Reform Retro!

All of the “losses/claims” used by the Department of Labor and Industries and listed in this report are “Developed Losses” or long term losses. Legislators and the public have been fooled in the past by the BIAW claim that Developed Losses are not real losses. In fact, developed losses are very real estimates of the total long term losses associated with any insurance policy.

The problem is that most claims/losses are short term, and handled within the year the premium was paid. But this cost is only about half of the long term cost of the claims because statistically, at least a few claims will have to be re-opened many years later due to long term consequences of an industrial accident. RCW 51.32.160(1)(a) provides that workers whose original workers' compensation claims have been closed may seek to reopen their claim for further benefits if they establish through medical evidence an "aggravation" of the disability.

To better understand this problem, consider the following example. Let’s say you run the Mini-BIAW insurance company. You have 1,000 employees who pay $1,000 each per year for Workers Comp Insurance. The total premium is $1 million. Let’s further assume that your accident rate is 1% meaning that during the year one in 100 of your employees gets hurt on the job. That’s ten employees who got hurt. If the average claim was $50,000 in hospital costs, the total paid out that year was $500,000 and you might think you deserve a Retro Refund of $500,000. But statistically, 10% of these hurt employees will develop a long term disability.

So let’s assume that one of your ten hurt employees finds out 10 years later that the prior job injury turns into cancer and they can no longer work. The “developed claim” (which merely means the estimate of all claims over time) for this one person is now an extra $500,000. Thus, the entire one million dollars in premiums is used up.

But let’s say that due to a computer error, L & I thought your mini-retro program was doing twice as good as non-retro programs. So they give you a $500,000 Retro “refund” even though you do not deserve it. Who is going to pay ten years down the road when that long term claim finally comes in?

The answer is that our State’s tax payers are going to pay. And that is why all the undeserved refunds given out to BIAW and other Retro providers are tax payer dollars. It is because the tax payers are ultimately the ones who are on the hook for everything the State Workers Comp program does (or fails to do).