Washington’s Department of Labor and Industries has proposed an average 7.6 percent increase in workers’ compensation premiums for 2010.

The insurance, funded mostly by employers, pays for medical care, pensions and lost wages for injured workers.

The encouraging news – if you can call it that – is that the rate increase could have been much steeper. In its announcement, L&I officials indicated that the high costs of our state’s workers’ comp system are expected to rise 19.4 percent next year.

Still, the pain of any tax increase, particularly right now, is difficult for employers to absorb. Remember, workers’ comp rates just don’t apply to business and industry, they apply to any employer – hospital, school, college or local government – that buys its insurance from the state.

The National Academy of Social Insurance reports that Washington’s per employee workers’ compensation costs are the second highest in the nation. Because of improvements in workplace safety, injury claims have dropped 55 percent since 1990. But claims are taking longer to resolve and costs skyrocket as those claims stay in the system longer.

According to L&I, injured workers miss an average 266 days of work, almost three times the national average. Washington also leads the nation in the number of expensive, lifelong pensions awarded each year, a rate that has ballooned more than 300 percent since 1996. And while the overall number of claims has decreased, L&I’s administrative costs increased $39 million in the last year alone.

During good times, the program’s weaknesses were masked by income from investing the state workers’ comp fund. But in bad times, that investment income has vanished, exposing the system’s fatal flaws.

The state can dip into the fund’s reserves to prop up the system temporarily. But after years of nibbling at the edges of the problem, some say it is time to consider fundamental changes in Washington’s workers’ compensation system.

Competition reduces costs and improves quality. But Washington is one of only four states with a state monopoly of workers’ comp insurance. Except for 375 large self-insured businesses, all employers are required to purchase their insurance from the government. About half the remaining states allow private insurers to compete with the government program.

During the past 10 years, Nevada and West Virginia privatized their failing state monopolies. According to the Council of State Governments, privatizing Nevada’s workers’ comp system erased a $2 billion liability. In just three years, West Virginia’s privatized system cut the state’s $3.2 billion unfunded liability by 40 percent.

Last March, the state’s insurance commissioner reported that “…treatment of injured workers has improved and rates have been reduced over 30 percent.”

Washington should join with 90 percent of the nation that allows private-sector competition in order to reduce costs and improve service in our workers’ comp program.

In addition, some common-sense reforms L&I and the Legislature should pursue next session include creating a settlement option for complex or long-term claims as an alternative to pensions. Washington is one of six states that do not allow final settlement agreements.

Washington should also bring its coverage of “occupational disease” claims into line with the majority of states by refusing to cover factors that aren’t primarily work related. Presently, Washington has one of the broadest legal standards for occupational disease coverage in the nation.

The state should also join the 42 other states that allow and encourage the use of medical provider networks to treat injured workers according to national best practices and treatment guidelines at costs that can be negotiated and stabilized.

Finally, Washington should, like many states, index its maximum wage benefits to 100 percent of the state’s average monthly wage, not the current unjustified rate of 120 percent.

Employers, lawmakers and regulators should all have the same goal: To get injured workers the treatment and benefits they need to get them back to work at costs that are fair and affordable for employers and workers. Currently, that’s not happening.

Don Brunell is the president of the Association of Washington Business.