Something Rotten in Florida--Maiming Workers For Profit

This article reveals the continuing dark side of Workers Comp and how some workers still, in this 21st Century, get maimed at work and then receive no benefits, no medical coverage, but are just discarded or worse by employers who, I regret to admit, are members of the human race.

This scandal involves one recurring scam some employers like to use--exploiting "illegal" workers to do dangerous work, and then (and only then) getting serious about the dangers of "illegal" workers.

So when these workers slice off fingers or have a nail ricochet into their eye, these employers and their insurance companies suddenly discover that these workers are using false documents, and thus can be charged with a felony and dismissed.

No penalty for the employers who hired these people in the first place. But Florida has a state agency dedicated to punishing these workers, naturally. When in doubt, always punish the victims, apparently. According to the new article:

The director of Florida’s Division of Investigative and Forensic Services, which investigates workers found using false identity information, said he wasn’t aware that employee leasing companies and their insurers reported most of the injured immigrants in recent years.

“That’s not something I’m aware of and it would be unfortunate if that’s truly what’s taking place, so maybe that’s something that would need to be looked into,” director Simon Blank said.

Blank said his staff must enforce the law.

“Although it’s unfortunate and we feel for those people, the bottom line is they committed a crime, and that crime is putting other innocent people at risk,” he said.

Pardon me while I throw up in my mouth.

Thirty Years and Just Getting Started

I started Advanced Insurance Management in November of 1987. So it's now thirty years since that momentous decision, and we're still going strong. I owe a lot of thanks to a lot of people who made this possible. There's that very first client, Scheck Mechanical, and the owner of that company, Rich Scheck, who were there at the very beginning.

There were other early clients as well, like K&S Sprinkler, a local company that I still pass almost every evening on my drive home. And the fine folks at Caterpillar, who hired me to be part of an ongoing consulting project for their manufacturing suppliers back in those early days deserve a salute as well, because that project made a big difference in those early days.

Thirty years later, we're busier than ever. My younger son was six years old when I began A.I.M. and now he's been my business partner for fourteen years. How time flies when you're having fun!

Speaking of my son and biz partner, he updated me today about a case he's handling, where he's obtained premium refunds totaling about $170,000 for a crane manufacturer in Kansas. And of course, in his free time, he continues his law school education, so that in another year or so A.I.M. will be able to add a unique new component to our services: an attorney with unmatched training and experience in Workers Compensation premium reviews.

As I've said elsewhere, the best is yet to come.

Interesting Call From A Small California Contractor

We got an interesting call from....oh, you read the headline. So, anyway, this gentleman called because he's just had a Shock Audit, even though he didn't have any employees. But one of his clients required him to get a minimum premium policy so he did, and now he has a bill for $14,000 that has already been turned over to some collections law firm based out in the Chicago suburbs.

As you may have anticipated, this small businessman used independent contractors over the course of the policy. And the nice person at the collections law firm explained that the rules about that are uniform in all states so that's why he has this $14,000 bill.

Except the nice person at the collections law firm lied. Or didn't know what he or she was talking about, perhaps. Because the rules are not uniform across all states and in particular are not uniform in California (when compared to other states).

Workers Compensation is very much a state-by-state matter and the rules about premium can vary from one state to another, sometimes in only small ways but sometimes in big ways. Most states do use the NCCI system of classifications and premium rules, but some states don't. And the biggest state that doesn't use the NCCI system is California.

So the bottom line is that we're pretty confident we can at least reduce that $14,000 bill significantly for that small California contractor. But it's a little galling that people that should be giving reliable information are instead providing information that is wrong, and wrong in a self-serving way.

I guess that probably sums up exactly why we're still in business, thirty years after I started Advanced Insurance Management. If the insurance system gave reliable and accurate information to businesses about Workers Comp insurance and audits and classifications, and didn't make outrageous and self-serving errors in applying the rules that they themselves write, there wouldn't be much for us to do around here. Our foosball table would see a lot more use, I guess.

Instead, it feels like the insurance industry is working overtime to create work for us. We're certainly busier than we ever were when I started this little outfit. I literally get a phone call or an email every single day (sometimes on the weekend, too) from an employer somewhere in the U.S. who's been victimized by a Shock Audit on their Workers Comp insurance. So I guess it's a good thing I like my work.

California Changes The Rules About Executive Officers and Workers Comp

California, land of startups and economic unicorns has changed the rules about executive officers, partners, and LLC members, among others, who get automatically included for Workers Comp purposes. This means that a powerful potential has been created for some companies to get into hot water about failing to provide Workers Comp insurance when the (revised) law says they must.

