More Misleading Data on Workers' Compensation from the State Labor Council

Yesterday the Washington State Labor Council released the second in its (hopefully brief) series, "Outside the Echo Chamber." Misleadingly entitled, "Our state's workers' comp advantage," the piece relies exclusively on a report published routinely by the state of Oregon to benchmark that state's workers' comp system against the rest of the nation. While it may be useful for Oregon policymakers, it simply has no utility here, as we've noted several times in the past. 

Bear with me: This is worth expanding on. Although the WSLC links to the executive summary of the report, purportedly to show that Washington's premiums are among the nation's lowest, the full study goes out of its way to show that the rankings cannot be used that way. 

In particular, download the study and read the brief section (pages 10-12) headed "notes about using the rankings." The analysts write:

1. Because the study does not include all premium classes, the actual average premium rate for a state may differ from the weighted premium rate index, which is based on the characteristics of Oregon’s economy.  

<snip>

7. The premium rates do not reflect any dividends paid to employers.

8. The data exclude self-insurers’ experience. 

9. This study is based on payroll rates.

For Washington, hourly rates had to be converted to payroll rates. The Washington payroll data included overtime pay that may overstate the average wage for purposes of premium computation, thus understating the effective average payroll rate. (emphasis added)

This quickly gets tiresome, because we've explained all this before. 

In 2004, we released a WashACE report that closely examined the Oregon study. Pages 7 and 8 of that report contained these quotes from the Oregon study with additional comments.

1. “Since not all premium classes were included in the study, the actual average premium rate for a state may differ from the weighted premium rate index, which is based on Oregon’s economy.” [Note: The Oregon study does not include workers employed by self-insured employers, which make up nearly a third of Washington’s workforce.]
  
 2. “If different classes were selected or payroll from another state was used to weight the rates by class, the results might be substantially different.” 
 
3. “Several states use different classification systems and the conversion to the NCCI (National Council on Compensation Insurance) system is not perfect.” [Note: This is true of Washington.]
 
4. “This study is based on payroll rates. In Washington hourly rates had to be converted to payroll rates. The Washington payroll data included overtime pay which may overstate
the average wage for purposes of premium computation, and thus understate the effective average payroll rate.” [Emphasis added. Note: L&I agrees with this.]
 
5. “Payroll base exclusions (e.g., exclusion of vacation pay) exist in Oregon and South Dakota. Manual rates in these states have been reduced to reflect NCCI’s estimate of the
effect of these payroll exclusions on premium rates. Additionally, some states assess overtime at the full overtime wage, but most states use the normal hourly wage as the payroll basis for overtime hours. This study does not account for these differences in treatment of overtime.”
(See also #4.)

6. “These data exclude self-insurers’ experience.” [See #1.]

Then, in 2006, we released another WashACE report on workers' comp. Again, quoting from that analysis.

Employer costs to support Washington’s workers’ compensation system are difficult, if not impossible, to compare reliably with other states. At the highest level, state economies differ in the levels of occupational risk present in their basic sectors. In addition, however, Washington’s system of risk classification uses different occupational categories than other states.

And premium rates in our state-administered insurance system are based on the number of hours worked, rather than the dollars paid in wages and salaries, common in other states.  Beyond these roadblocks to comparison, about a third of our state’s workers are employed by one of 389 organizations large enough to fund their own self-insurance program. These employers – including Boeing, Microsoft, Starbucks, Alaska Airlines, Costco, Safeway, and a multitude of cities, counties, school districts, and public utility districts – do not pay a particular premium rate for workers’ compensation insurance. Rather, they pay benefits directly to injured workers or their health care providers—about 27 percent of the total cash and medical benefits paid in 2003. Their costs are embedded in each payment they make—those intended to cover lost wages, medical expenses, and system administration, oversight, and litigation, as well as those unintended costs that can result from a unique and highly complex set of regulations. 

Although self-insurance is not unusual across the country, cost of workers’ compensation for self-insured employers are not captured in state-based rate comparisons. In particular self-insured employers’ workers’ compensation costs are not included in the controversial Oregon analysis, conducted biennially by the state of Oregon, which assesses how Oregon’s workers’ compensation system costs stack up against similar costs in other states. While the study, therefore, only misses the 12 percent of Oregon’s workforce employed by self-insured employers, one-third of Washington’s workforce – those workers employed by 389 of the state’s largest employers – are ignored. 

Even so, the Department of Labor and Industries (DL&I) continues to rely on the study to support its claims that Washington has a “high benefit-low cost” workers’ compensation system. Based on a sampling of just 50 (of about 450) of Oregon’s most common risk classifications, Oregon analysts caution readers especially singling out Washington readers—to avoid generalizing about other states from the study’s findings (DCBC 2005). The Oregon study has gained critics, largely in reaction to the misapplication of its findings. Eric Oxfeld, President of the National Foundation for Unemployment Compensation and Workers’ Compensation in Washington D.C., for example, dismisses its applicability elsewhere saying the study is an “Oregon-specific study—done by Oregon to make Oregon look good.”  (Emphases added.)

Given the abundance of uncontested information debunking the relevance of the Oregon study as a tool for evaluating the Washington system, there's no excuse for this latest misrepresentation.

Perhaps the WSLC has spent too much time inside its own echo chamber.