Reform Retro!

On September 21, 2009, the Department and Labor and Industry announced an 8% to 10% rate increase effective January 1, 2010. Public hearings on this change will be held October 21^st to October 24^th with the final decision on November 26th. The goal of the rate increase is to raise about $120 million dollars. The “indicated” rate increase (needed to maintain solvency) is even larger: A 21.6% rate increase would raise $330 million.

 

On a surface level, given that the Contingency Reserve Fund has fallen by $1.6 billion dollars during the past 2 years, and will be at zero within a year, it may appear that an even larger rate increase is essential.  However, when we look at the details of how this $1.6 billion loss occurred, a different picture emerges. First, $300 million of the Reserve was lost in the second half of 2007 due to an unwise “Rate Holiday.” Second, over a half billion dollars was lost due to unwise stock market speculation. Third, nearly $300 million was lost due to the retro subsidy scandal. If the Retro Program was reformed so that refund/subsidies did not exceed the difference between premiums and claims, we could save $200 million per year.

 

What about simply requiring Retro groups to return the stolen money to the bank?

While L & I proposes a rate increase of $120 million, they are also planning on giving away another $90 to $120 million in retro subsidies.

 

L & I is considering a policy change to adjust the occupational disease assignment to more fairly divide the burden between retro and non-retro. If they enact this policy, this would save tax payers $30 million and retro subsidies would drop to $90 million. But as noted above, the occupational disease assignment (ODA) was as much a violation of State law as the computer coding error. Even accepting L & I’s word that the computer coding error is $10 million per year and the ODA was $30 million per year, retro groups have erroneously been paid $40 million per year in excess of what they were entitled to receive.

 

L & I’s response to these two “errors” has been entirely inadequate. They claim they are going back and “recapturing” the $10 million per year in coding errors for the past 3 years. Thus, they are recapturing $30 million of the $150 million lost to the coding error. But they have announced they will make no effort to recapture any of the $300 million lost in the past 10 years due to the ODA error!!! Instead, their only plan is to eliminate the $30 million error from 2010 onward.

 

Here is what our State law actually says:

RCW 51.48.260 Liability of persons unintentionally obtaining erroneous payments.

Any person, firm, corporation, partnership, association, agency, institution, or other legal entity, but not including an industrially injured recipient of health services, that, without intent to violate this chapter, obtains payments under Title 51 RCW to which such person or entity is not entitled, shall be liable for: (1) Any excess payments received; and (2) interest on the amount of excess payments at the rate of one percent each month for the period from the date upon which payment was made to the date upon which repayment is made to the state. [1986 c 200 § 3.]

 

Note that there is NO TIME LIMIT on L & I recover of payments (such as those made to retro groups) which were made in error or to which the group was not entitled to.

At $30 million per year, even if only going back 10 years, retro groups need to be required to return the $300 million that was erroneously given to them from the Accident Reserve Fund. They also need to return the entire $150 for the coding error – plus interest on the entire $450 million - bringing the grand total to over $500 million that retro groups owe the tax payers.

 

If this simple step of merely enforcing existing State law were taken, there would be no more retro subsidies for at least the next five to ten years. More important, there would be no need to raise Workers Comp rates during 2010 since the whole reason to raise rates is to restore the Accident Fund after it was gutted by giving too much money away to retro groups. Retro groups need to start putting back all of the subsidies they were given which are now known to have been given in error during the past 10 years.

 

Thus, there is a very simple alternative to restore the Reserve Fund without increasing Workers Comp rates. For years, Retro groups have been robbing the tax payers blind. We can simply no longer afford this theft. Instead, it is time to put the money back where it belongs.

 

What about L & I reducing administrative costs or replacing L & I with private (for profit) workers comp insurance?

 

A common complain of employers is that Workers Comp (which is a government run health care program) costs too much due to high administrative costs of “government bureaucrats.”

They claim that administration costs would be much lower if the program were run by for-profit private bureaucrats. Is there any truth to this claim?