All California employers must provide Workers’ Comp benefits (which usually means having to buy insurance) once the business has one or more "employees"

What sometimes trips up some employers is, "who's an employee, for Workers Comp purposes?"

In California, the definition includes “every person in the service of an employer under any appointment or contract of hire or apprenticeship, express or implied, oral or written, whether lawfully or unlawfully employed.” Now the list has been expanded to include corporate officers, directors and working partners, by narrowing the definition of an excluded employee and requiring that a written waiver (under penalty of perjury) be filed in order to opt out.

The new law excludes an officer or member of the board of directors of a private or quasi-public corporation from the definition of an employee only if he or she owns at least 15% of the corporation’s issued and outstanding stock and executes a written waiver of rights stating under penalty of perjury that the individual is a qualified officer or director. 

It similarly excludes a general partner of a partnership or a managing member of a Limited Liability Company who executes a similar waiver. A waiver of coverage is effective upon the date of receipt and acceptance by the insurer and remains effective until it is withdrawn in writing. 

So it's really important that California employers double check their current programs to make sure they are covering everyone the new law requires to be covered, and to file any waivers that need to be filed to exclude those they wish to exclude (and who qualify under the new law.)

Lights Still On At Illinois Insurance Department, But No One's Home For Small Biz Anymore

Some years ago, I wrote a piece that was headlined "Will The Last Person At The Illinois Department of Insurance Please Turn Out The Lights", that was focused on the diminishing institutional expertise and commitment at the Illinois Department of Insurance when it comes to employers who want to dispute their Workers Compensation insurance charges.

I have kind of a special perspective on that subject, because for more than thirty years I've been helping Illinois employers (and especially small business employers) dispute inflated Workers Compensation insurance charges. And over the course of all those years, and all those disputes, I developed something of a working relationship with the Illinois Department of Insurance. I found that the department would generally try to find a way to informally encourage insurance companies to do the right thing, when I brought to the department's attention situations where it was pretty evident that insurance companies had broken their own rules and as a result overcharged an employer for Workers Comp insurance.

It was an informal process, but that meant that employers could avail themselves of it, with a little assistance, without turning it into an expensive legal case. And while I do plenty of work as an expert witness in legal cases where there is a dispute over Workers Comp insurance premiums, those litigations tend to be, of necessity, fought by larger employers with the financial resources to fight large insurers in court.

For small business, it was the Department of Insurance or nothing.

And now, based on the clear input I'm getting from higher-ups at the Illinois Department of Insurance, it's going to be pretty much nothing, because nothing is essentially what the department is now willing to do when small employers dispute Workers Comp premiums.

Let me give you an example. Illinois has had a unique statute that went into effect January 1, 1984. I know this statute well because I consulted on the language of the statute when it was being written. That statute, section 462.b of the ILCS says that if an insurance company overcharges an employer because of an error in Workers Comp classification, payroll, or other rating factors, the insurer has to refund that overcharge.

Since the law went into effect January 1, 1984 it kind of was self-evident what the effective date was. This week I got an email from an Assistant Deputy Director of the IL DOI that the department could not communicate to an insurer what the effective date of that statute might be. This insurer had asked if the department could clarify if the statute meant that it said, that if an insurer had overcharged in the past it had to refund that overcharge, even if discovered years later.

In the past, the department made it clear that this was so. I have a copy of sworn testimony by department representatives that this was so.

But no longer.

The Illinois Department of Insurance, which in theory is responsible for enforcing insurance regulations and statutes, apparently feels it cannot really provide guidance to insurance companies regarding insurance regulations that protect employers from abusive practices by insurance companies.

About a month ago, I provided testimony before the Illinois House of Representatives about how non-existent Workers Compensation insurance rate regulation was in our state. And I shared a recent case of ours, where we were able to negotiate a refund of around $100,000 for a small business in Broadview, Illinois, because their past insurance companies had mistakenly used the wrong classification and rates to compute their premiums.

Part of the reason we could negotiate those refunds was that the insurers knew we could go to the Department of Insurance if they did not make a good faith review of the facts.

But the Department of Insurance in Illinois, like regulators in many states, have lost many of their experienced people--and in particular, the Illinois Department of Insurance has lost their personnel who were experienced with these kinds of Workers Compensation premium disputes.

And so small business in Illinois are now losing the benefits that the department provided, limited though they always were, to dispute Workers Comp insurance premiums.

