With L&I seriously undercapitalized – what do they do now?

In my post last month I wrote about the November 2 ballot initiative in Washington State – I-1082. I-1082 sought to end the Washington Department of Labor & Industries (L&I) monopoly on workers’ compensation insurance by allowing private insurers to compete with L&I. Washington is one of only four states in the country with a monopolistic systems.

The State Auditor had reported last year that L&I was seriously undercapitalized and risked insolvency if rates were not significantly increased. L&I has been increasing rates steadily for years, while the rest of the country has seen decreases in rates. Many of us believe Washington’s workers’ compensation woes have had a great deal to do with the mismanagement of claims and especially the disturbing trend of offering pensions to injured workers’ in far greater proportions than comparable states.

We thought this was a powerful message and there was great value to everyone in creating competition. However, I-1082 was solidly defeated by the voters. In retrospect, there were several reasons that conspired in the defeat of the initiative:

• The average voter has little concept of workers’ compensation insurance. It was very difficult to explain the basic issue. It just wasn’t on most people’s radar.
• We were out-messaged. The ‘No’ side had several effective advertisements, including one featuring AIG as the force behind the initiative. As King 5 News pointed out, AIG was not involved at all in the campaign, which was largely lead by local businesses that were concerned about rising costs.
• The Washington Insurance Commissioner, Mike Kreidler featured in a frequently run advertisement on TV indicating that if passed, he would have no control over the insurance companies and that workers’ would suffer. According to the Commissioner, I-1082 would somehow be different than the other insurance products provided in Washington and would beyond his ability to regulate. This would not have been the case.
• Finally, we were outspent by 3-1, making it difficult to counter all the negative and misguided messages on TV and radio.

In an effort not to damage the ‘no’ campaign L&I delayed the announcement of their 2011 rate change from September, when traditionally done, till after the election. The reason was obvious. They were rightly concerned about the negative press associated with asking for the big increase needed to shore up their dwindling reserves.

L&I just this week announced they are seeking a 12% overall rate increase for next year. This amounts to a substantial tax increase to businesses and to workers’, as most employees in Washington pay 25% of the premiums.

Unfortunately, the defeat of I-1082 will not change the basic issue. Claims are not being effectively managed and the State is in the precarious position of having to continue to increase premiums at a time when most businesses cannot afford to pay more. As feared, the central message became highly politicized and voters, either through a lack of understanding, or through fear spread by those who opposed I-1082, have guaranteed the status quo.

Washington will continue to be out of step with the vast majority of the country where open competition not only protects businesses, but does an excellent job of caring for injured workers in a safe and cost effective manner.

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