Good reasons to preserve State Fund for workers’ comp

In a guest column (TNT, 2-22), Amy Brackenbury and Erin Shannon asked, “Why is workers’ comp a state monopoly?”

The Building Industry Association of Washington representatives called for a change from our current “two-way” system in which employers can get workers’ compensation insurance through either the State Fund insurance program run by the Department of Labor and Industries or through self-insurance, to a “three-way” system in which private insurance carriers would also be allowed.

Competition may sound good on the surface. But the State Fund, established by the Legislature in 1911, has several clear benefits for Washington employers and workers.

The State Fund has low administrative expenses. Unlike a private insurer, the State Fund has no need to make a profit for investors, to pay state and federal taxes, to pay commissions to insurance agents and brokers, or to have a marketing budget.

Private insurers typically pay about 55 cents on commissions and administrative expenses for each dollar of insurance benefits incurred. The State Fund spends only about 15 cents on administrative costs for each dollar of benefits incurred.

Having access to private workers’ compensation insurance does not necessarily result in lower rates.

Based on the 2008 update to the Oregon workers’ compensation rate study used by Brackenbury and Shannon, California offers the choice of private vs. State Fund insurance and has the 14th highest rates in the nation. Florida offers only private insurance and has the 28th highest rates in the nation. Washington’s rates are ranked 38th – meaning 36 other states and the District of Columbia have higher rates.

That is similar to Oregon (39th) and Idaho (34th), both of which offer private insurance. Washington’s ranking improves even more for employers when you subtract the substantial portion of premiums in Washington that are paid by workers – about one-fourth. With that removed, the rates for Washington employers are 42nd.

While the Oregon rate study places Washington’s rates in the lower one-third nationwide, a recent study by the National Academy of Social Insurance places Washington’s benefit payments per $100 of payroll in the top one-third nationwide.

Brackenbury and Shannon argued that Oregon’s workers’ comp rates per dollar of payroll have not increased in 19 years due to the three-way system. But Washington’s premium rates per dollar of payroll have decreased 26 percent over the 19-year period from 1990 to 2009. And during that time, the frequency of workplace injuries in Washington has fallen close to 50 percent, a rate similar to Oregon’s.

An exclusive state-run workers’ compensation system has some other advantages, as well. For example, L&I is accountable to the Legislature, which represents the interests of the general public. With three-way, oversight of the workers’ compensation system would be fractured.

Also, the State Fund has worked with medical providers around the state to improve effective, evidence-based occupational medicine, reducing medical costs and lowering premiums. Private insurers would be less likely to make similar investments in occupational medicine; they would bear the full cost of any investment but they would have to share the benefit of lower medical costs with all of their competitors.

The State Fund provides a good value for Washington employers and employees, while providing good care for injured workers.

Bob Malooly is assistant director of the Insurance Services Division of the Department of Labor & Industries.