AgForestry Class 35 Public Policy Project: Exploring L&I Reform. Anthony Chavez, Noelle Nordstrom, Chris Olsen, Lindsay Rudolph

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1 AgForestry Class 35 Public Policy Project: Exploring L&I Reform Anthony Chavez, Noelle Nordstrom, Chris Olsen, Lindsay Rudolph Project Definition and Goals Our group wanted to find ways to change Washington s Department of Labor and Industries (L&I) Workers Compensation Program to improve affordability and rate stability to businesses while maintaining fair and reasonable protection to injured workers in the state. Our group contains two people who own their own businesses in the agricultural sector, one who works for a diversified forest products company, and one who works for a state agency that manages natural resources. All of us have encountered different aspects of the L&I system as employees and employers. Our diversity of experiences makes us well-suited for exploring all sides of this issue. We selected this particular topic because the continual escalation costs of the Workers Compensation Program, which puts pressures on many of the state s employees and employers. We are currently looking for opportunities to reform the program in a manner that improves the state s business climate, but at the same time provides fair and reasonable protections for injured workers in the state, while motivating them to return to work. L&I reform is an enormous concept, so we decided to focus on one aspect of it: lowering the age for an injured worker to be eligible to receive a lump-sum settlement agreement in lieu of a pension. Current law allows for structured settlements (a one-time lump sum cash payment instead of a pension) for individuals 55 and over. The age lowers to 50 in A Brief Overview of Workers Compensation Currently, Washington State s workers compensation program is one of the more expensive programs in the United States, and is the only completely state-run system in the country. All of the other states have private insurance options as well. However, the benefits received by Washington s workers are also very high compared to other states. Employees pay into the system as well as employers, as half of the medical aid fund premium is deducted from a worker s paycheck. So workers are invested in the program as well as employers. This is unique to Washington. Unions view Washington s L&I system as comparable to Medicare/Medicaid as a safety net system. Meanwhile, businesses view it as more as an insurance product. These two viewpoints are at the crux of the intractable argument between labor unions and businesses. 1

2 In Washington, the current average of time loss per injured employee is 287 days. Other states are 80 to 120 days. The longer a person is not working, the less likely it is that they will return to work. Washington leads the country in the number of people receiving permanent pensions. Typically a pension is 60-75% of the last salary, but is capped at 120% of the average wage. In 2010 there was an initiative to privatize insurance to a 3-way system: state, private, and selfinsured. It didn t come to pass, but it did motivate the governor at the time (Christine Gregoire) to get all stakeholders together to agree on some improvements to the system. Some changes were made to how the medical issues were dealt with, but not to the pension side of the equation. In 2011, the state legislature passed milestone workers compensation reform. The most important component of that legislation was the ability to settle claims in lieu of a pension. The settlement option would be voluntary and the employee would still retain all medical coverage. The settlement option was extremely contentious and as such, the compromise was to only allow for workers age 55 and older to explore this potential option. It was anticipated that thousands of people would apply for this option, but only 800 applied over the first two years and of those only 79 were finalized. Because of this low turn-out, L&I had to add 300 million dollars to the liability side of the budget sheet, and so rate increases were inevitable. In the fall of 2013, L&I announced they would be raising rates in 2014 by 2.7%. This rate increase was fairly modest, but the program s long-term costs coupled with the lower than expected savings from the 2011 legislative reforms and the lackluster investment returns will require the agency to continue to raise rates over the next 10 years. The estimate is that the program will need to recover $2 billion over the next 10 years. In the summer of 2012, L&I suggested it would need to raise rates 10% a year on average to close the gap, but has since backed away from that statement. It is clear rates will need to go up over the next 10 years, but it is not clear how much and how soon. Legislation As mentioned above, the Washington State Legislature passed landmark workers comp legislative reform in It took a special session and the uncertainty over the budget for this legislation to become a reality. At the core of the legislation was structured settlements. Forty-four states have some form of structured settlements. In order to provide some safeguards for the worker, the structured settlement or voluntary settlement must be approved by the Board of Industrial Insurance Appeals and it must be in the best interest of the worker. In addition, to the creation of structured settlements, the stay at work program was also created in the legislation. The stay at work program is an incentive to get employees back to work as soon as possible. The benefit of getting an injured employee back to work 2

