State Law Makers Clear Major Hurdle And Reach Agreement To Overhaul State Worker's Compensation System.

For weeks the State legislature has been bogged down fighting over how to rein in growing costs of the State worker’s compensation system. The State Senate refused to vote on a 2-year budget until the issue was resolved. This week, on May 23, 2011, the State legislature finally ended the impasse and passed reforms of the worker’s compensation system, an issue of utmost importance to the presently struggling construction industry.

Governor Christine Gregoire held a news conference and dubbed the proposed changes to the worker’s compensation system “the largest reform in 100 years.” AGC’s director of government affairs, Rick Slunaker, stated, “On balance, we have a package of changes that while not perfect, will help the worker’s comp. system’s financial condition.” Further, Governor Gregoire’s press release states as follows:

“Without action, our worker’s compensation system faces double-digit increases and serious questions about its long term health. Among several provisions, the agreement reached today [May 23, 2011] promotes getting workers back on the job faster, freezes COLAs [Cost of Living Adjustments] to ensure parity with others and provides the option of a structured claims settlement. This option will be one of three available to injured workers and is voluntary, negotiated and allows legal representation.”

Between 1998 and 2010, pension payments increased from $250 million annually to $700 million, and the total cost of an average claim is now more than $600,000. The Governor has maintained that something must be done to rein in the costs of the growing number of lifetime pensions awarded to workers. The trend, she says, will require significant rate increases in the future, affecting both businesses and workers.

The elements of the worker’s compensation reform are:

Structured Settlement Option. Presently, under the worker’s compensation system, older injured workers do not return to the workforce. Under the new proposal, workers are now eligible for a structured settlement which allows injured workers older than 55 to resolve their claims taking a structured periodic payment equal to at least 25% and no more than 150% of the State’s average wage per month, or from $982 to $5,976 a month until the settlement is paid in full. As indicated, this option is initially available to workers age 55 and older, but will phase in workers 50 and older by 2016.

The structured settlement option is in addition to 2 other options already available to workers: (1) staying in the worker’s compensation system and receiving appropriate benefits; or (2) participating in a retraining program.

A structured settlement option should have a significant impact on reducing future rate increases (estimated savings of $545 million through fiscal year 2015).

Statewide Provider Network. The new legislation focuses on getting the highest quality care to injured workers. Doctors who treat injured workers are required to possess certain credentials to do so and health care providers are encouraged to follow occupational health practices which return workers to work as quickly and safely as possible (estimated savings of $164 million through fiscal year 2015).

Centers of Occupational Health and Education. The legislation expands the number of specialized facilities (Centers of Occupational Health and Education) which offer proven and effective treatments of injured workers (estimated savings through fiscal year 2015, $55 million).

Washington Stay-At-Work Program. The Stay-At-Work program offers wage subsidies to employers who bring workers back to a job quickly. Under the new legislation, half of an injured worker’s wages will be covered for up to 66 days when an employer immediately offers transitional or light duty work (estimated savings through fiscal year 2015, $111 million).

Prior Disability Awards. Benefits for prior disability awards paid to a worker are deducted from a worker’s pension award. When permanent partial disability awards are paid over time, interest on the unpaid balance will no longer be included which will keep costs down and make payments more evenhanded (estimated savings through fiscal year 2015, $133 million).

Cost of Living (COLA) Adjustments. COLA payments will be frozen for 1 year. This change will affect cash funded and pay-as-you-go Supplemental Pension fund. The first COLA payment following an injury will be delayed until the second July after an injury (estimated savings through fiscal year 2015, $124 million).

Rainy Day Fund. The purpose of insurance is to protect employers from huge swings in the economy and unpredictable rate losses. The legislation will establish a fund in addition to the State Fund’s contingency reserve. It will require the transfer of worker’s compensation funds whenever the reserves are greater than 110% of liabilities. These funds will then be available to reduce rate increases during economic downturns or when liabilities unexpectedly increase (no fiscal impact projected).

Other Elements. The legislation also includes a fraud prevention initiative, claims management performance audit by the Joint Legislative Audit and Review Committee, and Occupational Disease Study and safety and health investment grants.

The Association of Washington Business sent out a statement calling the legislation “good new,” while the Washington State Labor Counsel says it opposes the legislation.

For more information, a recent Seattle Times article can be found here, and check back next week for the next “notice requirement” installment.

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