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Questions About the 2016 Premium Rates

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Workers' Compensation Premium Base Rates

1. Why is there a 2% general rate increase in 2016?

L&I's rate-setting strategy is to ensure steady and predictable rates, free from large fluctuations benchmarked against wage inflation. The 2% general hourly rate increase will help to steadily build the contingency reserves that will protect against unexpected large rate increases in the future, while collecting enough revenue to cover the costs of new claims that occur in 2016.

2. Why are rates benchmarked against wage inflation?

In other states, rates are charged as a percentage of payroll. This means as wages go up, the revenue insurers collect automatically rises. In that context, Washington rates as a percentage of payroll are expected to decrease by about one percent. But because Washington premiums are based on a specific amount per hour worked, we must explicitly adjust rates to account for increases in costs due to rising wages.

To avoid large swings in the future, we're using the wage inflation rate to help inform our decision making. If a rate increase is needed, we'll keep it at or below wage inflation.

3. What is the rate for wage inflation?

Washington's most recent measure of average wage inflation is 4.2%. For more information, see the Employment Security Department's news release (esd.wa.gov).

Rates for Individual Employers and Employees

4. Why are rates for many businesses different from the 2% base rate?

The rate increase of 2% 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 www.Lni.wa.gov/Rates to see the changes for all risk classes.

5. What percent of the premiums do workers pay?

Workers will pay on average about 25% of the premium, a similar percentage to that paid in 2015. 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 three funds that provide benefits when workers are hurt on the job: the Accident Fund that pays indemnity or disability benefits, the Medical Aid Fund that pays for medical care and vocational services, and the Supplemental Pension Fund that pays for cost of living adjustments for long-term time-loss and pension recipients. The Medical Aid Fund also includes the Stay at Work account that provides financial incentives for employers to keep workers on light-duty jobs while they heal.

Workers contribute one-half of the premiums for the Medical Aid and Supplemental Pension Fund. Indemnity benefits include wage replacement, partial and permanent disability benefits. 

6. What would happen if L&I didn't raise rates in 2016?

If the department does not take steps now to steadily build the reserves, unexpected changes in costs, due to investment earnings or court decisions for example, could result in significant fluctuations in future rates.

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

In general, employers are classified by risk classes based on the type of business conducted. Out of the state's 324 risk classes, 90 will have lower or similar base rates in 2016 with the 2% general increase. Individual employers' rates within each risk class can go up or down, depending on their company's claims experience.

8. Why do 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. So even if a business has an excellent safety and return-to-work program with no injury claims counting against their experience factor, their rate could go up if other employers in the same risk class have a number of time-loss or pension claims. The whole risk classification will see a rate increase due to the industry's poor performance.

Maintaining a safe work environment and helping injured workers heal and return to work quickly and safely does have a return on investment.

Help for Employers

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

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

10. 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 at www.Lni.wa.gov/EmployerAssistanceProgram.

Rates History/Comparisons

11. 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 and L&I rate changes over time.

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

*Indicates wage inflation rate known when rates were set. Shaded boxes indicated rate holiday or dividend. Grey shaded box reflects 2016 rate.

12. 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 established many years ago. The system doesn't negatively impact employers who pay higher wages.

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 and other sources of benefit costs.

Trust Funds/Contingency Reserves

13. How financially stable are the Washington's workers' 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. Consistent with insurance principles, 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.

The department 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, a surplus of between 30% and 50% above their liabilities. As of June 30, 2015, the Washington State Fund had about 8.9% above liabilities — well below that of other insurers.

L&I intentionally set lower than adequate rates and spent down the contingency reserves to help employers through tough economic times during the recent recession. It is necessary to rebuild the contingency reserves so that the funds will be there to cover unexpected future events, like another recession, and to avoid unpredictable fluctuations in rates.

14. Why does L&I need to rebuild the contingency reserves?

Because L&I intentionally set lower than adequate rates and spent down the contingency reserves to help employers during the recent recession, the contingency reserves are currently at about 8.9% of liabilities. That is low by industry standards. The Workers' Compensation Advisory Committee, made up of business and labor representatives, supports restoring the contingency reserves gradually, over time. The general base rate of 2% for 2016 will add about $29 million to the reserves, taking a solid step in the right direction.

Cost-Cutting Reforms and Initiatives

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

L&I will continue to do its part to keep rates low while rebuilding the reserves. Our goal is to reduce costs an additional $35 to $70 million next year. We'll do this by improving medical care for injured workers, implementing initiatives to reduce delays in returning injured workers to work, streamlining claims management, improving workplace safety, and making it easier to do business with us.

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

Injury expenses associated with long-term disabilities make up the majority of costs covered by premiums in the workers' comp system. The best way to control costs is by creating a safe work environment to avoid injuries that lead to long-term disability.

Since 1990, there have been significantly lower rates of long-term disability claims per $1 million of premiums at current 2015 rate levels, with a 7.2% decrease in 2011, a 3.2% decrease in 2012, and a 5.8% decrease in 2013. These trends have helped control rate increases in recent years.

17. 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. The program uses systematic and innovative approaches to detect and deter fraud and abuse.

Last year, L&I:

  • Assessed $19.4 million in unpaid employer premiums plus penalties.
  • Completed 3,524 investigations, of which worker fraud was found in 100 cases with 12 cases criminally prosecuted.
  • Collected $164.9 million from delinquent employer premiums, of which $2.9 million were fraudulently claimed benefits.
  • Audited 3,632 employers, of which 865 were unregistered.
  • Reviewed 4,912 public works contracts to ensure workers compensation premiums were paid.

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

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