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State-backed workers’ comp insurance idea attacked by biz groups

Monday, May 1, 2017

* I mentioned this bill in my weekly newspaper column, so let’s take a look. Here’s a press release from last week…

The Illinois House of Representatives today passed HB 2622, a bill creating a not-for-profit workers’ compensation insurance company that would compete with other insurers to provide workers’ comp coverage to Illinois employers.

Proven to be successful in the 17 other states where they operate, including neighboring Missouri and Kentucky, these companies typically grow to be the biggest providers of workers’ compensation insurance in their respective states.

HB 2622 was sponsored by Rep. Laura Fine (D-Glenview), and supported by organized labor in Illinois, including the Laborers’ International Union of North America (LIUNA).

Sean Stott, Director of Governmental Affairs for LIUNA’s Midwest Region, said that the creation of a not-for-profit insurance alternative will enhance competitiveness in Illinois’ insurance market and force insurers to cut costs for Illinois employers.

“Big business and Governor Rauner want to cut benefits for injured workers and exclude legitimate injuries from coverage,” said Stott. “That has proven not to be an effective way to control employer costs.”

In 2011, Illinois lawmakers passed a series of benefit cuts for workers. Stott said the savings from those cuts have not been passed on to Illinois employers, but instead have substantially increased the profits of insurance companies.

Since Illinois does not strictly regulate workers’ compensation insurance premiums, as others states do, the recommendation of a 29 percent cut in insurance rates since the 2011 law changes has not been honored by the insurance industry.

The portion of workers’ compensation premiums paid by Illinois employers that is used to pay injured workers’ benefits has dropped 28.4% since the 2011 law changes.  According to the Illinois Department of Insurance, barely half of premiums collected by insurers (53.5 percent) in 2015 were used to pay workers’ comp claims. 

“Where is the rest of Illinois employers’ money going?” Stott asked.  “It should come as no surprise that insurance company profits are skyrocketing.”

According to the Department, insurer profits on workers’ comp sales have increased 30 percent since 2011.

HB 2622 offers Illinois employers an alternative to padding the profits of insurance companies. State-chartered workers’ comp insurance companies provide long-term savings and a high level of service to their policy holders because they:

    • Emphasize avoiding accidents by improving workplace safety through working with employers to eliminate hazards.
    • Have no profit motive: they answers to policyholders, not stockholders.
    • Do not sell other types of insurance, so their exclusive focus is providing employers with the highest quality customer service.

* The IMA hates the bill…

Illinois’ workers’ compensation costs rank 8th highest in the nation and remain a primary reason why manufacturing companies and good paying jobs are fleeing the state. Since the end of the 2009 recession, Illinois has lost 1,600 manufacturing jobs while our neighboring states have added tens of thousands of new jobs.

This week, House Democrats passed two bills (HB 2525, HB 2622) under the guise of reform. Nothing could be further from the truth. It’s window dressing and a political sham designed to deflect from the necessary reforms that are needed to make Illinois more attractive for job creation and capital investment. Further, lawmakers are taking $10 million in employer money from the Illinois Workers’ Compensation Commission to start a new public insurance company that will compete with the private sector at a time when they have not passed a balanced budget with comprehensive budget reforms.

The bill’s chief sponsor publicly acknowledged in committee that he refused to make any changes in the last year despite personally participating in more than 100 hours of meetings with all stakeholders.

These House Democrat-sponsored bills will not reduce costs or reform the system to make Illinois competitive. In fact, this legislation further hinders Illinois’ workers’ compensation by codifying a horrible court ruling into law for the benefit of trial lawyers and labor unions.

The Illinois Manufacturers’ Association continues to call on the Governor and lawmakers to enact real and meaningful reforms to our workers’ compensation system that include these key components:

    Create a causal standard
    Bring inflated medical costs into line with average states
    Reduce the abuse and high cost of drugs and compounds
    Strengthen use of American Medical Association standards

It’s time to stop the bogus and contrived political games and start making Illinois work again.

* Steve Schneider, Midwest region vice president for the American Insurance Association, is also no fan…

“AIA is disappointed by the House’s passage of HB 2525 and HB 2622, adverse workers’ compensation legislation.

Illinois is the most competitive state for worker’s compensation insurance. More than 300 insurers compete for the right to earn a customer’s business. Competition is intrinsically good for all Illinois employers who must purchase this mandated, comprehensive coverage. This competition stems from Illinois’ current open competitive rating law that has been in effect for 35 years. HB 2525 would eviscerate that law and its benefits for Illinois employers.