3 sooner, than later, is that it is a proven way of reducing long-term disabilities and lifetime pensions. Since passage of this landmark legislation, there have been continual efforts to build upon this legislation. The most recent effort and the legislation our group decided to focus on was the 2013 legislation HB 1097/SB This legislation would reduce the eligible age for structured settlements from 55 down to age 40. This legislative concept was just the next logical step based on the reform that was established in The compelling reason for advocating for this change is that older workers are less likely to opt for a one-time cash payment when they are so close to retirement and would prefer the stability of a pension. The lump sum payment option makes sense for a younger worker, who has more opportunities and time to explore options such as changing careers or going back to school. This reason is supported by the fact that in the first couple of years since the policy went into effect in 2011, there have been very few individuals that have taken advantage of the structured settlement agreement option. In addition, the same legislation would include what is referred to as the Zimmerman fix. As background, if a worker is not represented by an attorney, he or she must first submit their settlement agreement to an industrial appeals judge for approval. If the industrial appeals judge approves the settlement, it then goes before the Board of Industrial Insurance Appeals (BIIA). The BIIA will then only approve the settlement if it is in the best interest of the worker. Conversely, if you have legal representation the worker can submit their settlement agreement directly to the BIIA for approval. However, in the Zimmerman case the BIIA rejected a settlement agreement and decided that a best interest determination is required even if a worker has legal representation. The Zimmerman fix means if you are represented by an attorney who helps you decide that a lump-sum settlement is in your best interest, the administrative law judge does not also get to make his/her judgment that the settlements is in the best interest of the worker. This judgment only occurs in the event the individual was NOT represented by an attorney. Unfortunately none of this legislation made it through session in 2013, and it is unlikely anything will pass on the topic in So our group had to change focus away from pursuing legislation. Instead we spent quite a bit of time talking to stakeholders and experts about the history of workers compensation, the polarizing viewpoints involved that makes meaningful change virtually impossible, and ideas on how to make progress. Perhaps legislation is not the best route. 3

4 State Legislator Perspectives We converged in Olympia in February to meet with Representative Matt Manweller and Senator Steve Conway to hear their ideas on how to break ideological stalemates on improving L&I, and what their thoughts were on what was broken with L&I. We met with them separately, but they both had similar things to say. One key concept is that positive change, in the political arena at least, is incremental. No dramatic leaps will ever be made; you have to measure success in tiny steps. The other key concept is that 10% or less of the people needing workers compensation are the ones that drive 90% of the cost. Structured settlements are a way to close claims but are not the best way to care for people. Senator Conway wondered about the long-term cost to the state if people with closed claims then end up on other forms of public assistance. He recommended that the state put together a stakeholder group that examines the expensive 10% of injured workers and how to best help them. The bottom line from both Manweller and Conway is that Workers Compensation needs to be affordable, fair and effective. L&I Director Joel Sacks Perspective Joel Sacks was kind enough to spend an hour out of his busy schedule discussing with us about how his agency works and how workers compensation happens. His thoughts matched what those in the legislator said: it s a small percentage of injured workers that end up costing the most so perhaps they need to be dealt with differently than the rest, and that small steps are how to go about implementing change. Mr. Sacks is also implementing change within his agency that avoids contentious and futile legislation. He is facilitating L&I moving away from being a process-oriented system to one that is an outcome-oriented system that supports workers healing and getting back to work. In addition, doctors need to be focused on rehabilitating their patients rather than just medicating them for pain, and employers need to stay in contact with workers to keep them working at the appropriate level. These two basic shifts will reduce the number of people on long-term disability. Neither involves changing laws, RCWs, etc. and are non-contentious solutions for both business and labor. They benefit both workers and employers. Currently L&I receives an average of 1500 to 2000 injury claims per week. Most claims are resolved with no problems, and workers return to work. But a small number of them become ongoing pensions and are exponentially more expensive than all of the rest. 4

