Reform Retro!

October 1, 2009

From: David Spring, Executive Director, Fair School Funding Coalition, This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Re: Retro Reform will save tax payers at least $500 million dollars

Dear Legislator,

On Friday, September 25th, I attended a meeting of the Retro Proviso Study Group. At this meeting, the Director of the Department of Labor and Industries (L & I) agreed with the conclusions of the Wyman Study (released in August 2009) that L & I had made three actuarial errors which caused retro subsidy overpayments of hundreds of millions of dollars. These three errors included:

1.       The double entry error which L & I acknowledged in February 2009 to have artificially inflated retro subsidies by about 10% during the past 15 years. Since retro subsidies have average $100 million per year, this error accounted for about $150 million dollars in over payments since 1994.

2.       The occupational disease error which Wyman and L & I estimated led to overpayments of 20% - or about twice the size of the double entry error - for another $300 million in undeserved subsidies.

3.       The 45 month limitation error which Wyman and L & I estimated at about 5% - or half the size of the double entry error. This was another $75 million.

All together, these admissions meant L & I had made at least $525 million in Retro overpayments, or about 35% of the $1.5 billion dollars in retro subsidies paid to retro agencies during the past 15 years.

Despite this admission, the Director of L & I passed out a written policy stating they would “prospectively” reduce retro subsidies issued in the future, but would not seek recovery of any of the above overpayments, other than three years ($30 million) worth of “adjustments” for the double entry error. In other words, L & I intends to forgive $495 million dollars in Retro over payments they admit were made in error.

To add insult to injury, L & I also announced they intend to pay out another $100 million dollars in retro subsidies in 2010. They intend to pay for these subsidies by raising Workers Compensation rates on all workers and employers in Washington State by 8 to 10% (which will generate about $120 million dollars).

I believe that both of these policies announced by L & I last week are contrary to two Washington laws:

WAC 296-17-90402 requires that retro employers as a group and non-retro employers as a group fund the same portion of their total claim costs relative to their total premium charges. (If retro groups are not required to refund the over payments, then they will have paid $500 million less than non-retro groups).

RCW 51.48.260 states: 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.

Clearly, injured workers are the only group exempt from returning overpayments. I therefore believe retro groups are required by law to refund all over-payments made during the past 15 years. It is also clear that if Retro groups are required to refund the $500 million in over payments, there would be no need to give Retro groups another $100 million in subsidies in 2010 and no need to raise Workers Compensation rates.

I believe this half billion dollar boondoggle may be one of the biggest economic and political scandals in the history of our State. I hope you will support a bill requiring L & I to accurately determine the full amount of Retro over-payments during the past 15 years – and then require retro groups to return these overpayments in full. Attached to this email is an 85 page report detailing the need for retro reform. You may also visit a website (retroreform.org) created to inform the public about this Retro Scandal.

Feel free to email me back if you have any questions. I would also be happy to meet with you at any time to discuss the conclusions and recommendations in the report. Thank you for your assistance in this matter.

Sincerely, David Spring M. Ed.