Talks break down over workers' compensation reform

OLYMPIA — Negotiations to overhaul the state workers'-compensation system have fallen apart because of a standoff between business and labor.

The breakdown means about 160,000 businesses statewide can get ready for at least a 20 percent average rate increase to cover job-related injuries next year, on top of this year's 29 percent whammy.

It has become so sensitive that business lobbyists cast it as one of the "Final Four" problems to fix during legislative crunch time in Olympia.

Boeing had worker's-compensation reform on its seven-item legislative wish list announced earlier in the week.

"It's extremely disappointing," said Amber Balch, a lobbyist with the Association of Washington Business.

Business, labor and the state Department of Labor & Industries (L&I), which runs the system, have been under political pressure to make significant changes to workers' comp this session. The system insures about 2 million Washington workers against on-the-job injuries.

Pressure has mounted to do something because the system is paying out more than it is bringing in. It will collect $1.2 billion this year from state businesses, and manage $1.7 billion in worker benefits. Investment earnings and reserve money will temporarily plug the gap between the two.

But that can't last forever. The compensation system's investments have dried up, and the reserves are projected to nearly run out by year's end. Businesses that once enjoyed fat refunds and lower rates from the workers'-compensation system in the 1990s and early 2000s are now facing steep premium increases during rough economic times.

To lessen the rate increases, L&I proposed clamping down on job-related hearing-loss claims, tightening eligibility for vocational rehabilitation, weeding out some problem physicians, and instituting a flat benefit rate instead of the complicated wage-replacement formula used now to determine a worker's benefit level.

Negotiators also tried to limit benefit expansions that might occur if the state loses several pending lawsuits, as it has in the past.

Jeff Johnson, a lobbyist for the Washington State Labor Council, said labor was willing to accept some restrictions, and was surprised when business ended talks. He said labor offered to split equally a new 4-cent-per hour surcharge with business, beginning in July, to slow down rate increases and replenish reserves. Labor also hoped the surcharge would preserve more benefits.

But some Washington businesses say they want more fundamental reform.

Businesses in Washington must buy their workers'-comp insurance from the state, or be profitable enough to insure themselves. Many would like the alternative of buying from private, for-profit insurers, which many states allow.

Johnson said labor is deeply opposed to such a change, which he said would provide incentive to boost profits and decrease benefits for injured workers. And because labor's proposal to fix the system was spurned, he said labor unions will not accept any smaller benefit reductions this session.

"Some of the businesses, not all, are trying to drive this into a deeper crisis so they can get some more radical changes," Johnson said.

Balch said businesses insisted on setting workers'-comp benefits at a flat 65.5 percent of wages, compared with a sliding scale of between 60 percent and 75 percent, which provides more for injured workers with children. Labor said it was willing to accept a flat 67 percent of wages, plus a fixed sum to replace a worker's lost pension and health benefits.

Paul Trause, the L&I director who made workers'-comp reform a personal goal when he started in January, said he was disappointed. He said the department will do what it can to control the system within its authority, and to broker talks later this year.

"We're in a position of looking at a substantial rate increase for 2004, and this leaves us with a system that still needs reform," he said.

Luke Timmerman: 206-515-5644 or ltimmerman@seattletimes.com