BILL REQ. #:  S-2025.2 

READ FIRST TIME 03/02/05.   

     AN ACT Relating to substantially improving worker safety, accident prevention, and worker outcomes through the department of labor and industries' retrospective rating program; amending RCW 51.16.035, 51.18.010, 51.18.020, and 51.18.040; adding new sections to chapter 51.18 RCW; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   A new section is added to chapter 51.18 RCW to read as follows:
     The legislature reaffirms that the purposes of the department of labor and industries' retrospective rating program are to substantially improve worker safety, accident prevention, and worker outcomes. The legislature finds that certain aspects of the program are inconsistent with these purposes. The size of a retrospective rating group, rather than its safety record, can dictate the relative amount of the incentive payment, significantly disadvantaging the smaller retrospective rating groups.
     The legislature recognizes the concerns expressed by employers and employees regarding workers' compensation rates and recent increases in those rates. Those concerns can be partially addressed by putting a greater amount of a retrospective rating group's incentive payment into the hands of its members, who can use such money to invest, create jobs, foster economic growth, or by the group using such money to improve worker safety.
     For these reasons, the legislature declares that immediate reform of the retrospective rating program is needed to achieve the purposes of substantially improving worker safety, accident prevention, and worker outcomes. The legislature finds that retrospective rating groups granted the privilege of participating in the retrospective rating program must agree to terms and conditions of program participation that are reasonably related to achieving these purposes. These terms and conditions shall include, but not be limited to, requiring that funds be used for expenses directly related to substantially improving worker safety, accident prevention, and worker outcomes, and ensuring that employers in the retrospective rating groups are substantially similar considering their business and the services or activities performed by their employees.
     The legislature declares that immediate changes are necessary to ensure that retrospective rating groups focus on safety, and consequently, to preserve the health and safety of Washington workers.

NEW SECTION.  Sec. 2   A new section is added to chapter 51.18 RCW to read as follows:
     (1) With respect to any enrollment fees and other payments made on or after the effective date of this section by the retrospective rating group's members to the sponsoring entity solely to participate in the retrospective rating group, a sponsoring entity must return to the retrospective rating group's members any portion of the enrollment fees and other payments not used to administer the retrospective rating group's program or retained as reserves to meet any assessments made by the department.
     (2) Any portion of the enrollment fees and other payments not returned to the retrospective rating group's members must be used to administer the retrospective rating group's program or retained as reserves to meet any assessments made by the department. Funds used to administer the retrospective rating group's program may be used only to pay for expenses directly related to improving worker safety, accident prevention, and worker outcomes as specified in section 6 of this act, and not for any other purposes.

NEW SECTION.  Sec. 3   A new section is added to chapter 51.18 RCW to read as follows:
     (1) With respect to incentive payments made on or after the effective date of this section by the department to a sponsoring entity to recognize substantial improvements in worker safety, accident prevention, and worker outcomes, a sponsoring entity must return to the retrospective rating group's members any portion of the incentive payments not used to administer the retrospective rating group's program or retained as reserves to meet any assessments made by the department.
     (2) Any portion of the incentive payments not returned to the retrospective rating group's members must be used to administer the retrospective rating group's program or retained as reserves to meet any assessments made by the department. Funds used to administer the retrospective rating group's program may be used only to pay for expenses directly related to improving worker safety, accident prevention, and worker outcomes as specified in section 6 of this act, and not for any other purposes.

NEW SECTION.  Sec. 4   A new section is added to chapter 51.18 RCW to read as follows:
     (1) With respect to interest earned on or after the effective date of this section on reserves maintained by the sponsoring entity to meet any assessments made by the department, a sponsoring entity must return to the retrospective rating group's members any portion of the interest not used to administer the retrospective rating group's program or retained as reserves to meet any assessments made by the department.
     (2) Any portion of the interest not returned to the retrospective rating group's members must be used to administer the retrospective rating group's program or retained as reserves to meet any assessments made by the department. Funds used to administer the retrospective rating group's program may be used only to pay for expenses directly related to improving worker safety, accident prevention, and worker outcomes as specified in section 6 of this act, and not for any other purposes.

NEW SECTION.  Sec. 5   A new section is added to chapter 51.18 RCW to read as follows:
     If a retrospective rating group is disqualified or does not reenroll in the program, the sponsoring entity must return to the retrospective rating group's members any portion of reserves maintained by the sponsoring entity that are not used to administer the retrospective rating group's program as specified in section 6 of this act or fully pay the retrospective rating group's final obligations.