By replacing healthy competition with an extremely vague regulatory standard, HB 2525 could lead to every single workers’ compensation policy and its premiums undergoing formal review by the Department of Insurance every year, or even more frequently. Such bureaucratic interference with open competition will hurt not just workers’ compensation insurers, but all Illinois businesses.

Additionally, HB 2622 not only inappropriately interferes with the private market, but also fails to provide meaningful reform to the Illinois’ workers’ compensation system. No reason exists for Illinois to create its own state-sponsored workers’ compensation insurance company to compete against private sector insurers and jobs when no major crisis is present and massive government intervention is not necessary.

Insurers stand ready to work with policymakers on meaningful reform to provide an effective workers’ compensation system with reduced cost drivers for employers and appropriate benefits and medical care for injured workers with a minimum of delays and disputes. HB 2525 and HB 2622 is not the right approach to achieving meaningful reform.”

The bill passed the House with 67 votes. It’ll be vetoed no matter what the Senate does and then it won’t be overridden.

- Posted by Rich Miller        

33 Comments
  1. - 47th Ward - Monday, May 1, 17 @ 10:57 am:

    ===No reason exists for Illinois to create its own state-sponsored workers’ compensation insurance company to compete against private sector insurers and jobs when no major crisis is present and massive government intervention is not necessary.===

    Can someone please highlight that and send it over to Baise for a response? Maybe ask the Governor for a comment too.

    The Illinois Worker’s Compensation system ain’t ready for reform apparently.


  2. - Hamlet's Ghost - Monday, May 1, 17 @ 10:59 am:

    == It’ll be vetoed no matter what the Senate does and then it won’t be overridden. ==

    And that will establish that increasing insurer profits has been the true motive for the workers comp reform initiative, all along.


  3. - West Sider - Monday, May 1, 17 @ 11:00 am:

    Leave it to Illinois Republican shills to decry competition as “interference with open competition”.


  4. - walker - Monday, May 1, 17 @ 11:12 am:

    Illinois is already “the most competitive” with “over 300 companies”.

    OK then. Is that why rates are now so low?

    People often don’t get that the whole concept of insurance is to operate counter to the ordinary processes of competition for profit in a marketplace.


  5. - chi - Monday, May 1, 17 @ 11:14 am:

    IMA doesn’t really give any reasons why the bill wouldn’t reduce costs. It’s a very Rauner-ish response in that it appears at first glance as though it’s addressing the issue, but actually doesn’t address the issue at all.


  6. - odd - Monday, May 1, 17 @ 11:15 am:

    Insurers. Aren’t. Driving. High. Workers’. Comp. Costs. Steve Brown and his buddies in the trial bar are chasing windmills. I don’t know if they’re ignorant, lying or both.

    According to the Illinois Department of Insurance, insurers here have had a profit rate below the national average in every single year from 2011-2015, with an average annual profit rate of 2.7 percent in Illinois, compared with a national average of 7.1 percent. http://insurance.illinois.gov/wcfu/2016WorkCompReportFinal.pdf


  7. - NoGifts - Monday, May 1, 17 @ 11:26 am:

    What? Those biz groups needn’t purchase insurance from the state if they prefer other companies.


  8. - Bigtwich - Monday, May 1, 17 @ 11:26 am:

    A 2015 story in Carain’said Illinois payments were falling below neighboring states such as Indiana.
    http://www.chicagobusiness.com/article/20151027/NEWS02/151029869/illinois-workers-comp-costs-fall-below-indiana-wisconsin
    If that is indeed the case the bill maks a great deal of sense.


  9. - wordslinger - Monday, May 1, 17 @ 11:32 am:

    What are these “comprehensive budget reforms” IMA is referring to? Sounds like a big story.

    Some of these guys don’t even try to phone it in.


  10. - NoGifts - Monday, May 1, 17 @ 11:40 am:

    @Odd — page 3 of the report shows workers comp insurance profit increasing every year since 2010, achieving a high of 10.8% profit by 2014. An average of the years doesn’t make sense for an increasing chart. The report shows a trend of decreasing losses and increasing profits. We’ll probably see even more companies writing policies next year! The business climate for workers comp is apparently good.


  11. - odd - Monday, May 1, 17 @ 11:53 am:

    @NoGifts — This is a total dodge. We’ve been below the national average for five years running. If Madigan et al think the culprit is profit margin, then let’s open the books on the trial lawyers as well. What’s to hide?


