WSIA

The Department of Labor & Industries has proposed to increase State Fund workers' compensation premium rates in 2026 by an average of 4.9 percent overall. State Fund employers pay by risk class, and the overall figure is an average of proposed risk class changes. As Emily Makings of the Washington Research Council notes, 293 of the state's 327 risk classes will see an increase under this proposal.

The State Fund premium involves three major funds, the Accident Fund (time loss, pension, and some other benefits), the Medical Aid Fund (health care benefits), and the Supplemental Pension Fund (the annual COLA portion of time loss and pension benefits). The proposed SPF rate is of interest to self-insurers as well, since unlike the other State Fund premiums, self-insurers pay the SPF rate as a quarterly assessment as well.

The most notable thing about the 4.9 percent announcement is that it is a "buy down" from the 13 percent increase the Department's actuaries project would be required to "break even" on the cost of benefits they expect to incur in 2026. The difference between a 13 percent increase and a roughly 5 percent increase is projected to be approximately $240 million, which would be considered over time to be covered by the system's $5 billion reserve fund.

On the one hand, it's nice for predominately smaller business taxpayers that the Department can use reserves to buy down projected rate increases in most years. One of the Department's stated goals in rate setting is to try to keep rates predictable, and track changes in wage inflation.

On the other hand, the practice of charging well below break-even rates, if the actuaries' projections end up close to accurate, has the potential to complicate future rate setting, particularly if an economic downturn occurs, and has the potential to threaten the sustainability of the reserve fund.

Moreover, inadequate premiums, while they avoid the scrutiny that "double digit rate increase" announcements can engender, have the effect of masking trends within the workers' compensation system that drive costs. For example, it is well known to system observers that since at least 2018, average time loss duration and pension frequency has risen for the State Fund to levels last seen in the 2000s, when angst over the cost and sustainability of the system led to several years of pitched battles in the Legislature over workers' compensation reform, culminating in the changes enacted in 2011 (structured settlements, the medical provider network, a COLA freeze, and the like).

For those who would like to see the Legislature tackle, rather than accumulate, cost drivers, moderate "boil the frog" annual rate increases tend to have an anesthetizing effect on such efforts.

Because the State Fund rates are set by administrative rule, this proposal is now in the Administrative Procedures Act process of public comment and public hearing before final adoption. The public hearings are taking place in late October in Tumwater, Spokane, and online.

Read the Department's news release, with information on the public hearings for this rate proposal, here.