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August 8, 2012
By Marty Bask, Principal, Account Executive; Parker, Smith & Feek
The State of Washington, which administers the Workers’ Compensation system for the state, has a financial problem because revenues have been too low to fund workers’ comp expenses. The reserve fund to pay workers’ comp benefits is very low, primarily due to the 2008-2011 recession, and a slow economic recovery. On July 20, the Department of Labor & Industries held a meeting of the Workers’ Compensation Advisory Committee to discuss the agency’s plans to build the system’s surplus or contingency reserve. The primary strategies are to increase taxes on business and to reduce the Department’s pension discount rate.
Previously in June, the Department announced the need to increase the fund by $3.1 billion over 10 years, which would require workers’ comp rate increases of about 19% for ten years. This scenario represents a worst case scenario, which is not felt to be helpful for building a solution. The Department has two months to come up with a plan. In September the agency expects to announce a rate proposal for 2013. New scenarios for solutions still involve an increased premium rate for a substantial period of time.
Washington is one of only four states which do not allow private companies to provide workers’ comp insurance. With a feeling among Washington businesses that the state has no incentive to control costs of workers’ compensation, the perception of state inefficiency lies in the background of the conversation to restore the reserve fund.
In the short run, it is feasible that a workable solution will be found. Any solution requires a rate increase, which is especially difficult for businesses to absorb at this time.
Source: Special Workers’ Compensation Advisory Committee: Rebuilding the Contingency Reserve; Washington State Department of Labor and Industries; July 20, 2012
The views and opinions expressed within are those of the author(s) and do not necessarily reflect the official policy or position of Parker, Smith & Feek. While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it.