  12. - Ahoy! - Monday, May 1, 17 @ 11:58 am:

    It’s a stupid bill that would only cause the State headaches and not solve the problem. It’s the typical Illinois General Assembly notion of creating a fake solution for a real problem.

    The notion that hundreds of insurance carriers are conspiring to keep rates artificially high is just as crazy as the anti-vaccine people or the science deniers of climate change.


  13. - JerryN - Monday, May 1, 17 @ 12:04 pm:

    Surprisingly enough, the insurance industry is against greater competition and the IMA (full of self-insured manufacturers) still wants to see benefits cut. This bill is a solid compromise between denying or reducing benefits to injured workers and allowing businesses to see some savings in their premiums.


  14. - phocion - Monday, May 1, 17 @ 12:06 pm:

    Here’s an idea for more competition. The state should hire a pool of workers compensation attorneys who can represent injured workers at a fraction of the cost of private sector trial lawyers. I mean, that would be fair, right? Looking out for costs and injured workers, right?


  15. - NoGifts - Monday, May 1, 17 @ 12:10 pm:

    @Odd - a dodge? Just reading the reported data. In 2014 the percent profit reached the national average, and if the trend shown for the last 5 years continues, Illinois profits will surpass the national average. The chart shows profits in Illinois gaining 20 points (from -10.8 to 10.8) during those years!


  16. - blue dog dem - Monday, May 1, 17 @ 12:19 pm:

    I just googled ‘illinois prison guards carpal tunnel’ and found boats loads of goodies. I did the same for Missouri and Kentucky and came up empty. Am I dumb(Word be nice) or is this why grass is greener elsewhere?


  17. - Just Me - Monday, May 1, 17 @ 12:26 pm:

    We don’t have time to pass a budget, but we have time to play political games. Wonderful. Our State is so awesome.


  18. - Last Bull Moose - Monday, May 1, 17 @ 12:47 pm:

    When this is vetoed and not overridden, take the same $10 million and use it as seed money for a manufacturers cooperative workers’ compensation insurance company. The manufacturers could then share in the profits. Have a schedule for repaying the seed money built into the legislation.


  19. - odd - Monday, May 1, 17 @ 12:52 pm:

    @NoGifts — This talking point is a dodge to avoid discussing many underlying cost drivers within the system that should have been fixed long ago but would cut into trial lawyer profits.


  20. - Louis G. Atsaves - Monday, May 1, 17 @ 1:14 pm:

    Blame anything other than the 2005 Workers’ Compensation amendments that rocked costs and premiums from #23 amongst states to #2 before some minor corrective actions in 2011 reduced us to around #7 today.

    Over 300 insurance companies in collusion? Sure. That tin foil hat looks real attractive. But then again, in comp with structured statutory benefits, premium reductions may be more difficult than in other fields of insurance. We can study and regulate this issue to death, but it will never have the impact of those 2005 amendments.

    Yup! That reform stuff. When you don’t want to do it, just keep pointing fingers. What’s that old adage again? When you point a finger, three point back at you?


  21. - Anonymous - Monday, May 1, 17 @ 1:16 pm:

    Here’s a recap Illinois’ Workers’ Comp experience since the 2011 benefit cuts:
    - Total annual benefit payouts (to injured workers & medical providers): DOWN 9.4% between 2012 & 2015;
    - Total RECOMMENDED WC premium rate change: DOWN 29% (including the 3rd largest reduction in the nation for 2017);
    - Total premium paid by Illinois employers: UP 8% between 2012 & 2105
    - Amount of premium used by insurers to pay claims: DOWN 28.4% from 2011 to 2015
    - Amount of profit collected by insurers from IL employers: UP 30% from 2011 to 2014

    Whether you agree or disagree with the solutions presented in these bills, the problem is that there is nothing compelling insurers to pass along to IL employers the savings that insurers - most definitely - have realized since 2011. HB 2525 takes that issue head on via rate review. HB 2622 has a more indirect approach. We would gladly look at other proposals that would don’t pad the profit margins of Big Insurance.


  22. - Sean Stott - Monday, May 1, 17 @ 1:17 pm:

    Anonymous 1:16 p.m. was me.


  23. - Sean Stott - Monday, May 1, 17 @ 1:22 pm:

    Neither labor nor the trial lawyers have ever accused the industry of collusion. We are just reporting the stats that the insurance industry has reported itself via the Illinois Dept. of Insurance.


