Hearing on Illinois Workers' Comp

Yesterday, I attended a hearing chaired by Illinois Senate President John Cullerton at the State Capital building in Springfield. The subject of the hearing was Workers' Compensation, hence my interest and attendance.

Several employers gave testimony about how the cost of WC claims in Illinois is higher than in nearby states, and gave some anecdotes about some past claims situations that they felt had been unfair. Many of these employers were larger self-insured companies, so their focus was not on the cost of Workers' Comp insurance, but rather the cost of WC claims in Illinois.

Interestingly, it was the labor representatives who testified that focused on Workers' Compensation insurance issues.

I myself had submitted some written testimony to the panel that also focused on Workers' Comp insurance reforms, so I was keenly interested in the testimony provided by the AFL-CIO and some trial attorneys.

They pointed out, correctly, that for small and medium sized employers, the way they generally satisfy their Workers' Compensation obligations is to buy insurance. Thus, for most employers in the state, the cost of Workers' Comp is really the cost of Workers' Comp insurance.

The head of the Illinois Insurance Department testified that Illinois has a competitive Workers' Compensation insurance marketplace, but that really is only partially accurate, in my view. For some employers in Illinois, there is genuine price competition for Workers' Comp insurance. If an employer is the right size, and in the right line of work, and has a decent loss history, there are usually multiple insurance companies interested in competing for the account.

But for small or new businesses, or for those employers in many construction fields, there is little or no price competition for WC.

A lot of employers still end up in the Assigned Risk Plan in Illinois because they're small, or new, or have some bad losses in recent years. And our Assigned Risk Plan is a pretty bad deal for employers--premiums there can be double what premiums would be in the so-called "voluntary market". And the Assigned Risk Plan provides no real help for employers who need assistance in making their workplaces safer.

I offered to the panel some specific suggestions for Workers' Comp insurance reform (in the form of written testimony.) I'll detail those suggestions in a subsequent post.

SC Work Comp Commission in Audit Trouble

We've done a lot of work in South Carolina, helping employers recover Workers Comp overcharges resulting from insurers not reporting Second Injury Fund reimbursements, so we keep a weather eye on developments in the Palmetto State. And a news item from there has caught our eye. The Workers Compensation Commission has gotten in trouble when an audit found that the commission did not reporting in a timely basis fines the commission had collected. Reportedly, the commission was worried the SC legislature would learn of those fines and appropriate them for other uses. These fines came from employers who were found to be operating without valid Workers' Compensation coverage.

This actually is not an unheard of practice. In Illinois, our former Governor Blagojevich would raid the funds of the Department of Insurance and use the money for other purposes, even though the funds at the DOI came from fees on the insurance industry and not from taxpayers. Blago managed to starve the department, preventing it from being able to properly function, and in the process got money for other things.

But in South Carolina, the WC Commission tried to avoid a similar problem by collecting, but not depositing promptly, some $244,000 in fines. In the process, they managed to be in violation of state law.

Washington State Keeping State WC Monopoly Fund

Voters in Washington state decided to retain their state's monopoly fund for Workers' Compensation. This means that insurance companies will not be allowed to insure Washington employers for their Workers' Comp liabilities, and employers there will continue to have to use the state fund for that purpose.

Insurance companies had lobbied hard to change things--I guess the Workers Compensation insurance can't be completely unprofitable--but ultimately, the voters decided to keep the monopoly fund going. Only a couple of states and territories still operate monopoly funds for Workers Comp--the trend in recent years has been to shift away from monopoly funds and embrace a competitive private insurance system. But Washington won't be joining that trend, at least not for now.