Olympia's Finance Department is exploring the possibility of shifting the workers' compensation insurance from the current system to the state-operated Labor and Industries (L&I) program.
At the Finance Committee meeting on Wednesday, Finance Director Aaron BeMiller discussed the key considerations in the potential transition, which included the increasing claims costs and its impact on the fund balance.
BeMiller informed the committee members of the fluctuations in claim costs, specifically focusing on medical payments for workers' compensation claims in 2021 and 2022.
In 2021, the city had about $600,000 in medical payments, excluding time loss compensation, which constitutes a part of the total expense of $1.8 million.
BeMiller added that medical payments in 2022 amounted to almost $1.3 million, contributing a total final expense of $2.6 million, incorporating time loss payments for claims where workers cannot work due to injury.
Another factor the Finance Department is looking at is the beginning fund balance. BeMiller noted that despite the $1.5 million general fund contributions to bolster the Workers Compensation Fund between 2021 and 2022, it has not been sufficient to cover the escalating claim payments.
The Finance director said the fund balance has steadily eroded over the years. He reiterated that the total fund expense rose from $1.8 million to $2.6 million.
BeMiller cited that the beginning fund balance in 2018 was at $2.3 million. In 2022, it significantly decreased to $576,000 and further dropped to $178,000 in 2023.
The table presented at the presentation showed the difference between the state L&I rate and what the city charges for each risk class, which BeMiller said is generally behind.
The Finance director noted that law enforcement and fire rates are significantly low. "In August 2022, fire was over 50% of claims. We are much below the state. That puts the pressure we have seen on the fund over the last few years where our fund balance is eroded."
Regardless of whether the city moves to L&I, BeMiller underscored that they need to increase the rates. "We are not sustainable. We are showing that our rates are far too low over time."
The city's Human Resources and Finance Department have been collaborating with the state on the possible shift to L&I.
If the city council would opt for the state pool, BeMiller said the council needs to provide notification of the intent to join the state pool.
The target date for the transition is January 1. BeMiller explained that it is important not to extend the timeline because the city remains responsible for any claims incurred before moving into the state pool. Once the transition occurs, the state will assume responsibility for workers' compensation claims.
During the first year of joining the state pool, BeMiller said the organization will pay the base rate. He said the state adjusts workers' compensation rates annually based on their fiscal year, typically in July. These adjustments reflect the state's assessment of their needs and the collective pool.
The base rates have varied between 2021 and 2023, ranging from 6.5 to 10.2. The state can adjust the rates annually, including up to 25%. These adjustments are influenced by factors such as claims experience.
L&I is a state-operated agency that manages workers’ compensation programs, workplace safety regulations, and labor-related matters.
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