in the costs of worker compensation claims.
Economic recovery may buy the state time by restoring lost earnings and increasing contributions to the fund, but it is not a cure-all.
Businesses have long complained that Washington’s program is one of the most generous – and expensive – in the nation. It’s also looking increasingly unsustainable. Lawmakers need to take a close look at the health of the fund and consider whether the current system is gold-plating itself beyond the reach of Washington employers and workers.