Wednesday, June 17, 2020

Minority-Owned Businesses and Illinois Workers Comp Costs

My company is in the process of trying to initiate some outreach with minority-owned businesses in Illinois, as I've come to suspect that such minority-owned businesses might be disproportionately impacted by the kinds of overcharges we routinely find when we review Workers Compensation insurance premium charges for employers. I suspect certain features of the Workers Comp insurance system might be causing even greater harm for minority businesses than they do for employers in general.


One of those features of the Illinois Workers Compensation insurance system that I fear may disproportionately harm minority businesses is the Assigned Risk Plan. Since Illinois mandates most businesses carry Workers Compensation insurance, the Assigned Risk Plan was created to make sure that businesses can obtain Workers Compensation insurance even when insurance companies, operating in the so-called “voluntary market”, are unwilling to offer this coverage.


The Assigned Risk Plan is sometimes called an “insurer of last resort” because the insurers taking part in the plan cannot reject an application for coverage (save only if the employer has failed to pay a prior premium bill for a policy from the Plan.)

But the downside of the Assigned Risk Plan is that it is much, much more expensive than identical coverage offered through the voluntary market. By means of a combination of higher rates and the loss of certain discounts, premium charges for an Assigned Risk policy can often be close to double what the premiums would be for an identical voluntary market policy.

The only requirement for acceptance into the Assigned Risk plan is an insurance agent who attests that a couple of different voluntary market carriers declined to cover a business. This is a fairly low bar, and for a variety of reasons I suspect minority-owned businesses might get shunted to Assigned Risk policies disproportionately, even though voluntary market coverage might, with just a bit more marketing effort, be available.  

Workers Compensation insurance in Illinois is sold by insurance agents, of course. And not all insurance agents and agencies have the same access to desirable Workers Compensation insurance companies. 

So if a minority-owned business approaches a small insurance agency with limited access to voluntary market Workers Comp insurers, I fear that those agents may often place these businesses into the Assigned Risk Plan-- not because of any inherent problems with the business but because small insurance agencies typically have less access to a variety of voluntary market insurers.

This process would often not be particularly transparent to the business owners, who may have limited understanding of the fine points of the insurance system, particularly in regards Workers Compensation insurance. In my experience, even very experienced business managers have little understanding of the hidden pitfalls of the insurance system.

But it's not just the inherent higher cost of Assigned Risk policies.

My company specializes in finding and correcting technical errors by insurance companies, errors that overcharge the business that purchased the insurance. Such overcharges are, unfortunately, far from uncommon. I’ve been doing this kind of work since the mid-1980s, and I started my company in 1987 to specialize in it.

These kinds of technical errors, when they happen in Assigned Risk policies, get amplified by the higher rates and lack of discounts that are the norm in the Assigned Risk Plan.  So minority businesses may well be getting doubly harmed—first, by being disproportionately placed in the more expensive Assigned Risk Plan, and second, by the increased impact of technical errors within the more expensive Assigned Risk policies.



Well, anyway, that's my concern, at any rate. And like I said, we're in the process of initiating some outreach to minority business owners, to see if we can help them catch and correct the overcharges that I've spent the past few decades finding and correcting for employers all across the U.S.

I'll keep you posted regarding what we find. My gut feeling is that there is a lot to find, and a lot of overcharges to recover.

Tuesday, May 19, 2020

The Great California Workers Comp Insurance Dual Wage Classification Scam

I've just finished reviewing my second California Shock Audit today that was caused by the same outrageous insurance industry scam, one that is unique to California and that typically ambushes small contractors: The Dual Wage Classification Scam.

Here's how it worked for one of these contractors, a small plumbing contractor in Los Angeles. When the policy was written, all the non-clerical payroll was placed into Code 5187, the plumbing classification to be used when workers are paid $26.00 per hour or more. This class had a rate of 5.21 per hundred dollars of payroll.

Also on the policy was Class 5183, for workers paid less than $26.00 per hour. That class had a rate of $10.41 per hundred dollars of payroll. But that class had no payroll shown, just "IF ANY", so since there was zero payroll in that class it generated zero premium--at least, zero initial estimated premium, on the original policy that was sold to this plumber.

But of course, the initial estimated premium on the policy isn't the actual cost for the insurance. After the policy ends, the insurer normally wants to determine what the actual payroll was for the policy period--after all, premiums for Workers Comp insurance are based on payroll.

