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Questions About The 2014 Premium Rate Adjustment

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Workers' compensation rates/premiums

1. Why did my rates go up if I haven't had a claim?

Risk is pooled across each of the risk classifications, which helps keep premiums stable for all while helping those who have had a tough year, but not negatively impacting those who have worked to keep a strong workers' compensation program.

While employers who have claim-free discounts (small employers with no compensable claims for three years) may still see a rate increase due to their industry's poor performance, they will still pay 10 to 40 percent less in premiums from the base premium rate.

Maintaining a safe work environment and helping injured workers heal and return to work quickly and safely does have a return on investment. Without the claim-free discounts, many employers would have seen much higher premiums.

Washington is the only state that gives a premium break to small employers through such a significant claim-free discount program.

2. Why are rates for many businesses different from the average base increase of 2.7%?

The rate increase of 2.7% is an average. Individual employers may see their rates go up or down, depending on their recent claims history and changes in the frequency and cost of claims in their industry risk classes. Those changes also can increase or lower premiums paid by workers because workers in Washington pay a portion of the total premium. See 2014 Composite Base Rates by Risk Classification to see the changes for all risk classes.

3. Why is L&I proposing a rate increase when the economy is still slow?

The department's rate-setting strategy is to ensure steady and predictable rates, free from large fluctuations. A 2.7% increase will steadily build the reserves and protect against unexpected rate increases in the future.

4. How many employers will have lower workers' comp rates next year?

Many employers have been assigned to several risk classes, and it is difficult to estimate the rate change for these employers with multiple risk classes. What we can say is that out of the state's 318 risk classes, 52 have lower base rates in 2014.

5. What percent of the premiums do workers pay?

Under this rate proposal, workers would pay on average about 25% of the premium, up from 24% in 2013. The actual percentage depends on the classification of the worker's company and its recent claims history. Washington is the only state where workers pay a significant portion of the premium.

Note: Washington's workers' compensation system is made up of 3 funds that provide benefits when workers are hurt on the job: the Accident Fund, the Medical Aid Fund, and the Supplemental Pension Fund. Workers contribute one-half of the premiums for the Medical Aid and Supplemental Pension Fund.

6. What would happen if L&I didn't raise rates in 2014?

If we don't take steps now to steadily build the reserves, there could be large and unexpected fluctuations in future rates.

Help for employers

7. What can I do as an employer to reduce my rates?

www.ControlMyRates.Lni.wa.gov provides a list of resources that L&I offers to help employers control premium costs.

8. What if I need help paying my workers' comp premium?

L&I's Employer Assistance Program allows an employer with a good payment history to ask for a 90-day "same as cash" payment plan, with no interest or penalties. Learn more and find out if you qualify: Employer Assistance Program.

Rates History/Comparisons

9. Why are Washington's rates based on "hours worked" rather than a "percentage of payroll," which is how all other states charge for workers' compensation premiums?

Washington's current system, which charges premiums based on the worker's exposure to the risk of injury (hours worked), was long ago agreed to by employers and workers. The system has an advantage in that it doesn't discourage higher pay or negatively impact employers who pay higher wages.

However, in other states, rates are charged as a percentage of payroll. This means as wages go up (wage inflation), the revenue insurers collect also automatically increases. But because Washington premiums are based on a specific amount per hour worked, L&I must explicitly adjust rates to account for wage inflation.

10. How have L&I's rates changed over time?

The chart below (red line) shows how rates have changed over the past two decades. L&I's goal is to use wage inflation as a benchmark for steady and predicable rates. Wage inflation is a good benchmark because workers' comp costs increase as wages increase.

The following chart shows a comparison of wage inflation (green line) and L&I rate changes (red line) over time.

Benchmark rates against wage inflation
Chart showing a comparison of wage inflation (green line) and L&I rate changes (red line) over time

11. How does Washington's 2014 rate compare to other states?

California recently announced a rate increase for 2014, and Oregon announced a rate decrease, both on a payroll basis.

Generally, Washington's rates are lower than Alaska and California, but higher than Oregon. (2012 Oregon Workers' Compensation Premium Rate Ranking Summary)

Trust funds/contingency reserves

12. How financially stable are the Washington's comp trust funds?

The Accident, Medical Aid, and Pension funds have enough financial assets to cover the expected benefits that will be paid out to injured workers. L&I also tries to keep additional assets (contingency reserve) above the amount of these liabilities in order to cover unexpected events that will likely occur, such as downturns in the economy that may affect fund investments, or court decisions that may increase future benefits.

L&I keeps a lower contingency reserve than other workers' compensation insurers, including other state workers' compensation funds. The private insurance industry and other state funds have, on average, over 50% and 25% of surplus above their liabilities.  As of June 30, 2013, the Washington State Fund had about 5% above liabilities – well below the average kept by other insurers.

In recent years, the contingency reserve funds have been used to keep rates as low as possible for employers and workers. It is necessary to rebuild the contingency reserves so that the funds will be there to cover unexpected events in the future and to avoid unpredictable fluctuations in rates.

Cost-cutting reforms and initiatives

13. How do the workers' comp reforms affect premium rates?

The reforms are expected to reduce 2014 claims costs by approximately 6%.

14. What is L&I doing to control costs?

L&I's goal is to reduce costs by an additional $35-70 million in 2014. Work underway to cut costs includes:

  • Helping injured workers return to work as soon as they are medically able.
  • Improving L&I's workers' compensation claims processes.
  • Improving workplace safety.
  • Improving medical care and reducing long-term disability.
  • Making it easy to do business with L&I.

To learn more, please see the Fact sheet: L&I initiatives to improve outcomes and reduce costs (148KB PDF)

15. How has the increased focus on safety in the workplace affected workers' comp costs?

Since 1990, there have been significantly fewer accidents and as a result, there have been fewer long-term disability (LTD) claims. The frequency of LTD claims per million dollars of current premiums has decreased in recent years, with a 7.2% decrease in 2011 and a 3.2% decrease in 2012. These trends have helped control rate increases in recent years. However, for 2014, the assumption is that LTD claim frequency has leveled off.

16. What is L&I doing to ensure that all employers pay their fair share of premiums?

L&I makes employers, workers and health care providers think twice about committing fraud. By using systematic and innovative approaches to detect and deter fraud and abuse. Last year, L&I:

  • Assessed $24.6 million in unpaid employer premiums plus penalties.
  • Completed 5,043 investigations.
  • Set a new premium collections record -- $163.8 million.

To learn more or to report fraud, visit www.Fraud.Lni.wa.gov.

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