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Be careful with the good news
by Don C. Brunell
President, Association of
The announcement that workers compensation and unemployment insurance rates will be lower next year is good news for Washington employers, workers and their families.
Gov. Chris Gregoire announced that the Dept. of Labor and Industries will reduce rates by an average of two percent and will suspend the portion of workers compensation premiums that both the employer and worker pay. That means for half of 2007 there will be no payments owed to the Medical Aid Fund, the money set aside to provide health care and rehabilitation for injured workers.
L&I attributes the rate suspension to three things. They are higher-than-expected investment earnings because of the strong economy, the agencys health care cost control initiatives, and the declining frequency of workplace injuries and illnesses.
That is good news because it means the workplace continues to become safer and workers and employers will save an estimated $404 million.
And theres more good news. The Department of Employment Security announced that it will reduce unemployment insurance rates by 13 percent on average, saving employers more than $58 million next year.
With all this good news, what could possibly be wrong? Nothing really, except that legislators heading to Olympia in January need to be cautious about how they respond to the good news.
First, lawmakers must be careful not to add more costs to either system. The temptation is to increase benefits or attach new programs when times are good and the reserve funds are flush. That happened in 1993 when lawmakers diverted unemployment taxes to pay for workforce training and increased workers compensation benefits.
Then, when the economy hit the skids following the attacks on the World Trade Center and Pentagon, L&I and ESD had to levy double-digit rate hikes because the reserves were gone.
Elected officials must be mindful of the purpose for both programs. Workers compensation was established as a no-fault insurance system to pay medical costs, provide rehabilitation, replace wages and, if the worker is unable to return to work, supply a pension. Employment insurance, paid entirely by the employer, was intended to provide a wage-bridge while workers, out of work through no fault of their own, secured a new job.
Over the years, Washington has been generous with workers compensation and unemployment insurance benefits. In fact, the Washington Alliance for a Competitive Economy (WashACE) 2007 Redbook, which compares costs in all 50 states, rates our state as seventh highest in average weekly unemployment benefits paid to those out of work and third highest in benefits paid to injured workers.
Our state has the highest average cost per employee for unemployment in the nation, and employer taxes are 2.75 higher than the national average. Our states businesses and non-profit employers pay $865 per year compared to $317 on average for the rest of the country.
So, while the good news is that more people are working and fewer people are injured in the workplace, the cautionary note is to be careful not to create new costs to both systems that would drive big rate increases when our economy slows down as it did after Sept. 11, 2001.
Instead of piling on new costs, lawmakers returning to Olympia should focus on finding better ways to serve the worker and employer and cut down on fraud and abuse in both systems. They have the opportunity to continue the momentum to reduce system costs while times are good.
Using the money in reserves to build more costs into these programs will only heighten the cliff our economy falls off when times get bad.