* 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.