But audits often do more than just adjust payroll. In this case, the audit did a classic Shock Audit switcheroo--the audit, unlike the original policy, placed all non-clerical payroll into the $10.41 classification, and none into the $5.21 class.

Presto, change-o--this plumber's insurance rate just doubled, after the policy was ended and it was too late to do anything about it.

And all perfectly according to Hoyle, or rather, according to the self-serving rules the insurance industry has created.

The insurance industry rules require very specific timekeeping records be kept, and if they are not kept exactly as required then the payroll shifts to the more expensive one and it doesn't matter a bit how the policy was set up when purchased.

Now, with my small plumber, this was not explained when he purchased his policy. It doesn't matter.

The easy to understand rules that were not explained are:

 1. Original time cards or time book entries for each employee. Original records must include the operations performed, the total hours worked each day and the times the employee started and ended each work period throughout the workday. At job locations where all of the employer’s operations cease for a uniform unpaid meal period, recording the start and stop times of the uniform break period is not required. 2. A valid collective bargaining agreement that shows the regular hourly wage rate by job classification of worker. If using a collective bargaining agreement, the records must include an employee roster by job classification that permits the reconciliation of individual employees to the job classifications set forth in the collective bargaining agreement.  

This clever arrangement guarantees that a fair number of small employers will think they are buying a policy with a five dollar rate, only to learn after the policy ends that they really owe based on a ten dollar rate.

Sure wish I could run my business like that.

And unless this insured kept those kinds of records, there's nothing at all he can do about this legal bait and switch operation.

Fortunately, it looks like there might be other errors in how these premium charges were computed, errors that might be more amenable to correction.

But it rankles me that the existing rules allow this kind of classification hocus-pocus to happen. And it happens to a lot to small contractors in California, and they typically have to just suck it up and pay.

Wednesday, April 22, 2020

Employers' Groups in Illinois Fight to Screw Over Sick Workers

I know, I know, a provocative headline. 

But that's how I see the new lawsuit brought by the Illinois Manufacturers Association and the Illinois Retail Merchant Association. The lawsuit seeks to block the recently enacted emergency amendment to the Illinois Workers Compensation rules, an amendment that provides a rebuttable presumption, for workers at businesses not shut down during this pandemic, that any COVID-19 infection is causally connected to their employment.

In short, the amendment extends Workers Comp coverage for COVID-19 to a lot of people who are working at places exempted from the emergency shutdown.

The amendment covers places like gas stations, hotels, restaurants (those still allowed open to serve take-out) professional services (like my own company here) funeral homes, grocery stores, and more, which were allowed to remain open and where lots of people are risking their lives by showing up to work every day.

These two powerful business groups claim that the emergency amendment was created improperly, bypassing the usual legislative process. About that I can have no professional opinion.

But the lawyer who filed the suit also claims that this emergency amendment will force employers to pay for "additional medical and salary costs regardless of whether an employees' illness was contracted outside of the workplace."

About that, I have some thoughts.

First off, most of the members of these two groups buy insurance for their Workers Comp coverage. That means that the immediate "medical and salary costs" from the amendment will be born by insurance companies, not the employers currently struggling with these unprecedented times.

Of course, to the extent that these COVID-19 claims are significant and substantial in the aggregate, Workers Comp insurance rates will likely increase--in future years.

But those increased insurance costs won't be immediate-- except for the largest employers who likely are on loss sensitive Workers Comp plans like Large Deductibles. For those bigger employers, any increases in claims costs will likely translate into additional insurance costs much sooner than for smaller companies on what are known as "Guaranteed Cost" Workers Comp policies.

But even those insurance increases may not come to pass, because it seems quite possible the federal government will have to come up with an emergency reinsurance program for insurers regarding COVID-19. It's already been proposed in Congress, and if it comes to pass, premium increases for Workers Comp would be significantly diminished.