There are some more formal appeal processes still remaining, of course. There is a Workers Comp Appeal Board run as a joint venture between the insurance department and the NCCI. But that board is limited as to the issues it can accept for review, and limited regarding how far back in time it will review premiums.

There is also a more formal hearing process at the Illinois Department, a process that is a legal hearing (and thus, no employer in his or her right mind should go there without having retained an attorney, in addition to retaining an expert like me) so these hearings are an expensive proposition from the get-go. I have had more than one small business client give up on a legitimate dispute because the cost of retaining legal counsel was more than they could justify. And so they reluctantly closed their doors, because an insurance company was seeking excessive and improper premiums and they couldn't afford to fight it at a legal hearing--and without Workers Comp insurance they couldn't legally stay in business.)

So the lights are on at the Illinois Department of Insurance. But if you're a small business who's being overcharged by your Workers Comp insurance company, there's nobody home there anymore.

A Tale of Two Cases

Perhaps you can also file this under "American Horror Story". Let me tell you about two cases of mine. The names have been changed because they are both still ongoing cases, but I can share enough detail to explain my point without violating any confidentiality.

In one case, the employer has been criminally charged because he put down the wrong classification code on the application and the insurance company didn't catch it for several years. By the time the insurance company got around to figuring out that they didn't think the policyholder's expertise in classifications was very good, the insured company had gone out of business and the insurer couldn't get the money they felt they were owed.

So they got their friendly neighborhood prosecutor to file criminal charges. And now, as part of the negotiations to try and avoid a criminal trial, the insurer has suggested "restitution"--that is, pay them their money and they will arrange to have the criminal prosecution dropped.

My second case involves a major property/casualty insurance company that has just billed a policyholder for audited premium in excess of $700,000--from a policy that had an original premium of only around $1,500.00.  Yes, this employer bought a policy that he thought was going to cost $1,500--but the insurance company has retroactively sent a bill for more than $700,000.00 for that same policy.

And the galling thing is that this $700,000 bill is based on the insurance company ignoring the well-established rules that govern premiums in the particular state involved.

When this problem was brought to the attention to state insurance regulators, and NCCI, they all agreed it seemed to be wrong--and then collectively washed their hands and said there was nothing they could do. The policyholder should go to court, they helpfully suggested.

So, when the insurance industry feels an employer has based premium on a faulty or incorrect understanding of their arcane rules, and then can't pay what the insurance company feels is the proper premium, they get criminal charges filed.

But when an insurance company comes up with an outrageously inflated premium bill that is based on a clear and flagrant disregard for the rules that apply in a particular state, though, the insurance regulatory system shrugs and suggests the policyholder consult an attorney.

Does anyone else feel like something is wrong here?

Hysterical Over Reaction from Insurance Industry About Filing Rates

So, the American Insurance Association has just thrown a public hissy fit over new proposed legislation here in Illinois, legislation that would require insurance companies to file with state regulators their rates for Workers Compensation insurance before said insurance companies could use those rates on policies. Theoretically, insurance regulators could then object to rates they found objectionable.

“It's the harshest and most opposed regulatory type of structure that I have ever seen because we are going to have to seek permission from the government to charge a final price on the workers compensation insurance that we provide to our customers,” Steve Schneider, Chicago-based vice president for state affairs for the Midwest region for the American Insurance Association, said in published reports.

Holy Cow? Really? Mind you, the new laws would not really prevent insurers from using whatever rates they want, because the Illinois Department of Insurance is pretty understaffed, thanks to the deliberate behind-scenes lobbying by the insurance industry years ago.

And actually regulating Workers Compensation insurance rates was the norm, the standard practice, for many decades. To quote one of my older insurance textbooks (from 1986):

"the regulatory review process verifies that insurance rates are adequate, not excessive, and not unfairly discriminatory."

Until the late 1970's and early 1980's, all insurance companies had to use the same exact damned rate schedule, which had to be approved in advance by insurance regulators who, you know, actually regulated insurance. To make sure that rates were adequate, not excessive, and not unfairly discriminatory. What a quaint idea!

Even once so-called "competitive rating" began, insurance companies had to still submit their rating plans for approval. So this ridiculously over-the-top response by the insurance industry to these new Illinois regulations strike this observer as, well, ridiculous. This new legislation would merely return, on paper, the conceptual framework that governed Workers Compensation from its earliest days

Relax, boys, you'll still be able to get away with charging whatever you think the market will bear. This new legislation provides merely the smallest fig leaf on the current unregulated status of Workers Compensation. It doesn't really do anything meaningful, more's the pity. But even a tiny fig leaf is enough for the insurance industry to react like someone's proposing to erect a monument to Joe Stalin in Hartford, Connecticut and send their underwriters to re-education camps.

