The agency claims that assuming the economy holds steady, the rate increase will bring revenues in line with the cost of workers' compensation benefits and expenses next year.
"We realize this rate increase is difficult considering the economic situation," said L&I Director Paul Trause. "But the insurance industry nationwide has been forced to increase rates to make up for losses in investment earnings, and L&I is no exception. But our rates are still among the lowest in the nation and over the last 10 years have increased at a rate that is far less than inflation."
L&I scheduled seven hearings around the state in late October and early November to give the public a chance to comment on the proposed rate increase. Trause will make the final decision on rates on Nov. 19. The new rates will take effect Jan. 1 and will show up on employers' first-quarter billing, which will be sent out in March.
If adopted, the proposal will bring in an additional $240 million next year. Trause said the increase completes a two-year phase-in of a plan to bring premiums and investment earnings in line with benefits and administrative expenses. This is only the second rate increase in the past decade.
For much of that time, extraordinary earnings on investments allowed the agency to keep rates artificially low, subsidizing premiums with money that had built up in the State Fund's contingency reserve. During that time, L&I returned $400 million to employers in cash dividends and held down rates by $1.4 billion.
In 2002, only seven states had rates lower than Washington's, according to surveys done by Oregon's industrial insurance system. This year, Washington's rates rank in the lower third of all states. As a percentage of payroll, workers' compensation premiums in Washington rank far below the national average.
If adopted, the 19.4 percent rate increase will put Washington somewhere in the lower third of states regarding its rates. Where it finally winds up will depend on how high other states raise their rates. Since 2000, California's rates have risen 89 percent. Private workers' compensation insurance companies and other states have raised their rates an average of 50 percent over the past three years.
A year ago, L&I proposed a 40.5 percent increase in rates for 2003. During a series of public hearings, employers explained that the increase was too much to absorb in a single year and should be phased in. The agency eventually adopted a 29 percent general rate increase, warning it was inadequate to cover liabilities and that another rate increase would be needed in 2004.
The increase will be divided among employers and their employees. On average, the rate employers pay will rise 21 percent. Workers will see their rate rise 16 percent. The average combined rate this year is 47.2 cents an hour. If the rate increase is adopted, it will rise to 56.4 cents an hour next year. On average, employers will pay just over 42 cents of that amount, and workers will contribute just under 14 cents. Washington is the only state in the nation where workers contribute premiums to the workers' compensation system.
Job-related injuries that result in an employee missing work for an extended period of time have the biggest impact on a company's rates. For example, this year, residential wood-framing contractors pay as little as 85 cents an hour and as much as $5.40 an hour, depending on their claims history over the last three years. Excavation and grading companies pay between 90 cents and $4.50 and hour, depending on the claims and safety record.
"The surest way a company can hold down its costs is by operating safely," said Trause. "A safe workplace benefits both workers and employers."
L&I manages Washington's workers' compensation system, providing coverage for about 160,000 employers and 1.9 million workers.