  24. - Anonymous - Monday, May 1, 17 @ 1:41 pm:

    Sean,

    Are you willing to put a clause in the state fund bill. If rates don’t decrease by 18 percent in the next five years, then causation becomes law? If a state fund is THE solution, then back up your words with a guarantee.


  25. - blue dog dem - Monday, May 1, 17 @ 2:10 pm:

    To sean scott and others. What compels Illinois to be different than its neighbors when it comes to work comp? How about a national federal work comp program.? Causation, claim payouts, the works. We can pretty much eliminate insurance,trial lawyers. Man will rates plummet.


  26. - Sean Stott - Monday, May 1, 17 @ 2:10 pm:

    Anonymous 1:41 I have two responses to your (what I presume to be a rhetorical) question: 1) I didn’t say that a not-for-profit company was “THE solution” and 2) are you asking that we be reliant upon the same insurance industry to pass along 18% savings to IL employers or are you asking for an additional 18% rate reduction on top of the 29% in recommended reductions since the 2011 law changes?


  27. - 39th Ward - Monday, May 1, 17 @ 2:25 pm:

    It’s pretty absurd to think that a state with the astounding actuarial ignorance that led to the largest pension shortfall in the country could run a workers compensation business.


  28. - blue dog dem - Monday, May 1, 17 @ 2:52 pm:

    We have let the state run public higher ed for how long? Good to know tuition costs haven’t gone up much the last 30 years.


  29. - Oswego Willy - Monday, May 1, 17 @ 2:57 pm:

    ===We have let the state run public higher ed for how long?===

    49 states seem to have a grasp on it. Illinois can first do a solid by having Rauner fully fund higher education, then have Rauner work on a constitutional WC Bill that also is responsible. I’d submit, snarklessly, - Louis G Atsaves - to lead that.


  30. - Ron - Monday, May 1, 17 @ 3:02 pm:

    bdd, Illinois is run by a bunch of goons. Has been for decades.


  31. - blue dog dem - Monday, May 1, 17 @ 3:20 pm:

    Ron, you will get no argument from me, but I include both major political parties into the ‘goon’ category.


  32. - Louis G. Atsaves - Monday, May 1, 17 @ 3:48 pm:

    Mr. Stott, is it an 18% recommended reduction from 2012 to the present, or 29% or 30%? Does it include those employers who are self-insured or members of a group that is self-insured? If not included, why not? Do these recommendations include or not include cost increases in medical bills now governed by the Medical Fee Schedule?

    The 30% increase in “profits” (I assume all premium increases are unreasonable and represent automatic profits using arguments made by my fellow trial attorneys) since 2011 (or 2012) average out to 5% per year? Or are premiums set based on a combination past loss ratios and anticipated future loss ratios based on employment and wages earned, i.e. laborers on a construction site are more expensive to insure under the Act than a secretary in an office building).

    As over 90% of Workers’ Compensation claims are either settled or closed without the need for litigation, when the “causation” factor kicks in, then how significant of a premium reduction can one expect on tightening “causation” standards? With the recent curbing of the AMA Standards by an Illinois Appellate Court, how will tightening those standards survive judicial review? How will tightening causation standards survive judicial review?

    Let’s try the causation standard of “arising out of and in the course of the employment” and see how that works. It is used in Indiana. And guess what campers, it appears in our Workers’ Compensation Act as well.

    The Act still commands that proceedings before the Commission be “simple and summary in nature.” The more those hearings are complicated, the more expensive it gets for both sides.

    Sorry to sound so jaded, but all I see so far in the nature of reforms of the Act are minor and trivial. And for some mysterious reason, no Comp bill can survive even being minor and trivial? That speaks volumes about our current political process, no matter which side of the table you are sitting at.

    Go back to the 2005 amendments. Some were worthwhile, others were not, and caused premiums and costs to skyrocket. Start there.

    Illinois Workers’ Compensation reform was suppose to be low hanging fruit two years ago. That fruit isn’t super glued. Political will? That’s another story.

    Questions. Questions. I ask these questions all the time in the field of law I have practiced in since 1979. Am I the only one asking them?


  33. - Liberty - Monday, May 1, 17 @ 5:24 pm:

    We need a free market option where employees are free to sue employers for impeding their right to work.


Sorry, comments for this post are now closed.


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