More Thoughts On Proposed Not-For Profit Workers Comp Insurer in Illinois

Now, one of the things that opponents of this new bill have been tossing around is that Illinois is a very competitive state for Workers Compensation insurance. And it is. On paper. In practice, not always so much.

Oh yeah, insurance companies have pretty much a free hand in pricing Workers Comp insurance in Illinois, and there are hundreds of insurers licensed to write Workers Comp insurance in the Land of Lincoln. Over three hundred different insurers, I understand.

Here's the gag, as my son likes to say: these insurers don't all compete for the same accounts, and many Illinois businesses can't, as a practical matter, get access to all these hundreds of insurers.

For the most part, a business has to go through a licensed insurance agent or broker. And any given agency might have contracts with only a handful of different insurance companies who write Workers Comp. But said agents all too often give the impression they can (and do) blanket the market in their search for coverage for a particular insured employer. Such impressions are often exaggerations, at best.

And if an employer is small, or new, or located somewhere away from major metropolitan areas, it can be difficult to get more than one or two insurers interested in proposing coverage in the "voluntary market". Of course, that still leaves the Assigned Risk Plan, a source of insurance that would be familiar in management style to Soviet-era bureaucrats. With pricing to match.

Insurance companies tend to compete for the sub-set of accounts that are deemed particularly attractive because of size, type of business, loss history, and sometimes, how well connected a particular agency may be with an insurer's underwriters.

But for many other businesses, the same deregulated rules that allow insurers to compete for desirable accounts on price allows insurers to sock it to employers who aren't on this year's list of desirable accounts.

And it also opens the door for some agents and insurers to low ball initial proposed Workers Comp pricing, only to hit the employer with a Shock Audit from Hell after the policy ends. When that happens, deregulation ain't so much fun.

Illinois Legislature Okays Non-Profit Workers Comp Insurer

The Illinois legislature has approved a law that creates a not for profit Workers Compensation insurer, to compete with for-profit insurance companies. The bill now goes before Republican Governor Bruce Rauner, and whether or not that governor will sign said bill is something beyond this writer's ability to predict.

If anyone were to ask me (and one of the lobbyists for this bill did, just the other day) I would say it's an idea that could significantly benefit a number of Illinois employers, if done right. Right now, too many employers are in the ultra-expensive Assigned Risk Plan just because they're small, or new, or located away from metropolitan areas. If this not-for-profit insurer were to helps such employers escape the Assigned Risk Plan's excessive rates, it could be a huge help to small business.

But governance will also be key to the potential success of such a venture. Underwriting standards would have to be reasonable, fair, and and yet not give away the store. Audit standards would also have to be similarly fair, to spare employers the terrors of Shock Audits, as I've written about so many times before. Of course, doing a better job with underwriting would go a long way towards reducing Shock Audits, as employers would be advised of the actual cost of coverage at the outset rather than after the policy has expired.

The other potential pitfall of such an entity, if it isn't strangled in the crib by Rauner, would be to make sure it isn't used as some kind of emergency piggy bank by ambitious or unscrupulous politicians. Part of the reason the Illinois Department of Insurance had its budget and staff gutted was that then Governor Blajojevich raided the funds generated by that agency (funds that didn't come from taxpayers but from fees and taxes paid by insurers) to pay for other pet projects.

Letting politicians have access or control to an entity that is banking considerable dollar amounts of reserves for future claims has often been a recipe for disaster. Similarly, some government sponsored Workers Comp funds have sometimes fallen prey to political favoritism and cronyism in underwriting practices. Again, for this proposed entity to really accomplish what sponsors hope it can accomplish, the crooks and cronies will need to be kept at bay. No easy task in a state like Illinois.

But I think it's worth a try. Illinois employers, especially small business employers, desperately need some relief from the excesses of existing insurance companies. Now let's see what Governor Rauner thinks. He may not like this, because it isn't part of the standard GOP playbook of cut benefits for workers and reduce payments to medical providers. But we shall see.

They Said It Couldn't Be Done...

Well, at least the insurance agent for a client of ours in Connecticut said their experience mod could not be reduced. Fortunately, the client had us work on it anyway, and we just got a 12 point reduction in experience modification factor approved by NCCI, along with a 13 point reduction in the mod for the following year.

