I-1082: The Wrong Solution For Washington’s Workers’ Compensation System

No on 1082Almost one hundred years ago, Washington was one of the first states to enact the oldest social insurance program in our country – workers’ compensation.  It was part of a social compact between business and labor in which employees traded their right to sue in tort for their injuries for a more timely, but lower benefit, no-fault system to cover their injuries.  Only in the U.S. – among virtually all industrialized democracies with workers’ compensation systems – is the private, for-profit insurance industry permitted to underwrite these legislatively mandated programs and have any role in this social contract.  Our state has operated without the intrusion of the for-profit industry for its entire existence, and despite its faults and shortcomings, Washington’s system is viewed among the states as one of the most highly efficient and productive,  The proponents of I-1082 have simply not made a case for the so-called “reform” they claim privatizing our system will bring.  Reject this initiative – it is the wrong solution for our state.

Reject this initiative – it is the wrong solution for our state.

As we struggle to come out of the “Great Recession,” Washington voters face real issues, many created by our slumping economy.  As a citizen, however, you might wonder why and how an initiative allowing private, for-profit insurance companies into our workers’ compensation system wormed its way onto the November 2 ballot, when we are not addressing many of our state’s real problems.  Were there major worker/employee groups clamoring for such a change?  No.  Did you hear or see any employer group campaigning for this – besides the Building Industry Association of Washington (BIAW) which runs a non-stop assault on our comp system?  Likely not.  Have you seen a single sign, poster or TV ad supporting I-1082 not sponsored by the insurance industry or one of its phony front groups, like Save Our Jobs?  Doubt it.

Why is I-1082 on the ballot?  Because the private insurance industry has been itching for decades to get its hands on Washington’s several billion dollars per year workers’ compensation system.  This is their third or fourth try since the early 1980’s.  And this year the fragility of Washington’s economy – like every other state’s economy – creates a golden opportunity for them to conjure up phony statistics to raise fears that our system is tanking and not competitive.

How did I-1082 get on the ballot?  Not by an informed citizenry engaged in a grass-roots reform effort, but by paid signature-gatherers ($3 per signature) using a simple, deceptive script – “competition is good” – to seduce acceptance of a highly complex measure, ostensibly written for the “small business community” but covered with the fingerprints of — and overwhelmingly financed by — insurance giants like AIG and Liberty Mutual.  Blowing past the smoke and mirrors cover story by “Save Our Jobs” about how I-1082 originated, we say:  “Written by the insurance industry, for the insurance industry.”

I-1082 backers claim that the entry of for-profit insurance into Washington’s system will provide the “competition” that will modernize and put our system on firmer financial footing.  Before getting to the specifics about how Washington compares to other states’ systems, here’s the preliminary question:   With all you’ve observed about this industry during the past years of our economic meltdown, do you trust that it will be working for your, or Washington’s, interests?  If you’re not sure how to answer, consider this fact:  in our state, administrative costs for our non-profit-driven compensation system over the past ten years averaged between 17 to 18% of total benefits paid.  The national average – based on states with for-profit insurance companies – was over 68%!  So, system “overhead” in states with private workers’ compensation insurance costs four times what we pay here – a huge amount of money sucked out of worker benefits.

Now to some of the specific contentions of the I-1082 folks about how privatizing our system will make us more “competitive” – and the actual facts:

“Washington’s high benefit system (we’re in the top 5 nationally, as high as number 2 in some rankings) is unaffordably costly; competition will drive down the costs.”

WRONG.  Washington’s state fund insurance system has been ranked in recent years at the bottom 25% in employer premium costs.  Factor in the portion of the premium paid by workers in this state, and in 2008 we were the 5th lowest employers’ premium state.  Premiums are lower here because:

  1. There are no profit objectives to be met;
  2. There are no commissions, brokerage or marketing costs as with private insurance;
  3. The Department of Labor & Industries is a single public insurer that enjoys economies of scale that multiple private, for-profit insurers cannot, and will not, achieve.