One of the lawyers bringing the suit also has inadvertently highlighted the very reason this emergency amendment was so very much needed. Scott Cruz, one of the attorneys for the two business groups, was quoted in Crain's Chicago Business thusly: "At a time when many are waiting for relief from the federal and state government in an effort to make payroll and retain workers, they will now be forced to pay for additional medical and salary costs regardless of whether an employees' illness was contracted outside of the workplace."
Yeah, about that. See, without this emergency amendment, a worker who gets sick with COVID-19 would have to somehow prove it came from work, and not from somewhere else. As is readily evident, that is a practical impossibility. The emergency amendment establishes that, for these workers who are working at businesses that are specifically exempt from the general shut-down order, workers won't have to prove the impossible in order to get Workers Compensation benefits.
How outrageous!
Of course it's impossible to prove where one contracted this goddamned virus. So for people who are working in workplaces where common sense and logic tell you they are going to be exposed to this virus, there needs to be a presumption it came from work.

Without this presumption, workers who do catch the virus at work likely would not be able to get Workers Comp benefits, precisely because it's impossible to prove it was contracted at work. That's why the emergency amendment was needed for workers in those businesses who were exempt from the shut down orders.

But let me get this straight. The workers at these companies are risking their lives, risking the lives of their families, to show up to work where an incredibly infectious virus likely exists. And these business groups want to whine that protecting these people with Workers Compensation coverage is unfair and expensive?

My immediate reaction is not with words, but involves a certain notorious middle digit.

I don't know what overpaid geniuses at these organizations thought this was a good idea, to file this suit, but I have a news flash for them:

It was a fucking horrible idea. And it essentially spits in the face of that whole "We're all in this together" business that a lot of good folks have been using as a rallying cry in these dark times.

The day after this emergency amendment was announced, I filed a claim with my Workers Compensation insurer, because we have a worker at our little shop who was diagnosed with COVID-19 and we are a professional services company, which means we are covered by this emergency amendment.

And the reason I made this filing was that I want my worker to get the Workers Compensation benefits that could be so important. So I made the filing without my worker even realizing that she might be eligible for coverage, and then I informed her to expect a call from the insurance company.

I might well have been the first employer to file a claim under the emergency amendment, and I was happy to do it.
Because it's the right goddamned thing to do.
Maybe the big shots at these big employer groups got their noses out of joint because this emergency amendment came about without their involvement. These groups tend to view Workers Compensation as a big political football game, and they love being players in that big game, so maybe their bruised egos account for part of the motivation for this lawsuit.
Maybe they think their members are really cheapskate skinflints who don't give a damn about what happens to those people currently risking their lives to keep their businesses running. I don't think that's really the case--that is, I don't think most of their members are that way, but perhaps these big shots think that's the case.
Look, making COVID-19 infections for these workers covered under Workers Comp gives important protections to the employers involved, not just to the workers. Workers Comp is what's known as an Exclusive Remedy--so it generally shields employers from lawsuits. That's a fundamental part of the "Great Compromise" aspect of Workers Compensation--it provides no fault coverage but gives employers important legal protections.
So if these brilliant business groups should prevail, it might well create unanticipated negative consequences for their members. Without the protection of the Exclusive Remedy that is Workers Compensation, these employers might well end up on the receiving end of a number of individual lawsuits on behalf of sick workers or their survivors.
Be careful what you wish for, Illinois Manufacturers' Association and Illinois Retail Merchant's Association. You might get it. And the butcher's bill for dead workers not covered by Workers Compensation might be worse than the costs of covering those workers.
That's the kind of cold-blooded argument that be most important for those who view workers only as expendable inputs to their business. I don't really think most employers in Illinois see things that way. I think most employers, certainly most employers I've known over the years, value and respect those whose labors make their companies possible. Those employers want to do right by their people, I believe.
But these two business groups appear to have not gotten that memo. Perhaps they think they will score points with their members by this provocative action. I hope they don't. I suspect they won't. At the very least, the optics are horrible. The phrase "stinks on ice" comes to mind. If members of these two groups feel the same, perhaps now is the time to communicate that to the organizations.
Right now, these two business groups think they are speaking for their members. I suspect that may not really be the case.

In any event, the lawsuit has been filed. We shall see if it proves successful. I pray it is not, but money talks and working people walk. Especially folks who work at hotels and gas stations and grocery stores.

I think it's fair to say you can color me disgusted.



Thursday, April 16, 2020

California Orders Insurance Premium Refunds Over COVID-19


Insurance companies have been ordered to return premiums to customers and businesses affected by the novel coronavirus pandemic by order of California Insurance Commissioner Ricardo Lara, his office announced early Monday, April 15.

The commissioner's office said the shelter-in-place order across the state has reduced the overall risk of loss and thus these premium refunds were warranted.

