State L&I needs to clean up its own act, not raise rates
MERCIER - Editorial
The News Tribune
Olympia, WA - In what may be a death blow for some businesses in
Washington, the state Department of Labor & Industries is raising
workers' compensation premium rates yet again, this time adding a
9.8 percent increase to a 29 percent increase adopted earlier this
In its haste to increase these rates, L&I officials are ignoring
the fact that financial shortfalls in the system can be traced to
their own mismanagement.
Though designed as a system to help those injured on the job, Washington's
workers' compensation program continues to endure fraud and abuse.
Numerous audits have revealed L&I has problems managing its claims
and funds. The department does not have an adequate process in place
for verifying eligibility, leaving the system vulnerable to fraud
and abuse. Also, staff members have admitted the department has been
diverting workers' compensation premiums to cover expenses that aren't
related to the program.
In Dec. 5 testimony before the state's Senate Commerce and Trade Committee,
L&I Director Paul Trause acknowledged that businesses are concerned
with the amount of fraud occurring in the system and said the department
is in the process of drafting legislation to strengthen its ability
to combat fraud.
This ignores the question: Why does the Department of Labor &
Industries need new legislative authority to prevent fraud? Why doesn't
it already have adequate systems in place for this purpose?
Trause also confirmed as "valid" the concerns of businesses
that premiums are being diverted for expenses not related to workers'
compensation, meaning the dollars are not there to be claimed when
needed. Why should businesses have to pay twice?
The state auditor's office addressed this issue in a recent report:
"Using the workers' compensation accounts to support other programs
... results in employers and employees paying more than their fair
share in industrial insurance premiums. Instead, the users of these
programs and/or government should bear the burden of supporting the
costs of the programs, including indirect costs."
Meanwhile, state audit reports from both the state auditor and the
Joint Legislative Audit and Review Committee continue to highlight
problems in claims management and eligibility verification that started
as early as 1998.
Among multiple findings, the state auditor recently reported: "Without
adequate internal controls over the disbursement of industrial insurance
benefits, (L&I) cannot ensure that benefits are being paid to
eligible claimants. This weakness increases the risk that claimants
are paid in error or in excess of the amounts to which they are entitled."
The ineligible recipients discovered by the auditor included some
who were collecting workers' compensation while incarcerated and,
in a few cases, payments were going to persons who were deceased.
Instead of resolving these serious management problems first, L&I
is making businesses pay the cost. Department staff claim they understand
the plight of businesses, pointing to the fact that the initial proposals
for rate hikes to businesses sought increases of 40.5 percent and
After recession-plagued businesses expressed outrage, these were ultimately
reduced to 29 percent and 9.8 percent respectively. Not much of a
It also appears that taxpayers will bear an additional burden of paying
for state agencies' increased premiums. The governor's supplemental
budget requests an additional $4.4 million ($7.5 million including
other state funds) to help pay for L&I's increased rates.
Labor and Industries has also been criticized for its methods of establishing
rates and reserve levels.
In response to the most recently proposed increase, the Building Industry
Association of Washington commissioned an accounting company, Price
Waterhouse Coopers, to review L&I's process. The company reported
a lack of transparency in L&I's methods. L&I retorted by accusing
Price Waterhouse Coopers of using a "crude methodology"
to make its report.
The accounting firm restated its findings. Rather than scoff, L&I
should fully implement these reforms before adopting rate increases.
The new increase means that Washington's rates will be 14 percent
above Oregon's, and Oregon Gov. Ted Kulongoski is openly advertising
Washington's rates were lower than Oregon's as recently as 2002, but
while we have increased rates over the past couple of years, Oregon
has either reduced rates or held them steady. Oregon's governor boasts
that these reductions will save employers in his state $22.7 million
in workers' compensation costs next year.
The bottom line is that many of the state's businesses cannot afford
L&I's latest rate hike, and they shouldn't have to scrape up the
money or fold when the department has clear management problems.
Before L&I talks to businesses about raising rates, it should
first receive a clean bill of health in its next audit.
Jason Mercier is a budget research analyst for the Evergreen Freedom
Foundation, a nonprofit public policy research organization "dedicated
to individual liberty, free enterprise and limited government."