NEW SECTION.  Sec. 6   A new section is added to chapter 51.18 RCW to read as follows:
     For purposes of this chapter, expenses directly and reasonably related to improving worker safety, accident prevention, and worker outcomes may include:
     (1) Safety education and safety education activities;
     (2) Risk management activities;
     (3) Claims monitoring activities;
     (4) Return-to-work program-related assistance;
     (5) Overhead, marketing, and legal expenses directly and reasonably related to the retrospective rating group's program; and
     (6) Investment-related expenses for reserves retained to meet any assessments made by the department.

NEW SECTION.  Sec. 7   A new section is added to chapter 51.18 RCW to read as follows:
     (1) Each sponsoring entity shall report annually to the department in a form specified by the department on:
     (a) Funds used to administer the retrospective rating group's programs and retained as reserves to meet any assessments made by the department; and
     (b) Expenses directly related to improving worker safety, accident prevention, and worker outcomes.
     (2) The department shall periodically inspect and review records of sponsoring entities to assure that the purposes of this chapter are fulfilled.
     (3) If the department has reasonable cause to believe that a sponsoring entity has used or retained funds or incurred expenses in a manner inconsistent with the purposes of this chapter, the state auditor shall conduct an audit of the entity's compliance with this chapter.

Sec. 8   RCW 51.16.035 and 1999 c 7 s 8 are each amended to read as follows:
     (1) The department shall classify all occupations or industries in accordance with their degree of hazard and fix therefor basic rates of premium which shall be the lowest necessary to maintain actuarial solvency of the accident and medical aid funds in accordance with recognized insurance principles. The department shall formulate and adopt rules and regulations governing the method of premium calculation and collection and providing for a rating system consistent with recognized principles of workers' compensation insurance which shall be designed to stimulate and encourage accident prevention and to facilitate collection. The department may annually, or at such other times as it deems necessary to maintain solvency of the funds, readjust rates in accordance with the rating system to become effective on such dates as the department may designate.
     (2) In providing a retrospective rating plan under RCW 51.18.010, the department may consider each individual retrospective rating group as a single employing entity for purposes of ((dividends or premium discounts)) incentive payments to recognize improvements in worker safety, accident prevention, and worker outcomes.

Sec. 9   RCW 51.18.010 and 1999 c 7 s 2 are each amended to read as follows:
     (1) The department shall offer a retrospective rating plan to insure the workers' compensation obligations of employers and groups of employers. The plan is to be made available to any employer or group of employers who:
     (a) Voluntarily elects to participate in the plan; and
     (b) Meets the requirements of this chapter and rules adopted by the department under subsection (2) of this section.
     (2) The retrospective rating plan shall be consistent with recognized insurance principles and shall be administered according to rules adopted by the department. Rules adopted under this section shall encourage broad participation by qualified employers and sponsors of retrospective rating groups.
     (3) Each retrospective rating group approved by the department under this chapter shall select a coverage period and may be renewed at the end of each coverage period. For the purposes of this section, "coverage period" means a twelve-month period provided by the department by rule.
     (4) After the effective date of this act, each retrospective rating group shall, upon being initially approved or annually renewed by the department, provide written notice to the department that it is familiar with the provisions of this chapter and the rules adopted by the department governing the operation of retrospective rating groups. The department shall provide a form to be completed by the retrospective rating group to complete such an approval or renewal, and the form and notice shall contain the following: "Incentive payments provided by the department shall be used solely for: (a) Safety education and safety education activities; (b) risk management activities; (c) claims monitoring activities; (d) return-to-work program-related assistance; (e) overhead, marketing, and legal expenses directly and reasonably related to the retrospective rating group's program; and (f) investment-related expenses for reserves retained to meet any assessments made by the department."

Sec. 10   RCW 51.18.020 and 1999 c 7 s 3 are each amended to read as follows:
     Prior to allowing initial entrance into the state's retrospective rating plan, the department shall review each proposed retrospective rating group to ensure that the following criteria are met:
     (1) The entity sponsoring the retrospective rating group must have been in existence for at least four years;
     (2) The entity sponsoring the retrospective rating group must exist primarily for a purpose other than that of obtaining or offering insurance coverage or insurance related services;
     (3) The entity sponsoring the retrospective rating group must have a written workplace safety and accident prevention plan in place for the proposed retrospective rating group and must propose methods by which the retrospective rating group will cooperate with department claims management activities;
     (4) All employers in the retrospective rating group must be members of the sponsoring entity;
     (5) All employers in the retrospective rating group must have an industrial insurance account in good standing with the department;
     (6) Fifty percent of the original employers in the retrospective rating group must have been members of the sponsoring entity for one year prior to the group's entrance into the retrospective rating plan;
     (7)(a) With respect to any coverage period beginning before the effective date of this section, the retrospective rating group must be composed of:
     (i) Employers who are substantially similar considering the services or activities performed by the employees of those employers; or
     (ii) Employers allowed to continue in the retrospective rating group under RCW 51.18.040(4)(a).
     (b) With respect to any coverage period beginning on or after the effective date of this section, the retrospective rating group must be composed of:
     (i) Employers who are substantially similar considering the business of the employers and the services or activities performed by the employees of those employers;
     (ii) Employers allowed to continue in the retrospective rating group under RCW 51.18.040(4)(a); or
     (iii) Employers allowed to continue in the group under RCW 51.18.040(4)(a), but only for the coverage periods specified in RCW 51.18.040(4)(b)(i);
     (8) The initial premium level for the retrospective rating group must be at least one million five hundred thousand dollars and shall be based on the standard premium of the proposed group members' most current previous coverage period; and
     (9) The formation and operation of the retrospective rating group must seek to substantially improve workplace safety and accident prevention for the employers in the group.

