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I-1082 Opens Workers’ Compensation to Private Insurers

In mid-July, an initiative qualified for the November ballot that could have far-reaching effects for Washington workers, employers and taxpayers.  I-1082, which would effectively privatize the current state-run workers’ compensation program, is backed by the insurance industry and a conservative trade group called the Building Industry Association of Washington (BIAW).  If the initiative passes, these two groups will reap enormous benefits.

I-1082 would allow private insurers to offer workers’ compensation coverage in competition with the current public system, giving yet another lucrative handout to the taxpayer-bailed-out insurance industry.  After receiving billions of taxpayer dollars over the past few years, firms like AIG (the world’s largest workers’ compensation insurer) are now attempting to undermine Washington’s non-profit public system — a system that “is statutorily required to keep costs down,” says Nicholas Corning, former President of the Washington State Association for Justice. If the private insurance industry is successful, I-1082 will leave Washington businesses “to deal with out-of-state corporations [who are] only concerned about siphoning profits into their Wall Street war chests.”  And state employers can expect a costly outcome from this transfer; as Corning points out, the existing state-run workers’ compensation program, L&I, operates with only 18% administrative costs; the private industry average, on the other hand, is 68%.

Opposition to I-1082

Small business owners and community leaders feel that privatization would prove highly unfavorable to businesses, employees and taxpayers, and have organized opposition groups to I-1082.  The campaign No on I-1082 maintains that the highest priority of our existing public system is to ensure that injured workers receive the medical care and job retraining they need.  For-profit insurers are not likely to share this priority.  According to the opposition group’s communications director, Adrianne Williams, “Handing our public, non-profit system over to the private insurance industry is mostly [designed] to generate profits for the industry and less about getting injured workers back to work.”  Other prominent groups opposing I-1082 include the Washington State Labor Council AFL-CIO, the Washington State Association for Justice, and Democratic Underground,

Many Washington businesses are also concerned about the higher insurance premiums they can expect if 1082 passes.  Alex Fryer, the spokesman of “No on I-1082,” argues that private insurance companies will end up “cherry-picking businesses that have low claims, forcing the remaining higher-risk businesses to pay higher premiums under the state plan.”  To underscore the consequences of moving away from a non-profit workers’ compensation plan, he cites figures on states that have adopted a private insurance option, some of which experienced a 200 percent premium increase.

In addition, I-1082 proposes to abolish the existing state mandate requiring employees to pay a portion of the state’s premium costs, shifting the entire financial burden to employers.  Analysts predict that this would cause small business owners’ annual costs to go up by 25 percent.

I-1082 would have an unfavorable outcome for workers as well, eliminating any transparency from the claims management process.  Under the present Washington State workers’ compensation system, L&I is required to come to a final decision regarding treatment of a worker’s injury or illness, and must notify all parties of that decision.  If L&I does not comply with these obligations, it can be compelled to do so by a writ of mandamus.  But I-1082 includes a provision stating that insurers do not have to notify anyone if a claim is rejected; in fact, the workers’ compensation insurer would never have to come to a decision on an injury claim at all.  This puts the insurance companies at a tremendous advantage, allowing them to protect their profit margins by denying or delaying claims indefinitely, without ever facing the threat of enforcement.  Not only would this potentially prevent workers from returning to their jobs; it would also make it extremely difficult for employers to verify whether an employee is able to work.

Critics of the initiative are also alarmed that I-1082 would leave the insurance industry unregulated and free of L&I oversight.  Private insurers would be allowed to set their own rates with no approval from the Washington State Insurance Commissioner. Equally troubling is the fact that I-1082 would abolish the Insurance Guaranty Act, leaving Washington businesses and employees vulnerable to insurer insolvency.  Currently, all lines of private insurance in the state are protected against fraud or bankruptcy by the Insurance Guaranty Act.  But with that regulation removed, an insurance company could collect workers’ compensation premiums and then fail to pay benefits due to insolvency.  Because of these reasons, Washington Insurance Commissioner Mike Kreidler and State Auditor Brian Sonntag both oppose I-1082.

Ultimately, I-1082 would establish an unregulated and largely independent playing field for private insurers to reap profits by squeezing Washington businesses and undermining worker safety.  Before voters cast their ballots in November, they should be aware that I-1082’s success would be a huge win for special interests, and a loss for the wellbeing of small businesses and injured workers.

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Emery Reddy