"With Californians driving fewer miles and many businesses closed due to the COVID-19 emergency, consumers need relief from premiums that no longer reflect their present-day risk of accident or loss," Lara said in a statement. "Today's mandatory action will put money back in people's pockets when they need it most."

The premiums covered are for March, April and May of 2020, if the shelter-in-place order continues through then.

The particular categories of insurance premiums covered by the order are: private passenger automobile, commercial automobile, workers' compensation, commercial multi-peril, commercial liability, medical malpractice and "any other insurance line where the risk of loss has fallen substantially as a result of the COVID-19 pandemic."

Insurance companies have until August to comply with the order -- whether through premium credits, reductions, return of premiums or other appropriate premium adjustments.

A Lot of Illinois Workers Just Got Workers Comp for Covid-19

Illinois Governor J.B. Pritzker has announced an emergency amendment to the Illinois Workers Compensation Act that retroactively makes the COVID-19 virus an occupational disease for a great number of workers in Illinois, with a 'rebuttable presumption" that the infection was "casually connected" to their work.

The Amendment makes this change retroactive back to March 20, 2020 and covers workers in a considerable number of industries. These industries are described as "Front Line Workers" which may confusingly suggest that these workers are medical folk or first responders, but those workers are separately included in the amendment. Front Line Workers are defined in this amendment as workers in:

grocery and pharmacy; food, beverage and cannabis production; charitable and social service organizations; gas stations and businesses needed for transportation; financial institutions; hardware and supply stores; critical trades; mail, post, shipping, logistics, delivery and pick-up services; educational institutions; laundry services; restaurants for consumption off-premises; essential business and work-from-home suppliers; home-based care and services; residential facilities and shelters; professional services; day-care centers for children of essential workers; manufacture, distribution and supply chain for critical products and industries; critical labor union functions; hotels and motels; and funeral services.

This makes COVID-19 a covered occupational disease for workers in all these fields, retroactive back to March 20.And the "rebuttable presumption" that it is connected to work means that the worker would not have to prove the infection came through work, but rather it would fall to the insurer or employer to prove that it was not, which in most cases would not be easily done.

Workers Compensation provides no-deductible, no co-pay medical insurance, coverage for lost time, and death benefits, if God forbid they were called for. Workers Compensation also provides coverage in the case of long-term disability or permanent disability.

In other words, this is a very big deal for a lot of workers in Illinois who might have lacked regular health insurance or paid sick leave.

This writer, in fact, has already turned in what might well be the first Workers Compensation claim under this new amendment, for one of our workers who was diagnosed with COVID-19 ten days ago. Until this amendment went into effective April 15 (but retroactive to March 20) COVID-19 would be difficult to establish as having been connected to work, but with this new amendment it is automatically presumed to be so.


Monday, April 13, 2020

NCCI Changes It's Rules Re: Payroll and Classifications During the Pandemic

The National Council on Compensation Insurance (NCCI) has announced it is changing its rules regarding Workers Compensation insurance premiums. NCCI is the Workers Compensation insurance rating bureau used in most (but not all) states in the U.S. and the manuals of rules NCCI produces are used by all Workers Compensation insurance companies writing insurance within those states.

Just a couple of weeks ago, NCCI issued a notice that payroll paid to workers who were not actually working (due to the pandemic) would still be included in the payroll used to compute Workers Comp premiums.

That has now changed. NCCI has indicated it will be filing revised manual rules so that remuneration paid during the pandemic to workers who are not actually working will be excluded from insurance premiums.

The separate California rating bureau, WCIRB, had made a similar announcement a week or so ago.

NCCI has also announced the revised rules will allow for classification changes for workers who have changed the nature of their work duties (like working from home) as long as employers document when the change occurred.

So a small bit of good news amidst all the angst and anxiety of our current crisis.

Friday, April 10, 2020

Illinois Department of Insurance Order re: Cancellations

The Illinois Department of Insurance has directed insurers that write Property and Casualty Insurance in Illinois, a Bulletin dated April 3, 2020, that there is a moratorium on cancellations and nonrenewals as of March 9, 2020. Insurers should postpone or withdraw any previous notice of cancellation or nonrenewal in which the cancellation or nonrenewal occurs on or after March 9, 2020.

This applies to Automobile and Home insurance policies and Commercial P&C Insurance other than Fidelity/Surety and Ocean Marine policies issued in Illinois.