Sec. 11   RCW 51.18.040 and 1999 c 7 s 5 are each amended to read as follows:
     (1)(a) With respect to any coverage period beginning before the effective date of this section, in order to ensure that all retrospective rating groups are made up of employers who are substantially similar, considering the services or activities performed by the employees of those employers, the sponsoring entity of a retrospective rating group shall select a single, broad industry or business category for each retrospective rating group. Once an industry or business category is selected, the department shall allow all risk classifications reasonably related to that business or industry category into that retrospective rating group.
     (b) With respect to any coverage period beginning on or after the effective date of this section, in order to ensure that all retrospective rating groups are made up of employers who are substantially similar, considering the business of the employers and the services or activities performed by the employees of those employers, the sponsoring entity of a retrospective rating group shall select a single, broad industry or business category for each retrospective rating group. Once an industry or business category is selected, the department shall allow employers most similarly related to that business or industry category into that retrospective rating group.
     (2) The following broad industry and business categories shall be used by the sponsoring entity and the department in establishing retrospective rating groups:
     (a) Agriculture and related services;
     (b) Automotive, truck and boat manufacturing, sales, repair, and related services;
     (c) Construction and related services;
     (d) Distillation, chemical production, food, and related services;
     (e) Facilities or property management, maintenance, and related services;
     (f) Government, utilities, schools, health care, and related services;
     (g) Health care, pharmaceutical, laboratories, and related services;
     (h) Logging, wood products manufacturing, and related services;
     (i) Manufacturing, processing, mining, quarrying, and related services;
     (j) Retail stores, wholesale stores, professional services, and related services;
     (k) Temporary help and related services; and
     (l) Transportation, recycling, warehousing, facility maintenance, and related services.
     (3) The industry and business categories in subsection (2) of this section are not exclusive. In response to significant changes in marketplace demographics or the discovery of unique business or industry categories, the department may, by rule, include additional broad industry or business category selections. The department may, by rule, remove an industry covered within an industry or business category in the event that the business or industry is no longer found within this state.
     (4) ((Given the broad nature of the industry and business categories in subsection (2) of this section, the risk classification or classifications assigned to an individual employer may appropriately fall into multiple business or industry categories.
     (5) In order to simplify administration and keep the administrative costs associated with devising a different classification system for a retrospective rating plan to a minimum, the state's retrospective rating plan shall follow the same classification procedure established by the department to assign workers' compensation insurance classifications to an employer.
     (6))) (a) With respect to any coverage period, employers who have been a member of an existing, approved retrospective rating group prior to July 25, 1999, may continue in that group even if they are not substantially similar to the industry or business category selected pursuant to subsection (1)(a) of this section.
     ((However, new)) (b)(i) With respect to any coverage period beginning before January 1, 2007, employers who were proposed for addition to a retrospective rating group on or after July 25, 1999, and before the effective date of this section, and who have been a member of a retrospective rating group before the effective date of this section, must fall within the ((selected)) industry or business category selected pursuant to subsection (1)(a) of this section.
     (ii) With respect to any coverage period beginning on or after January 1, 2007, employers who were proposed for addition to a retrospective rating group on or after July 25, 1999, and before the effective date of this section, and who have been a member of a retrospective rating group before the effective date of this section, must fall within the industry or business category selected pursuant to subsection (1)(b) of this section.
     (c) With respect to any coverage period beginning on or after the effective date of this section, employers who are proposed for addition to a retrospective rating group on or after the effective date of this section must fall within the industry or business category selected pursuant to subsection (1)(b) of this section. If an employer does not fall within the industry or business category selected by any retrospective rating group, the department may approve addition of the employer to a retrospective rating group that selected the most similarly related industry or business category.

NEW SECTION.  Sec. 12   A new section is added to chapter 51.18 RCW to read as follows:
     The director may adopt rules to carry out the purposes of this chapter.

NEW SECTION.  Sec. 13   If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION.  Sec. 14   This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately.