* From the Illinois Policy Institute…
The regulatory cost of doing business in Illinois remains the highest in the Midwest for workers’ compensation, according to the 2016 Oregon Workers’ Compensation Premium Rate Ranking study. Illinois’ out-of-balance workers’ compensation laws contribute to the Land of Lincoln’s loss of industrial investment and blue-collar job opportunities. Illinois manufacturing firms often cite workers’ compensation as a primary reason for the loss of rewarding industrial job opportunities in Illinois. And taxpayers cover the cost of workers’ compensation for government employees and for workers on public construction projects, making workers’ compensation an important government budgetary issue.
The Oregon study ranks all 50 states plus Washington, D.C., for average workers’ compensation costs. According to the study, Illinois ranks as the most expensive state in the region, and ties with Oklahoma as the seventh-most-expensive state in the country. Illinois’ average cost is $2.23 per $100 of payroll, though costs within Illinois vary substantially among different industries. Other states in the region ranged from 12th-most-expensive in the country (Wisconsin) to 50th-most-expensive (Indiana).
Illinois has ranked as the most expensive state in the region every year since the 2010 Oregon study. While a state’s average cost per $100 of payroll is the best overall indicator of each state’s relative competitiveness, the average gives only a partial view of the situation within each industry. Industry-specific cost comparisons provide a more complete view of the regulatory cost differences between states, and reveal that Illinois is especially uncompetitive with surrounding states in several blue-collar industries.
Background
The state of Oregon began producing its biennial study in 1986 as a way to assess and address problems within its workers’ compensation system. Oregon has continued producing the report in all even-numbered years since 1986, and the most recent iteration of the study is based on workers’ compensation premium rates in effect as of January 2016. The study produces an index rate for each state, which is a type of weighted average of workers’ compensation costs across industries using a consistent mix of 50 occupation classifications for all states. This control of occupation classifications allows for an apples-to-apples comparison between state averages without having to worry about the various weightings of different industries in each state. As a result, the interstate variance in industrial composition and occupational hazards does not skew the rankings.
Furthermore, comparing the cost of workers’ compensation per $100 of payroll controls for different wage rates in different areas of the country. Just because a state has higher wages does not mean that state should have higher premium rates. That’s because premium rates are taken as a percentage of wages, which factors in how high or low wages are. In other words, a premium rate of $2 per $100 of payroll on an $80,000 worker produces twice the amount of premium as the same premium rate does on a $40,000 worker. Thus, the difference in wage rates between states is not a factor in the Oregon comparisons because the rates are essentially a percentage of overall payroll, which accounts for whether wages are high or low.
Illinois’ position in the rankings has varied significantly over the last dozen years, and has been especially uncompetitive since 2008. As recently as 2004, Illinois ranked in the middle of the pack nationally with the 23rd-most-expensive system in the U.S., nearly equal to the study’s median rate and lower than regional competitors Ohio, Kentucky, Minnesota and Missouri.
However, former Gov. Rod Blagojevich’s 2005 legislation contributed to higher costs in Illinois, making the state significantly less competitive. Illinois rose to the 10th-most-expensive state by 2008 and third-most-expensive in 2010. Despite enacting cost savings legislation in 2011 – legislation that fell far short as a measure to put Illinois in line with surrounding states – Illinois was the fourth-most-expensive state for workers’ compensation costs in 2012. In the 2014 study, Illinois ranked seventh-most-expensive, and has tied for the seventh-most-expensive state in the 2016 rankings.
That 2005 bill was a killer, which is why I agree with Louis Atsaves that we should roll back at least some of the increase that year for permanent partial disability.
Anyway, you should read the whole thing. And click here for the full Oregon study.
*** UPDATE 1 *** Sean Stott at the Laborers Union disagrees…
With all of the shortcomings of the Oregon study (how many logging companies are in Illinois?), one of the biggest is that it does not incorporate the most current data and the most recent trends.
Illinois’ overall recommended WC insurance rates have dropped 29 percent since the pro-employer WC law changes of 2011, including a whopping 13% rate cut for the upcoming year. In large part, those reductions are due to plummeting medical costs (which represent about half of all WC claims’ costs). The Oregon study does not take those facts into account. The question then becomes, are the insurance companies passing these savings along to Illinois employers?
Obviously, the Oregon report conveniently fits into the IPI/Rauner narrative. The facts don’t. Lawmakers should not take the “causation” cleaver to the Workers Comp system (and injured workers) as the Governor has proposed. Let the 2011 changes continue to lower our costs and/or hold the feet of the insurance industry to the fire.
*** UPDATE 2 *** From ITLA and the Illinois AFL-CIO…
Reduced benefits for injured workers, lowered medical reimbursements, denied claims, costs dropping and insurance company profits skyrocketing - this is the reality of Illinois workers’ compensation today.
To lower costs for businesses, workers gave up longstanding rights as part of the 2011 changes to the state workers’ comp law; insurance companies, in return, were to be transparent with pricing and pass savings along to employers. As it turns out, only the injured workers have kept up their end of the bargain.
It is undeniable that costs for insurers in Illinois are dropping and profits are dramatically rising. The Illinois Department of Insurance’s 2016 Workers’ Compensation Insurance Oversight Report reveals insurers in Illinois saw profits increase by 1.7 percent in 2015, which is better than the national average. Profits in the insurance workers’ compensation market in Illinois have significantly increased - up by 21.6 percent since 2010.
The same report reveals that in Illinois the workers’ compensation loss ratio – the difference between claims paid by an insurer to the premiums collected - has drastically improved since 2011. The loss ratio decreased by 7.2 percent in 2015, well ahead of the national average. This drop brings Illinois’ loss ratio below that of the national average.
The National Council on Compensation Insurance (NCCI – an insurance industry rate making agency which provides workers’ compensation information) has issued its workers’ compensation advisory rates for 2017. If insurers follow the guidance provided by NCCI, Illinois employers should see a 12.9 percent cut in their workers’ compensation premiums this year alone. This is the third largest cut in the nation and totals more than Kentucky and Missouri combined. While the NCCI recommended a rate increase for Indiana in 2017.
It is irrefutable that costs in Illinois are dropping for insurers and they are not passing along the savings to employers. The business community continues to cry out for more changes to the workers’ compensation system; however, any further changes to workers’ compensation laws in Illinois must focus on insurance reform and oversight because despite significantly lowered costs, the insurance industry is keeping those savings for themselves, rather than sharing them with employers in the form of premium decreases or refunds. Instead there are demands more “reforms” that only further erode the medical and lost income rights of injured workers and will boost the insurance industry’s bottom line profits by shifting the burden to care for the injured onto the taxpayers.
- NoGifts - Tuesday, Nov 15, 16 @ 12:16 pm:
It looks like the mostly states with large urban areas and high costs of living are in the top. I don’t think I’d expect it to be different, and that’s why comparing IL to the surrounding states doesn’t really make sense.
- 360 Degree TurnAround - Tuesday, Nov 15, 16 @ 12:16 pm:
Maybe the insurance industry can share their $1 billion from the 2011 reforms with businesses.
- Winnin' - Tuesday, Nov 15, 16 @ 12:23 pm:
Wait in’ for IPI to say anythin’ good about reforms already passed.
- The anti-trib - Tuesday, Nov 15, 16 @ 12:30 pm:
2005 was not a Blago bill…it was an agreed bill. And agreed to by the entire business community. 2011 legislation slashed benefits and hurt injured workers. And now they call for more cuts and benefit reductions. The race to the bottom is on. All this being pushed by a guy who made $190 million last year for doing nothing!
The rate reductions keep coming from NCCI and yet the insurance industry does nothing to pass them along. Keep slashing and we’ll keep making more profits….
- working stiff - Tuesday, Nov 15, 16 @ 12:36 pm:
instead of looking only at the cost, shouldn’t there be an examination of what is causing the injuries in the first place? wouldn’t injury prevention be a better first step forward?
- 47th Ward - Tuesday, Nov 15, 16 @ 12:41 pm:
If only we could find a way to lower wages in Illinois, then the premiums would start to come down.
Illinois is the highest Midwest state for WC premiums. It’s also the highest Midwest state for wages. Funny how IPI never mentions that.
- Rich Miller - Tuesday, Nov 15, 16 @ 12:42 pm:
===It’s also the highest Midwest state for wages. Funny how IPI never mentions that===
Actually, they do…
===Furthermore, comparing the cost of workers’ compensation per $100 of payroll controls for different wage rates in different areas of the country. Just because a state has higher wages does not mean that state should have higher premium rates. That’s because premium rates are taken as a percentage of wages, which factors in how high or low wages are. In other words, a premium rate of $2 per $100 of payroll on an $80,000 worker produces twice the amount of premium as the same premium rate does on a $40,000 worker. Thus, the difference in wage rates between states is not a factor in the Oregon comparisons because the rates are essentially a percentage of overall payroll, which accounts for whether wages are high or low.===
- JS Mill - Tuesday, Nov 15, 16 @ 12:59 pm:
When the insurance companies pass along savings from the 2011 “reforms” then I will pay a little more attention to the studies.
Until that happens it does not mean much, and any additional reforms would not be likely to reduce costs based on the current behavior of insurance companies.
- DuPage - Tuesday, Nov 15, 16 @ 1:14 pm:
What is the rate of injuries in Illinois compared to other states? What is the rate of profit of the WC insurance companies in Illinois compared to other states? These are important factors in the insurance rates that I have not seen a state by state comparison. The WC insurance companies in Illinois should be forced to open their books like they are required to do in other states.
- A guy - Tuesday, Nov 15, 16 @ 1:23 pm:
This is the single biggest economic game changer out there that could make a huge difference. They’re not even that far apart on it. What a travesty that this isn’t getting done.
- Anonymous - Tuesday, Nov 15, 16 @ 1:25 pm:
IPI won’t tell you this, but the Oregon study is weighted to reflect Oregon’s economy. It’s not an apples to apples comparison of what employers in other states pay, but what a typical Oregon employer would pay in theu were somewhere else. It’s not a bad tool for lumberjacks and longshoremen, but it’s balanced wrong for other emplpyers.
- 47th Ward - Tuesday, Nov 15, 16 @ 1:28 pm:
Thanks Rich. I should have read it more closely. Point conceded.
However, I think it would be helpful for people to know how much a lost limb is worth in Indiana, relative to Illinois. For example, if a fork lift operator loses a leg at work in Hammond, versus a fork lift operator in say, Manteno, what is that leg worth?
Indiana is also almost dead-last among the fifty states, costing employers $1.05 per $100 in wages. Illinois is tied for 8th, at $2.23. Knowing how much that severed leg is worth would be instructive I think. And telling.
- JS Mill - Tuesday, Nov 15, 16 @ 1:35 pm:
@Aguy- It really does not matter what agreement they strike, if they actually come to one, if the carriers do not pass along the savings to the customer. So far they are keeping the savings from the 2011 changes as profit.
- Just Saying - Tuesday, Nov 15, 16 @ 1:45 pm:
Workers’ Comp has become THE big symbolic problem as perceived by the majority of employers. I’m not saying that others don’t exist, but WC is the number one problem cited when businesses leave to other states. I saw figures today an ad (was it here?) that say that Illinois is the only state in the midwest with negative manufacturing jobs created over the past few years. That ain’t good. And remember: a lot of those jobs that have been lost were union jobs. Reforms in the WC system that truly bring down costs for employers would therefore have more perceived impact as well.
Perhaps Gov. Rauner should concentrate on just the one victory that could be seen as most significant.
- Sean Stott - Tuesday, Nov 15, 16 @ 1:49 pm:
With all of the shortcomings of the Oregon study (how many logging companies are in Illinois?), one of the biggest is that it does not incorporate the most current data and the most recent trends.
Illinois’ overall recommended WC insurance rates have dropped 29 percent since the pro-employer WC law changes of 2011, including a whopping 13% rate cut for the upcoming year. In large part, those reductions are due to plummeting medical costs (which represent about half of all WC claims’ costs). The Oregon study does not take those facts into account. The question then becomes, are the insurance companies passing these savings along to Illinois employers?
Obviously, the Oregon report conveniently fits into the IPI/Rauner narrative. The facts don’t. Lawmakers should not take the “causation” cleaver to the Workers Comp system (and injured workers) as the Governor has proposed. Let the 2011 changes continue to lower our costs and/or hold the feet of the insurance industry to the fire.
- A guy - Tuesday, Nov 15, 16 @ 1:53 pm:
JSM, while I share your concern to a point, pressure did make the previous WCR make it’s way to the premium payers. Not soon enough, and frankly, not enough. The great debate then was that it didn’t go near far enough. While that was certainly true, some heroic efforts got it passed.
Employers will look at the law. Right now, it’s unfavorable to many. This could be a huge step in attracting jobs. The insurance companies can be pressured. They have been. Let’s give ourselves something to pressure them over.
- Annonin' - Tuesday, Nov 15, 16 @ 2:22 pm:
To achieve the goals of BigBrain the state median income must drop — IN is $9K lower.
Bringin’ insurance companies under control will help, but they are BigBrain backers too.
- BK Bro - Tuesday, Nov 15, 16 @ 2:25 pm:
Glimmer of hope: When compared to Illinois, Alaska is worse for work comp AND worse for weather. Illinois 1, Alaska 0.
Side Note: Just LOL at California.
- Deft Wing - Tuesday, Nov 15, 16 @ 2:32 pm:
Stott and the Unions are absolutely satisfied with Illinois being an outlier on WC, much like their satisfaction with almost all aspects of state governance in Illinois because, shocker, these systems are set, inordinately, to their benefit …and to the corresponding detriment to taxpayers.
Illinois is a financial mess and it’s workers comp system is a significant part of that mess.
- blue dog dem - Tuesday, Nov 15, 16 @ 2:42 pm:
To updates 1 & 2. Let Labor continue to own the Democratic Party, and in a couple decades Illinois will be swallowed in the sea of red we witnessed last Tuesday. When will Labor (management) realize they are hurting those they represent more than they are helping them. The numbers say it all. CAUSATION is what needs to be challenged. On the job injuries will still be covered. Injuries sustained by repetetive work motions will still be covered. Give it up, or it will doom us.
- 4 percent - Tuesday, Nov 15, 16 @ 2:49 pm:
Private sector labor union jobs are disappearing as the manufacturing sector leaves Illinois while every other Midwest state has large manufacturing gains.
Sean’s obfuscation is a continued red herring. Blame someone else - it’s easier.
- Team Sleep - Tuesday, Nov 15, 16 @ 2:58 pm:
Causation, causation, causation!
Once again both sides run to their respective sidelines. Causation makes a lot of sense. The feds use causation standards for federal worker’s comp.
“1-1. Purpose
The FECA provides compensation benefits to civilian employees of the United States for disability due to personal injury or disease sustained while in the performance of duty. The FECA also provides for the payment of benefits to dependents if a work-related injury or disease causes an employee’s death. The FECA is intended to be remedial in nature, and proceedings under it are non-adversarial.”
- Anon221 - Tuesday, Nov 15, 16 @ 2:59 pm:
It’s been posted before, and probably will be again… still worth reading and listening to as you form your own ideas of what WC should be in Illinois.
http://www.npr.org/series/394891172/insult-to-injury-americas-vanishing-worker-protections
- walker - Tuesday, Nov 15, 16 @ 3:06 pm:
Another case where a “free market” approach will never reliably produce lower costs for the insurance customer. Insurance, by its nature, is a mutually agreed corrective force within a market, and normal profitability incentives do not work well. Regulate the allowed premium levels in some fashion, or only allow mutuals or not-for-profits to play.
- lincoln's beard - Tuesday, Nov 15, 16 @ 10:05 pm:
Employers do a pretty poor job of shopping around for worker’s comp insurance. If you don’t demand a lower price, the insurance company has no incentive to drop your rates. My guess is that self-insured employers have seen a significant drop in costs since 2011, but your average employer probably hasn’t even considered switching carriers for a better rate.
- No big deal - Wednesday, Nov 16, 16 @ 1:19 am:
We should ask alderman burke why he shakes down wc providers for politicial contributions. Thank god his wife is on the I’ll supreme court.