County looks to fix gap in workers' comp

By Keith Ervin
Seattle Times staff reporter

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King County has underfunded its workers' compensation fund by at least $8.8 million and may have understated its long-term liability by a much larger amount, the county auditor has reported.

Auditor Cheryle Broom's report to the Metropolitan King County Council last week said the county has reported only an $8.8 million deficit in workers' compensation reserves, even though an actuary hired by the county found an unfunded, long-term liability of $44.7 million at the end of 2003.

Like many other employers, King County self-insures its workers' compensation program rather than participate in the state-provided insurance plan. The fund pays medical costs and lost wages for workers with job-related injuries and illnesses.

If the county didn't have enough money in the fund to make those payments, money for other programs could be jeopardized.

King County Executive Ron Sims has agreed to Broom's request that he develop a "multi-year plan" to rebuild those reserves.

That won't be a welcome task at a time when the county's general fund faces deficits of more than $20 million a year. Sims' financial chief, Bob Cowan, yesterday gave an initial, "ballpark" estimate that the county will have to accelerate payments into the workers' compensation fund by roughly $1 million to $2 million a year.

The fund has operated at a loss every year since 1999. Losses were $1 million last year and $3.7 million in 2002.

Reserves "are significantly inadequate to meet future claims obligations," Broom reported. She recommended that the county:

• Develop a plan to close the $8.8 million gap between actual reserves and the reserve level required by the county code;

• Consider increasing the fund to come closer to covering the $44.7 million deficit between actual reserves and long-term liabilities identified by Fallquist Actuaries.
 
• Report the county's liabilities in a way that conforms with generally accepted accounting principles. The actuary's findings were not mentioned in the county's 2003 financial report.

Broom said the county's failure to report the findings "may unintentionally mislead the readers of the financial report on the condition of the workers' compensation fund."

Cowan, the county's director of financial and business operations, said Fallquist's findings weren't cited in the financial report because the Office of Safety and Claims, which hired Fallquist, hadn't informed him of the findings.

Sims told Broom that Cowan's office and the Office of Safety and Claims will work together to determine how much money the county should set aside for workers' compensation claims.

The county has maintained reserves twice the size of what the state requires, Sims told Broom.

County agencies pay into the fund in a way Sims described as "similar to a 'pay as you go' approach."

Cowan said it probably will not be necessary to establish reserves large enough to cover the entire long-term liability identified by Fallquist. The actuary looked at the cost of potential claims as well as claims that already have been filed, he said.

Cowan likened workers' compensation reserves to the funds a home buyer maintains to make mortgage payments. "Should you, as a matter of practice, have in the bank the full amount when you enter into the mortgage in order to pay that off? The answer is no, you don't need it."

County Councilwoman Julia Patterson, chairwoman of the labor, operations and technology committee, said she wants better answers about why more employees are filing injury or illness claims and why the average cost of those claims is rising.

Patterson said she was confident the county would deal with the problems raised by the auditor.

"I think that it would be serious if we ignored the report. We're not going to do that. There are some problems we need to solve before it becomes serious," Patterson said.

Keith Ervin: 206-464-2105 or kervin@seattletimes.com