Local Case Highlights Need To Reform Workers’ Compensation System

Mike Saad could afford to raise wages if his small factory in Spokane could buy workers’ compensation insurance on the open market like Boeing can.

In this state, the government allows big businesses to shop around for private insurance to cover claims for work-related sickness and injury.

Small businesses can’t.

They are forced to provide workers’ compensation through a state-run program that Saad argues adds unduly to the cost.

As he explains it, here’s how the system works:

To begin with, the employer is assessed a “tax” that the state disguises as an insurance “premium.”

The money collected does not cover the company against losses, Saad emphasizes, and therefore cannot be an insurance premium. Instead the “tax” goes to fund other activities of the state Department of Labor & Industries (L&I).

When there is a compensation claim, the state handles the claim for the company and pays out the compensation. Then the employer’s “tax” bill is racheted up 25 percent per year until the state recovers the amount of the claim, plus interest and any penalties.

“It’s a beautiful system for the bureaucracy,” says Saad. “But it puts a damper on the Washington economy, and it’s terribly costly for small manufacturers in this state.”

Take his firm, Dana-Saad Co., an electronics and plastic injection moldings manufacturer that employs 40 workers in the Spokane Industrial Park.

The “tax” or “premium” or whatever it is was 2.6 percent of total wages paid by Dana-Saad in 1987.

“Then we got hit with a claim in 1990,” says Saad, “and the rate became 15 percent of wages paid in 1991. In 1992, the rate became 17 percent.”

In 1993, the rate dropped to 12 percent. Last year the rate eased to 11 percent.

So how does that affect employers and employees?

Well, in order to keep worker compensation costs level and thereby maintain steady earnings, the company would have had to fire a total of five people, Saad says.

“Or, looked at another way,” says Saad, “if the payments the state calls ‘premiums’ were for real insurance that covered the claim, instead of paying the increase to the state we could have raised employee wages 12 percent.”

In an effort to pare the hike in payments to the state from 17 percent of payroll to 11 percent, Saad made a deal with the state to have his people attend a series of workplace safety meetings.

Did that help to reduce accidents? Saad says he doesn’t know about that, “But I do know it helped to reduce my payments to the state.”

However, the only real solution to excessive cost for workers’ compensation coverage is reform, says Saad. He has organized and chairs a small-business task force of 50 manufacturers that is called the Industrial Insurance Committee.

It seeks changes in state law to give small business the same insurance options as big business.

Meantime, Saad says mass confusion perpetuates a government insurance monopoly that survives in only four other states.

The confusion enables L&I officials to claim Washington’s costs are the ninth-lowest among the 50 states.

But Saad says it’s impossible to compare the cost of what this state calls insurance “premiums” with the cost of bona fide premiums in other states, because other states do provide full coverage for claims, and Washington does not.

Saad’s claim is backed up by Dennis J. Donovan of Wadley-Donovan Group, which specializes in site locations for manufacturers.

“One of the most serious deficiencies (in Washington’s industry recruiting effort) is workers’ compensation,” says the New Jersey-based consultant. “By our estimates, Washington ranks in the top 12 or 15 states in workers’ compensation costs for manufacturers.”

Saad charges, “The Washington state industrial insurance scheme is designed to confuse, is uninformative and attempts to hide the true cost charged businesses.

“Most employers are not aware of the treacherous threat,” he says, “until they are served with a large claim amount they must pay.”

An unexpectedly large claim can devastate companies. Many employers simply can’t pay.

“Penalties and interest added can more than double the original premium tax,” says Saad. “Collection procedures can follow.

“This causes bankruptcies,” he says, “or the employer escapes to another state.”

, DataTimes MEMO: Associate Editor Frank Bartel’s column appears on Monday, Wednesday and Sunday.

The following fields overflowed: CREDIT = Frank Bartel The Spokesman-Review