Two News Items With A Common Cause

I came across two separate news items today, from different states, each one having something interesting in common with the other.

In Arizona, a bill has been introduced to allow workers to file complaints with the Industrial Commission over perceived unfair claim processing practices or bad faith.  The fines and penalties in the bill seem modest, though, in comparison with the second story.

In Nebraska, a worker has been awarded $25 million over the alleged bad faith claims handling of an insurer, American Interstate Insurance.  Which is considerably more than what is anticipated under the proposed Arizona bill.

Just an interesting coincidence, these two stories popping up at about the same time. But they both illustrate a problem that is not, I sadly suspect, terribly uncommon.

Another Desperate Small Business Slammed By A "Shock Audit"

So, we got another email the other day from a small business facing financial ruin over what we like to call a 'Shock Audit". This business, a husband and wife team, operated a small business that used a lot of independent contractors. Their initial estimated premium for their policy, for their first year in business, was $1,600.00.  Now that this first policy has ended, they got an bill from the insurance company for an additional $59,000.00.

Needless to say, this is an amount sufficient to cripple or destroy this young business enterprise. No one bothered to inform these folks, when the policy began, that independent contractors are treated the same as W-2 type workers (unless those contractors have their own policies, or meet other criteria set by some states.)

We're looking into the matter right now, trying to determine what, if anything, can be done to reduce this audit bill. It is an object lesson, though, about the dangers that can unexpectedly devour a small business.

The Siren Call of WC "Reform"

We have a new governor in Illinois, and he, like so many before him, is calling for Workers Comp "reform". This is something of a perennial siren song here and in many other states.

Not that it's  unneeded, it's just that usually the reforms come at the expense of injured workers and not so much the powerful institutions that profit from the system. Somehow, Workers Comp reform never seems to include insurance reform, to protect employers from the financial impact of WC audits that spring unexpectedly large additional premium charges. We routinely get calls and emails from employers whose very continued existence is threatened by such "shock" audits, and yet the insurance regulatory agency here (like many other states) has been hollowed out, with experienced regulators encouraged to leave or retire, never to be replaced.

Last time Illinois went through the process of Workers Comp "reform", I made a few suggestions. They were, of course, utterly ignored. I rather expect that will continue with whatever "reforms" our new Republican governor can coax out of our Democratic legislature. Whatever the result, I think it would be a smart bet to wager that nothing is done to rein in the kinds of occasional abuses by insurance companies we see here on a regular basis.

This Month's Employer Charged Criminally Over WC Premiums

I wrote last month about what I described as the first 2015 news story I had seen about an employer being charged criminally over Workers Comp premiums. Here's February's entry in that category: A Milltown, New Jersey couple and their nephew who ran a temp staffing firm.

Let me be clear about the fact that I know nothing about this case, beyond what is in the news story. So I have no way of knowing how much, if any, of the charges against these people might be warranted. But it does once again provide stark warning to business owners and managers everywhere to be careful about being too aggressive in seeking to exploit perceived loopholes in WC rules, or relying upon advice from some insurance 'professional' who advocates taking questionable measures to reduce premiums.

Of course, it can be difficult for policyholders to determine what constitutes 'questionable' measures and what might instead just be smart management.

I remember a time, going back perhaps ten years or more, when we started dealing with a new audit manager on behalf of some of our clients. This audit manager worked for a California-based WC insurer which had acquired a large Illinois insurer of Workers Comp (that's why we were suddenly in contact--back then, we were more concentrated on Illinois based clients).

This audit manager was markedly hostile to responding to us at all. Turns out he had experience dealing with a different audit review firm, and had become convinced that a) that other firm was trying to get refunds fraudulently and b) all such firms must be crooks, also.

It took a fair bit of work to convince this audit manager that we weren't crooks and that the overcharges we were bringing to his attention were legitimate, but we were eventually successful. But I thought about those companies that had used the services of that other review firm. It had sounded like that other outfit had gotten those policyholders involved in what amounted to premium fraud. Our skeptical audit manager eventually confided to me that he had been trying to get prosecutors interested in pursuing criminal charges against that other firm, but the company went out of business before those plans bore any fruit.

But that anecdote does illustrate that not all 'professional' advice should be heeded, and that not all efforts to reduce Workers Comp insurance premium charges are legit. When it comes to Workers Compensation insurance, some insurers are more than ready to sic a prosecutor on an employer/policyholder they think has been pulling a fast one.

Only problem with that, I think, is that sometimes insurers underestimate how confusing the rules about Workers Comp premiums can be, and may interpret innocent actions and errors as something nefarious. The devil, as they say, lurks in those details.

Grand Bargain Unraveling?

Workers Compensation was conceived as a "Grand Bargain" between workers and employers, wherein workers traded the right to seek damages for workplace injuries for a "no-fault" system with established benefits. Employers, in turn, traded their various legal defenses for a system that allowed the costs of workplace injures to be made reasonably predictable and affordable.

But as more states have enacted "reforms" to their Workers Compensation statutes that put greater limitations on the benefits due injured workers, pressure has been building to challenge the "exclusive remedy" nature of Workers Compensation. The theory goes that if these "reforms" reduce benefits too much it is no longer a fair bargain for workers.

This story in Business Insider explores this issue in some detail, and makes clear, I think, the potential downsides to some recent Workers Compensation "reforms".

Of course, given how some employers can be subjected to unpredictable premium increases when the audit is done (after policy expiration) I believe a case can be made that employers also have been deprived of the supposed benefits of the Grand Bargain. I know my own view on this is somewhat colored by the fact that we specialize in helping employers fight such "shock audits", and so we tend to hear from employers disproportionately when such audits are threatening to put them out of business, but even so, as long as employers can be billed, at audit, for premium amounts far in excess of what they were led to believe would be their WC insurance costs, one can argue that employers have been deprived of the ability to reasonably predict their Workers Comp costs.