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August 9, 1995

State proposes 10 percent reduction in workers' comp premiums

OLYMPIA - Gov. Mike Lowry and the Department of Labor & Industries today announced a proposed $100 million reduction in 1996 premium rates that Washington businesses pay for workers' compensation coverage.

The proposed reduction, which would take effect Jan. 1, 1996, would be the result of an average cut of 10 percent that employers and their employees pay for workers' compensation coverage in Washington.

"This is great news for the economy of our state," Lowry said. "This rate reduction puts $100 million into the pockets of workers and into the tills of employers."

The proposed cut, the first since 1987, would follow the 0 percent general rate increase for 1995 rates.

The workers' compensation system in Washington covers 153,000 employers and 1.7 million workers and is managed by Labor & Industries. The system pays for lost wages, medical bills and pensions when employees are injured in the workplace.

Although the proposed 10 percent reduction is an average, some employers would see even larger cuts in their rates based on their industry's risk class.

For example, logging is targeted for an 18 percent decline in rates. Overall, the forest products industry is proposed for a 14 percent reduction.

In addition, individual employers within all industry classifications could see even larger reductions based on their recent history in preventing workplace injuries and illnesses. Rates are largely based on the level and severity of workplace accidents among employees.

Several factors are responsible for the proposed $100 million rate reduction:

  • A 5 percent drop in the number of claims. This continues the trend of recent years and helps reduce costs in treating injured workers.
  • Medical inflation of just 1 percent in the last year. This is significant because 40 percent of the department's costs are medical payments for injured workers, most for long-term care. Medical inflation in Washington just three years ago was 10 percent.
  • Department programs to monitor and contain medical costs.
  • The Washington State Fund, from which workers' compensation benefits are paid, continues to perform well because of prudent management by Labor & Industries. Performance of portfolio investment ensures that reserves are sufficient to meet higher benefit payments in 1996, even with the proposed 10 percent general rate cut.

Nationally, Washington ranks as the 11th-lowest state for workers' compensation costs, according to a 1994 study by the Oregon Department of Consumer and Business Services. The report is done every two years.

"Washington today has the 11th-lowest workers' compensation costs among the 50 states," said Labor & Industries' Director Mark O. Brown. "A 10 percent reduction for 1996 will only enhance our competitive standing."

The individual savings can be significant. In the logging industry, for example, the proposed rate cut would save an average employer $2,053 in premium costs per employee. Additionally, the logger could take home an extra $901 in pay because of the rate reduction.

The logging risk class is proposed for a 1996 hourly premium rate of $6.53. The current rate is $7.95.

In Washington, employers and employees split the cost of premiums for the medical aid and supplemental pension funds. Those funds are used to pay benefits for injured workers. Washington is the only state where workers pay part of the cost for workers' compensation.

Workers' compensation premiums in Washington are based on worker hours, not on a percentage of payroll. This means no inflationary increase is built into the system when wages rise. Benefits are financed through premiums and investments.

"Although Washington is among the lowest-cost states for workers' compensation, it also ranks among the top 10 for worker benefits," Brown said.

The average rate reductions for industry groupings are:

  • Agriculture - 17 percent.
  • Forest products - 14 percent.
  • Miscellaneous construction - 7 percent.
  • Building construction and trades - 8 percent.
  • Food processing and manufacturing - 15 percent.
  • Metal and machinery manufacturing - 9 percent.
  • Miscellaneous manufacturing - 11 percent.
  • Utilities and communications - 4 percent.
  • Transportation and warehousing - 11 percent.
  • Dealers and wholesalers - 11 percent.
  • Stores - 10 percent.
  • Miscellaneous services - 12 percent.
  • Health care - 13 percent.
  • Miscellaneous professional and clerical - 7 percent.
  • Government and schools - 6 percent.

Four public hearings on the proposed rate reduction are scheduled:

  • Oct. 2 - Red Lion Hotel, 18740 Pacific Highway, Sea-Tac.
  • Oct. 3 - Sheraton Hotel, N. 322 Spokane Falls Court, Spokane.
  • Oct. 4 - Holiday Inn, 9 N. 9th St., Yakima.
  • Oct. 5 - Auditorium, L&I Building, 7273 Linderson Way S.E., Tumwater.

Each hearing begins at 8 a.m. If approved, the new rates would take effect Jan. 1, 1996.

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