5 Mr. Sacks has also contracted two full-time employees from the Washington State Department of Employment Security to help injured workers return to work by providing assistance in resume writing, interview techniques and other skills necessary to reenter the work force. This has been helpful in that the claims managers can refer the injured workers directly to an employee within the department. As Mr. Sacks stated then it s a face, not just a name. This helps facilitate getting people working who might otherwise just end up on a pension. L&I has worked hard to foster a sense of occupational medicine in the state, and is trying to limit the bureaucracy that discourages physicians from wanting to work with patients that have L&I claims. This includes the Centers for Occupational Health and Education (COHE), which created a provider network of credentialed health care providers that promote people healing and getting back to work. The renewal interval for this credential has not yet been developed. Washington is a leader in the United States for using Best Practices when prescribing opiates to injured workers. There are only three states in the country that meet these standards. Physicians must describe specifically how the meds will help the patient heal. More can be read about COHEs, Best Practices and the Top Tier Medical Provider Network can be found here: Mr. Sacks also spoke with us about privatizing all or part of our workers compensation system. He believes that privatization has the potential to drive up insurance costs. The current system is non-profit and there is no income tax to be paid, no attorneys fees, and no profit incentive. All of these costs would be passed on to the consumer in a private insurance system. Also, if we didn t have a state fund, there would be winners and losers in the population of businesses needing insurance. Some are easy to insure and can shop around and find something great, and others are uninsurable except at a very high cost. Under the state system, risk is pooled so smaller businesses may have lower rates. If L&I were regulated by an insurance commissioner along with private insurance companies, L&I would be shut down due to lack of reserves. The current system takes less money out of the system now than what a private insurer would need. Labor unions are in favor of our current system because it removes the profit motive. L&I is in the business of breaking even. Mr. Sacks says that if we want to change workers compensation through legislation, we have to figure out how to reframe issues and how to build trust between opposites. Absolute transparency in process and motives is necessary in order for all interested groups to create change together. He recommends overcoming stalemates by simply having conversations about what results everyone wants. 5

6 Mr. Sacks would like L&I to provide technical assistance to lawmakers in order to make meaningful legislation that actually works for workers and employers. There needs to be an administrator with enough credibility to sit with any stakeholder to figure out how to change things. The danger is when legislators try to dictate the how things should be done, which creates extra cost and wasted time when situations in real life don t fit the process. L&I needs to make success In-reach to people by making it easier for them to interact with L&I. and the agency should focus on the following goals: Safety Getting injured workers healing and on their way back to work Pursuing the few bad guys who are abusing the system Create a separate process for the 1% off fraudulent claims, problematic businesses, and unscrupulous medical providers that are cheating the system that does not impact the 99% of all involved who are honest. Forget about making new laws regarding L&I. Instead, look at what laws we have now to see if there some that aren t being enforced correctly. Joel s biggest handcuff: He can t run L&I like a business. Funds spent must be approved by the legislation and that can be slow. Conclusion Workers compensation is one of the hot button legislative issues in Olympia. You have two powerful entities, labor and the business community, that are solid in their positions and beliefs with respect to the state s workers compensation program. We have to come realize there are definitely opportunities to streamline the program and find ways to improve efficiencies. However, in the short-term it appears that those changes or at least major changes will not come in the form of legislation. It is paramount that L&I, labor and the business community work together to ensure that the workers in this state are provided adequate protections, but at the same time the costs of the program do not put our employers at a competitive disadvantage as compared to the surrounding states. We were encouraged by what we heard from elected leaders, the agency and some of the key advocates on this issue. Our group would encourage future classes to look at non-legislative approaches to improving the program and to consider helping create an advisory committee of business and labor advocates alike that can come together and find real, tangible solutions. 6

7 APPENDIX Mentor Bruce Mackey Contacts/References Steve Conway, State Senator U.S. Congressman Denny Heck Matt Manweller, State Representative Joel Sacks, Director of Labor & Industries Kris Teft, Government Affairs Director for Association of Washington Business 7