Wednesday, January 24, 2018

An Open Letter To All Illinois Candidates For Governor (including the incumbent)

So Illinois is going to have an election this fall for governor, and one of the issues this time (as has often been the case) is likely to be Workers Compensation. Our incumbent governor has been raising what, to this observer, seem to be rather tired and doctrinaire points about how the cost of Workers Comp in Illinois is higher than in neighboring states (Indiana in particular). But Governor Rauner's prescriptions always seem to be limited to doing things to reduce benefits to injured workers or limit the incentives for attorneys to help injured workers obtain fair benefits.

And so I want to make my recurring suggestions that this is not the only way (or even a good way) to reduce the cost of Workers Compensation for many Illinois employers.

As I have testified before the Illinois legislature on more than one occasion, for most Illinois employers the real cost of Workers Compensation is the cost of Workers Compensation insurance.
Only very large employers can qualify to be truly self-insured (and even many of those employers find that large deductible insurance policies may be better suited to their needs.)

Most employers have to purchase an insurance policy from a private insurance company to meet their statutory requirements under the Workers Compensation Act. And in Illinois, insurers have a free hand to charge what the market will bear--and then some, in many cases.

Some reasonable insurance reforms could help to significantly reduce the cost of Workers Compensation insurance for many employers, without further reducing the benefits paid to injured workers.

Right now, many smaller employers end up in the Assigned Risk Plan, where manual rates and premium charges are much, much higher, and service from insurers and agents are much, much lower (often non-existent.)

There are existing mechanisms that Illinois government could utilize to provide a lower cost alternative for many employers who suffer the costs of Assigned Risk coverage even though their loss record is good. The State of Illinois could create a PEO.

The existing insurance system already allows PEOs (Professional Employer Organizations) to offer Workers Compensation coverage to companies in Illinois. Currently, these are all private companies of varying size and reliability. But there is nothing to prevent the state of Illinois from establishing its own PEO and then offering coverage at something less than Assigned Risk rates to employers who meet reasonable criteria.

Some care and effort would have to be exercised to prevent poor underwriting from destroying such a PEO a few years down the road, but a PEO would be able to achieve exactly the same results as the government-sponsored insurance fund that was proposed by the legislature last year (and which Governor Rauner vetoed) but would be much easier to establish and implement because it would involve a working partnership with an already-existing insurance company. (That's how PEOs work-they obtain coverage at lower cost for their clients by negotiating what amount to volume discounts with an insurance company.)

The state could even target certain economically distressed areas, through this PEO mechanism, with some discounts on Workers Compensation rates based on geography (along with the aforesaid underwriting practices.)

So if you wanted to encourage manufacturers to return to Chicago, or Cairo, you could offer additional discounts to such companies who set up shop there. There is tremendous flexibility within the existing insurance rating regulations (for all practical purposes, there are no limitations on rating and pricing flexibility) so such things would be completely possible.

By partnering with a responsible and experienced insurance company through a PEO mechanism, Illinois could provide a significant reduction in Workers Compensation cost for many employers, without having to reinvent the wheel and without the potential temptations of a government-run insurance fund (politicians in other states have sometimes found claims reserves from such funds to be a very tempting target to be siphoned for other uses.)

It's a modest proposal, as they say--but one that could be done and which would create a tool for economic development in Illinois without hurting workers.

If I could only get someone to listen.

1 comment:

Unknown said...

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