See, there are some obscure rules that can impact these modifiers, rules that even experienced insurance agents aren't always knowledgeable about. Bottom line is that our client is now getting refunds totaling $40,000 for both years, thanks to our doing something that they said couldn't be done.

Black Lung Disease: Back, and Deadlier than Ever

So here's a damned frustrating and horrifying story, from National Geographic, concerning how Black Lung Disease has had a resurgence among miners. Reading some of the details in this story, about how non-unionized mines pressure miners into playing fast and loose with safety regulations, just gets me pissed off as hell.

And of course, there are larger lessons to be gleaned from this, for those willing to listen and think, about how economic incentive and self-interest, left unchecked, can lead to disease, agony, and death for the people who do the actual hard work in this world.

I tend to be deeply suspicious of those who advocate for reduced regulation and oversight in regards occupational safety, as I've been around long enough to know that those who typically advocate for such looser standards are not those who are actually at risk from said occupational dangers. The guys who denigrate workplace safety and independent oversight are typically at risk only from paper cuts and obesity. But human nature being what it is, those same guys will sometimes happily persuade themselves that it's okay to find short cuts around safety rules and regulations. Who needs all that damn red tape when there's money to be made.

Look, I love business. I love our free market, free wheeling version of capitalism--it's enabled me to create my own little consulting business from scratch and make my living successfully taking on huge insurance companies for fun and profit. But I also have worked with industrial concerns long enough (most of my adult life) to know that some business owners need a little independent oversight to keep from mangling and maiming workers as part of doing business.

Most business people, in my experience, want to do things the right way, they want to keep their people safe and productive. But in a competitive world, pressure from those who cut corners and operate in a less than safe manner can exert harmful influence over even those with good intentions.

In the long run, I think it's in everyone's interest to maintain effective and independent workplace safety regulations and incentives. And when you don't, you get this kind of horror.

About that 70 Point Mod Reduction

I recently wrote about a client for whom we were able to produce a 70 point reduction in Experience Modification Factor, also known as EMR, X-Mod, or just Mod. I thought I would expand a little bit on that, though, as it is a situation that I think will apply to other employers in similar circumstances.

This client was a California based company, which means their X-Mod was calculated by WCIRB, the California-only rating bureau (as opposed to NCCI, which handles most of the rest of the country.)

WCIRB has a special rule for when insurers can't complete the Workers Comp audit. This rule says insurance companies must then report whatever the claims were for that un-audited policy for use on the X-Mod, but no payroll at all. This clearly has a powerful upward impact on the Mod calculation.

That's what happened to this client. They didn't cooperate fast enough on the audit, so they got clobbered on their X-Mod. But the thing is, this client did subsequently cooperate with the audit. And in that case, the insurance company should have filed a corrected report with WCIRB.

And they overlooked that little detail. So the client's X-Mod continued to have that horrible penalty built into it, for several years, because the insurer failed to filed the corrected unit statistical report.

We got it fixed for this client. But methinks they can't have been the only client to whom this has happened.

And just this year, NCCI got approval to incorporate a somewhat similar rule for experience mods calculated in NCCI jurisdictions. The NCCI rule doesn't work the same as the WCIRB rule, but it will produce similar penalties in mods when audits aren't done fast enough to suit insurers, and those audits will need correction via corrected unit statistical reports.

Based on what we've learned in recent years consulting on a class action lawsuit, some insurance companies are incredibly lax about filing corrected unit statistical reports. So I very much expect that, in a couple of years, NCCI mods will also start having occasional big errors due to some insurers not filing these corrected reports.

We shall see.

Happy Small Business Week!

We're doing our part to celebrate Small Business Week here at Advanced Insurance Management. We do a lot of work helping small employers reduce the cost of their Workers Comp insurance by finding and correcting underwriting and auditing errors by insurance companies, and today we got word from one of those small business clients of happy news due to our efforts.

This small business out in the southwest Chicago suburb of Crestwood got official word today that a $25,000 refund is coming their way, thanks to our efforts on their behalf. And this is only the first installment, as we are still working to produce additional refunds from another five past insurance companies for this same small business.

I know these folks were a little skeptical when we first approached them about our premium recovery services. As it often is, it was a brand new concept, the idea that someone could recover money back for them out of their old Workers Comp policies.

Needless to say, they are believers now.

