The Costliness of Washington’s Workers’ Compensation System

As the debate over workers’ compensation reform continues, a questionable number keeps popping up related to the costs of Washington’s system compared to other states.

As we have consistently argued (see here, here, and here), the workers’ compensation system in Washington must be reformed.  Washington has the nation’s second highest benefits per covered worker ($778.36 in 2008) and the third highest benefits paid as a percent of covered wages (1.69 percent in 2008).  Washington’s Department of Labor and Industries (L&I) awarded 1,542 total permanent disability pensions in 2009; Oregon awarded only 13.  These high benefits contribute to high costs.

The Oregon Department of Consumer and Business Services publishes a study every two years comparing workers’ compensation premium rates by state.  We have long argued that this study is flawed as it relates to Washington.  The industry sample used in the study is tailored to Oregon’s mix of industries, not ours.  The study itself notes that because Washington’s data must be converted from an hourly rate to a payroll rate measure, the comparison is not exact.

Even so, supporters of Washington’s system have used the Oregon study to try to make the case that Washington is a high benefits and low cost state.  If that were ever correct, it certainly isn’t now:  In 2010, Washington’s ranking was 26^th, lower than only 25 other states.  This is a significant drop from our 2008 ranking of 38^th.  (Compare this to Oregon, which ranked 39^th in 2008 and improved to 41^st in 2010.)

Some are claiming that Washington’s premium costs are really 36^th in the nation.  The Oregon study doesn’t take into account the fact that employees in Washington are statutorily required to pay a share of the premiums, unlike every other state.  (Employees pay 50 percent of the Medical Aid account premiums, 50 percent of Supplemental Pension Fund premiums, and none of the Accident Fund premiums.  According to L&I, in 2011, the employee contribution to the total premium burden is about 24 percent.)  The Oregon study also does not include Washington’s Supplemental Pension Fund.  Thus, supporters are now saying that the Oregon study must be adjusted to take these into account, resulting in much lower costs (36^th).  We have seen no basis for this calculation.

Whether or not their math is correct is a moot point, however.  The employee share is certainly factored into compensation.  (And can we doubt that union contracts include provisions to ensure that?)

It makes no sense to pull out the statutory employee share from the premium rankings.  The fact is that the statutory incidence of the premiums is irrelevant; it is settled economics that payroll taxes are largely if not entirely ultimately borne by the employee.   Consequently, reforming the system to cut costs will benefit workers.