 

L & I administrative costs, as shown on their annual June 30th financial statements have gone up over $18 million dollars in just the past year. But a more accurate measure is administrative cost as a percent of premiums. Here is the data for the past 2 years:

 

Administration to Claims ratio (in millions $)

	2009	2008	Private Insurance Average
Premiums	1,410	1,056
Administration	274	256
Ad/ Claims ratio	19%	24%	30%

 

As a percent of claims, L & I administrative costs have dropped 5% in the past year. Also L & I administrative costs are much LESS than the national average of private for profit health insurance companies. So we would not pay less by switching to private for profit insurance. Instead, we would certainly pay much more. But it is likely that better computerization of L & I can reduce administrative costs. For example, the federal Medicare insurance program has an administrative cost of less than 10%. If we can achieve this efficiency with L & I, we could save rate payers over $100 million dollars.

What about creating a lump sum settlement option?

 

Lump sum settlements are a bad idea because workers may have hidden problems they are not aware of. Under the current system, claims can be re-opened should hidden problems occur down the road. If this option were closed, and injured workers were unable to work due to problems down the road, tax payers would have to pick up the hospital bill instead of the employer. If we had a true national health insurance program to insure that no later occurring health problems would need to be paid for by State tax payers, then a lump sum settlement option would be less risky. But until we get there, all this idea does is transfer long term obligations from employers to State tax payers.

 

 

What about reducing Workers Comp benefits?

 

Another option to increase the Reserve Fund without increasing rates would be to reduce benefits. Opponents of Workers Compensation have claimed the State of Washington has some of the highest benefits in the nation for injured workers. Given the lack of honesty about other claims made about our Workers Comp system, this claim may also not be true.

 

Even if it is true, the question is what is fair? Are our benefits too high or are the benefits in other States too low? There is a huge power difference between the rich who want rates low and working families who may suffer injuries.

 

It has been proven that injured workers are reluctant to file worker comp claims. Perhaps they are worried about losing their jobs. However, a survey of injured workers found that 40% of them delayed filing because they were attempting to “self treat” their injuries. Importantly, in nearly all cases, self treatment did not work and the injury only got worse, leading to higher long term claims cost than if the injured worker would have gone to the doctor right away.

(http://www.lni.wa.gov/ClaimsIns/Files/DataStatistics/DataAnalysis/EmployerAssistedInjuryReporting.pdf)

 

Psychologists have long known that humans have a very strong tendency to deny that they are injured. As a First Aid instructor and member of King County Search and Rescue, I repeatedly came across victims with life threatening injuries who refused to admit that there was anything wrong with them – even when they are bleeding profusely and unable to move. Emergency medical technicians are taught that if victims refuse care, to simply wait until the victim passes out and then provide life saving care.

 

Humans are also desperate to get to work on time and retain their jobs. I was assisted at an auto accident where the victim was pleading with me to help them get to work “because they were late.” The victim was severely injured and we were merely trying to keep them alive until an ambulance could come and take them to the hospital.

 

Even if a worker is severely injured, our Workers Compensation system requires that a doctor provide proof that the worker is injured before a claim is approved.

 

Right now, over 12,000 claims a year are denied in our State resulting in appeals. Of these 12,000 appeals, over half are denied outright. Of the remaining 6,000, the Appeals Board sides with the Department of Labor and Industries over half the time meaning that the deck is heavily stacked against injured workers who are trying to collect benefits.

 

Given the strong tendencies of humans to not admit injuries – even to them selves – and to avoid going to the hospital unless there is no other option, the idea of reducing workers comp benefits seems to be very short sighted.

 

Thus, while the issue of lowering benefits is worth studying, there is not adequate information to determine what would be fair treatment of injured workers.

 

What is certain is that the L & I has admitted that the Retro program has cost tax payers more than $500 million dollars in the past ten years all due to L & I coding errors. We should therefore deal with this certain problem before increasing rates on small businesses or reducing benefits for injured workers.