It has been estimated that turning Washington into a so-called “three-way” system with private insurance could cause employer premiums to rise as much as $147 million per year, Plus, under I-1082, businesses will be forced to pay the employee share of workers’ comp premiums, burdening them with more than $370 million in costs annually (guess whose hide that’s going to come out of down the road…)  All of the above is why a number of small business groups are now actively opposing I-1082.

“Washington’s comp system is on the verge of collapse!  Private insurance will rescue it.”

WRONG. You need some history here.  For years Washington employers benefited from rate reductions and dividends to the tune of $1.8 billion because of the state fund’s strong market returns.  Many employers actually enjoyed premium rates below cost for many years.  Then, when the bottom fell out of the market, hundreds of millions of net investment dollars were lost, along with fewer premium dollars in an economy with 10% unemployment – just like everywhere else.  All this caused a significant reduction in our state’s contingency reserve, leading to concerns about the long-term solvency of the Accident Fund.  Our State Auditor has clarified that our funds are “not on the verge of collapse,” as contended by the I-1082 gang, and are actually “financially strong.”  There is concern for financial stability in the future, if market conditions do not change, but our state’s system has successfully weathered similar problems in the 1970’s and  mid-1980’s.  Our contingency reserve is adequate by reliable accounting standards.  In short, there is no crisis.  And, again, what is the track record for the for-profit insurance industry in recessionary times?  Washington employers would never have enjoyed years of below-cost insurance rates in a system cannibalized by multiple private insurers.

“We need to be like Oregon!”

WRONG. The insurance industry loves Oregon, and has been pushing Washington to adopt that system for years.  The problem for the “Oregon is great” cheerleaders is that if you use the proper standard for measuring employer cost of the workers’ comp system in Oregon – Whoops!  — it turns out Oregon’s costs aresubstantially higher than Washington’s.  And Washington’s benefits are about 133% higher than Oregon’s.  So, who do you suppose is benefiting from the Oregon system….?  (You might also ask anyone with knowledge of the Oregon system about what has happened to worker rights and benefits under that system over the past 20 years…)

“Nothing in the new law will affect the rights and benefits of workers and their employers.”

AND PIGS CAN FLY! 

  1. The Insurance Guaranty Act doesn’t apply to I-1082.  If an insurer goes belly-up, the business and their employees are left without coverage.
  2. Unlike the current system, insurers set their own rates for employers without any oversight from the Office of the Insurance Commissioner.
  3. There is no timeline in I-1082 to compel an insurer to make a decision – any decision – on a claim, creating the opportunity for “stall and delay” tactics used by private comp insurers in other states.
  4. Instead of funding the workers’ comp “court” – the Board of Industrial Insurance Appeals – through state fund premiums paid by employers, taxpayers will now be assessed the cost of running the Board.  If tax revenues are down, expect that to affect adversely the Board’s capacity to hear and adjudicate appeals.
  5. Loss of state fund premiums will cause a loss of funding for key programs like the Department of Occupational Safety & Health.
  6. Private insurers will have the same status as the Department of Labor & Industries or self-insured employers in legal proceedings.  If you like fighting with Allstate on your auto accident case, you’ll love this new system!
  7. Lack of oversight of insurer claims management can easily lead to claim or coverage denial unless supporting information comes from insurer-approved doctors – thus moving Washington to, essentially, a “company doctor” state rather than free choice of doctor.

“We need I-1082 to make Washington a more competitive business climate.”

MORE HOGWASH. The Tax Foundation, which prepares an annual State Business Tax Climate report, rated Washington 9th best in the nation in fiscal year 2010.  (Oregon was 14th.)  In Forbes Magazine’sannual ratings of the best states for business, Washington was ranked 2nd!  In 2008, based on various “new economy” and “small business” criteria including the workers’ compensation environment,U.S. News and World Report ranked Washington as the top state in the U.S. for starting a business.

Letting the private insurance industry operate as a giant leech on our efficient and productive workers’ comp system, in our already highly competitive business climate, will not better these rankings. Reject this initiative – it is the wrong solution for our state!

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