The Washington state Department of Labor and Industries proposal to raise workers compensation premiums by 19.4 percent next yearfollowing a 29 percent hike this yearis likely to be met with vehement opposition.


The department was expected to announce the proposed increase this week.


Most business people are pretty upset about it because its a big chunk of money, says Jim Gurnea, director of safety services for Associated Industries of the Inland Northwest, which represents about 500 businesses here. If youre in manufacturing, the cost of workmans comp is one of the largest costs of doing business, after direct payroll.


Gurnea says Associated Industries members were expecting a big rate increase in workers compensation premiums in 2004 because L&I, which administers the program, was forced last year to scale back a proposed 40.5 percent increase after businesses objected.


The workers compensation rate hikes will compound business troubles caused by a poor economy plus big cost increases for health insurance, he says.


Businesses are really in a pinch, Gurnea says.


L&I pays for medical care when a covered employee is injured on the job and also pays so-called time-loss benefits ranging from 60 percent to 75 percent of a workers income in cases when a worker is off the job due to his or her injuries. The rate increase L&I planned to announce this week is an averagecompanies rates are calculated individually based on what industry theyre in as well as their claims history.


Paul Trause, director of L&I, says the back-to-back annual rate hikes are being driven by lackluster financial markets and a court action that increased how much the agency must pay recipients of time-loss benefits.


L&I derives part of its revenue from investments, and 85 percent of those investments are in the bond market, which is interest-rate sensitive, Trause says. With interest rates down, bond yields have fallen dramatically.


In 2003, L&I expects to collect a little more than $1 billion in premiums and to earn $443 million in interest income and $220 million in capital gains on its investments. The agency also expects to incur benefits costs of $1.5 billion for the year, plus administrative costs of $165 million, says Robert Nelson, a spokesman for L&I in Olympia.


Trause says time-loss payments have been forced up by a 2000 Washington state Supreme Court decision that required L&I to take into account health benefits, if an employee received those while on the job, when calculating total compensation.


Current litigation is looking to extend the scope of benefits (to be considered) to other types of fringe benefits, such as retirement plans, Trause says. L&I favors legislative action to tighten rules regarding what can be included in time-loss calculations, and legislation to that effect was introduced in the 2003 session, but didnt pass.


Gurnea says that businesses believe the time-loss benefits were too rich even before the court expanded their scope. Were one of the highest benefit levels of any state in the nation, he asserts.


Despite the 2003 rate increase and the proposed increase next year, Trause claims that workers compensation through L&I is a good deal. When the economy was good, the agency not only didnt raise premiums, it refunded money to some employers, he says. Whats more, Washingtons workers compensation premiums are in the bottom third compared to other states rates, according to a nationwide study conducted by the state of Oregon early this year.


We think that in what are difficult times for this industry, we are doing very well comparatively, Trause says. Nonetheless, we recognize that any time, and particularly in tough economic times, when you increase rates, theres concern. Thats why we think its so important that the Legislature act on our suggestions.


L&I would like the Legislature to reform the states vocational-rehabilitation system, which provides training to workers who are unable to return to their old jobs after theyre injured at work.


That program has not worked at all well, Trause says.


Right now, L&I spends about $37 million each year on vocational counselors, $2 million to $3 million on training, and nearly $100 million on time-loss payments to workers in the vocational-rehabilitation program, he says. Reforming the system could shave $15 million to $30 million off of that total cost each year, depending on what reforms are adopted, he says.


Legislation to reform the vocational-rehab system was introduced in the 2003 Legislature, but wasnt adopted, he says.


The Legislature did pass this year a bill that reforms L&Is hearing-loss benefit program, setting a two-year time limit on the filing of such claims following an injury. Previously, there was no time limit.


Hearing-loss claims had skyrocketed in the last decade, according to a news release from Gov. Gary Lockes office. In 2001, 4,218 hearing-loss claims were filed, and $40.3 million was paid under that program, compared with 884 claims and $3.3 million in 1992.


Business groups last year called on L&I to implement internal controls and reforms to accompany workers compensation rate increases, and Trause says the agency has tried to do that.


We are taking steps to improve our individual case planning, establishing better targets for cases, and more extensive supervisory review of cases that are not progressing as we anticipated, he says.


Nelson, L&Is spokesman, says the reforms include seemingly simple items, such as saving time by faxing documents to and from doctors offices rather than mailing them, as well as major initiatives, such as a new emphasis on return-to-work opportunities.


L&I will propose this fall new clarification of its light-duty requirements, which seek to encourage employees to return to work even if they cant perform their previous job functions for a time.


Along with that clarification, L&I is communicating to employers that offering a light-duty job to an injured workereven if the company has to create such a joblikely would be cheaper in the long run than paying higher workers compensation premiums in the future, Nelson says.


The concurrent message to employees is that the longer they stay off work, the more money its going to cost (them) in lost wages, he says. Sooner or later, were going to cut them off, and if all theyve done is collect time-loss for the last six months or a year, whos going to want to hire them?


Amber Balch, governmental-affairs director at the Association of Washington Business, in Olympia, says L&Is internal reforms are positive, but late in coming.


Whats more, We dont believe the reforms theyre making on claims management will be implemented in a timely enough manner to avoid these kinds of rate increases in the future, she says.