Reduced Employer Costs: Reason to Cheer, be Wary

Saturday, January 13, 2007 | 0

By Don Brunell

The announcement that workers' compensation and unemployment insurance rates will be lower this year is good news for Washington employers, workers and their families.

Gov. Chris Gregoire announced that the Department of Labor and Industries will reduce rates by an average of 2% 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: higher-than-expected investment earnings because of the strong economy, the agency's 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 there's more good news. The Department of Employment Security announced it will reduce unemployment insurance rates by 13% on average, saving employers more than $58 million this year.

With all this good news, what could possibly be wrong? Nothing really, except that legislators heading to Olympia this month 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 work-force training and increased workers' compensation benefits.

Then, when the economy hit the skids following the attacks on the World Trade Center and the 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 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.

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.

Don Brunell is president of the Association of Washington Business, Washington state's chamber of commerce. Visit AWB online at http://www.awb.org. This guest editorial first appeared in the Herald Business Journal.

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