Subject of Possible Rule Making: During the past year labor and industries underwent a performance audit which was overseen by the Joint Legislative Audit Review Committee (JLARC). Included in the performance audit were several suggestions (recommendations) aimed at improving or enhancing the retrospective rating program administered by labor and industries.

In addition to the performance audit, the 1999 session of the legislature passed and the governor signed SB 6048 pertaining to the retrospective rating program. This bill adds new entrance and participation requirements to organizations that sponsor retrospective rating groups and establishes new rule making authority for the department.

Implementation of some of the performance audit recommendations and the legislative changes will require labor and industries to establish new administrative rules (WACs) as well as readopt some of the existing rules. Rules developed during this process will be adopted under the new rule-making authority contained in SB 6048.

Subjects of possible rule making include:

•	Readoption of retrospective rating rules contained in chapter 296-17 WAC;
•	Establishment of new underwriting guidelines;
•	Prohibiting the direct payment of medical bills by state fund insured employers;
•	Requirement of an annual report highlighting workplace safety accomplishments of group;
•	Streamlining reenrollment process;
•	Elimination of any bias in reevaluation of case reserves;
•	Elimination of the pro rata distribution of occupational disease claims;
•	Elimination of any bias that might exist in the retro premium formula including increasing the number of mandatory adjustments;
•	Elimination of captive clauses in retro group contracts and capping administrative fees of sponsoring organizations; and
•	Requiring the addition safety performance measurements as part of the retro premium formula. If these changes are adopted they would be in the form of rules and would be codified in chapter 296-17 WAC, entitled "General reporting rules, classifications, audit and recordkeeping, rates and rating system for workers' compensation insurance."

Statutes Authorizing the Agency to Adopt Rules on this Subject: RCW 51.04.020(1), 51.16.035 and SB 6048 (effective July 25, 1999).

Reasons Why Rules on this Subject may be Needed and What They Might Accomplish: The JLARC performance audit identified several areas that if adopted by labor and industries might improve or enhance the retrospective rating program. SB 6048 also contains a number of changes to the retrospective rating program including a requirement that the program conform to recognize principles of insurance. Any change to the retrospective rating program has the potential of impacting roughly 46% of the state fund premium and the over 15,000 employers that pay this premium. Because these changes would have state-wide application and affect a large number of employers that participate in the retrospective rating program any change should be in the form of rule.

By establishing these policy changes as rules the public will have a greater opportunity to participate in their development. Labor and industries has minimal underwriting and safety measurements currently in place. None of the existing regulations however, address the depth of issues presented in the JLARC report or SB 6048.

Other Federal and State Agencies that Regulate this Subject and the Process Coordinating the Rule with These Agencies: None.

Process for Developing New Rule: Labor and industries will begin the rule development process by working with the Retro Advisory Committee. Once the committee has been presented with the general ideas, labor and industries will mail proposed changes to affected organizations. Depending on feedback on the proposed rules the department may conduct a number of public meetings around the state in August 1999, to solicit additional input from customers that participate in the retrospective rating program.

Labor and industries will use this information and feedback to further modify the ideas and then make a presentation to the Retro Advisory Committee and the Workers' Compensation Advisory Committee. The director of labor and industries will take into consideration the recommendations of both committees prior to a formal rule filing tentatively scheduled for September 22, 1999.

Labor and industries may hold special work sessions with the committee or other retro groups to further address all of the ideas and put forth a comprehensive rule proposal. Labor and industries would like to have new rules in place by January 1, 2000.

Interested parties can participate in the decision to adopt the new rule and formulation of the proposed rule before publication. A letter will be mailed to employers and groups that participate in the retro program in late June with the proposed changes. This letter will solicit input on the proposals and whether live public meetings are needed. If informal public meetings are requested they will be held in August. We will notify all affected organizations of any meetings in mid July by letter. This letter will disclose the date, time and location of these meetings. Informal meetings will not be scheduled until after a work session of the committee has taken place. Retro employers and other interested parties can call the department at (360) 902-4835 to obtain information on participation.

June 22, 1999

Gary Moore

Director

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