Reform Retro!

The original intention of the Retro Insurance pool program, which began back in 1980, was to lower the cost of workers compensation insurance by increasing workplace safety. The Retro program has failed to reduce cost or improve safety. Instead it has added $1 Billion in tax payer dollars being diverted to non-insurance purposes, of which over $10 million dollars per year has been diverted into controlling local and state wide elections in the State of Washington.

The following chart breaks the BIAW windfall profits into four periods.

·         During the period before the accounting code error, the BIAW excess profit was only $6.5 million per year.

·         During the next 3 years, it only rose to $7 million per year.

·         Beginning in 1997, it rose rapidly to $18 million per year until 2001.

·         Beginning in 2002, windfall overpayment skyrocketed to an average of $33 million per year. As the following chart shows, the problem is getting much worse as the BIAW learns to ‘game the system” to maximize profits at the expense of State tax payers.

BIAW Retrospective Rating Program, Best Guess Summary 1992 to 2008

WA ST B&I Retrospective Rating Program, Refund/Assessment Summaries, July 1st Reports, Third or most recent Evaluations 1991 and 1990 data was requested by told by L & I that it was not available.

http://www.lni.wa.gov/ClaimsIns/Insurance/Reduce/Qualify/FinInfo/default.asp

2007 and 2008 estimates from PDC 2008 complaint

The total cost to the State of the BIAW Retro Refund program during the past 17 years for which records are available has been $378 million dollars. Thus, since BIAW represents about 29% of the entire cost to the State of the Retro Program, the entire cost to State tax payers has been over $1.3 Billion dollars for the 17 year period from 1992 to 2008.

This $1.3 billion dollar estimate of the cost of Retro Tax payer Subsidies is confirmed by the 10-year financial statement of the Department of Labor and Industries in which Retro “adjustments”  total $1.3 billion dollars: Retro Adjustments (In $ millions);

Ten Year Cost to Tax Payers of Retro Adjustments (In millions $) 

As a direct result of this rapid rise in unjustified overpayments to the BIAW, and their 20% cut of these overpayments being diverted to BIAW PAC’s, the BIAW contributions to State and Local Elections has risen from about $1 million per year in 1992 to over $10 million per year by 2008.

This does not include another $2 million per year which the BIAW returns to local affiliates from other over-charges in administrative fees. In total, the BIAW influence over both political parties is likely to exceed $10 million per year as is shown on the graph on page 2 of this report.

But keep in mind that $1.3 billion is merely the cost of Retro Adjustments (or Retro Refunds) during the past 10 years. Later in this report, we will consider several other costs associated with Retro programs which will show that the total  cost of the Retro program for the past 10 years has been over $10 billion dollars, meaning that the Retro program is currently costing tax payers more than one billion dollars a year.