Alabama Workers Comp Act Ruled Unconstitutional

A judge in Alabama has ruled that state's Workers Compensation Act to be unconstitutional.

Circuit Judge Pat Ballard found two specific provisions of the Act to be unconstitutional:  the $220 per week cap on compensation and a 15 percent cap on attorneys fees.

Ruling that two provisions of the Act are unconstitutional renders the entire Act void

The ruling came in Nora Clower vs. CVS Caremark, in Jefferson County Circuit Court.. 

The $220 per week cap on compensation had been set back in 1987, the same year this writer began Advanced Insurance Management, my consulting company that helps employers catch and correct Workers Comp insurance overcharges.

Costs of most things, including even the minimum wage, have increased a bit since then, but this cap had not been adjusted in the intervening thirty years.

Regarding the state's 15 percent cap on attorney's fees, Ballard held that it "fails to afford due process of the law." 

Needless to say, this will be an incredibly powerful ruling, impacting workers, employers, insurers, and health care providers. The legislature will have to move quickly to address the problem, as the judge has placed only a 120 day stay on the ruling, to give them time to fix the situation.

I know some folks, especially employer groups, will find this ruling upsetting, but really--a cap on compensation for injured workers that hasn't been adjusted since 1987?

The Light That Failed

We live in an age when we seem determined to unlearn painful truths that were revealed in decades past by courage and determination, overcoming entrenched forces that sought to cover up horrors inflicted upon some workers.

The story of the Radium Girls is a story that I think we've tried hard to forget, a story we'd like to think can't happen anymore, not in our country. And it's a story that reminds us that the people who clamor for less regulation of the workplace tend to not be the people who pay the price for such deregulation.

A hundred years ago, delicate young women found lucrative employment painting watch dials with radium paint. Glowing watch dials were part of the war effort for World War I, dontcha know, and these girls felt patriotic doing their painstaking work, which involved shaping the brush to a fine point using their lips and teeth. The brush that they then dipped into radium paint, painted the numbers on the dial, and then put back in their mouths.

They were sometimes called Ghost Girls, because they began to literally glow in the dark. And this was at a time when small doses of radium were touted as being healthy.

So when their teeth started falling out, and horrid bleeding ulcers filled their mouths, and their jaws started to crumble, it was not immediately obvious as to the cause. And the companies making those watch dials denied and denied and denied that it was the radium paint that was causing these young women to turn into walking corpses.

Think it can't happen anymore? Take a look at my earlier link to the story about Case Farms and how they (allegedly) maimed workers in a pretty callous manner, all in the name of profit.

The story of the Radium Girls features young women poisoned in such a way that their jaws literally rotted away and grotesque tumors bloomed all over their bodies. And their employers denied, for years and years, that the radium these young women had worked with--had literally ingested while making glowing watch dials--had anything to do with their jaws falling off and their glowing, cancerous bones.

Hell, one of the companies said it was syphilis that had rotted away the poor girl's jaw and teeth, rather than their glowing wonder element.

It took years for these dying and disfigured young women to get the truth out, because, even as they were having their faces and their bodies turned into Swiss cheese, these companies continued to employ other young women to do the same work and poison themselves in the same manner. And it took a courageous lawyer, working pro bono, along with a cadaverous young woman testifying from her goddamned deathbed, to force the truth out.

We need to remember the courageous women who fought to tell the truth. And we need to honor them by staying vigilant and honest and knowing bullshit when its fed to us.

Our current Workers Comp system is far from perfect. It is a never ending process to create and maintain a system that tries to make whole or at least compensate those injured or made ill by their work, and to provide meaningful financial incentives to employers to operate in a safe manner. I believe it is not in our collective interests to create perverse financial incentives that encourage unsafe workplaces or that leave workers vulnerable and unprotected.

We need to remember why we have Workers Compensation, as aggravating and imperfect as it often is. We need to keep the system honest, as much as we can, and strive to keep errors and outright fraud from eroding this vital system.

We owe it to the Radium Girls.

American Horror Story-or, Maiming Desperate People for Profit

My usual beat is Workers Compensation insurance costs and coverage, as regular readers of this irregular blog know. But this in-depth piece from ProPublica touches upon that territory with heaping helpings of horrors most of us thought were only bad memories from the times described in Upton Sinclair's The Jungle.

Alas, such is not the case, it would appear.

You know, in my almost forty years of working with Workers Compensation insurance, most employers I've known have been pretty decent people. Most of them have been genuinely concerned about operating safe workplaces, and took pride in providing a good place for their people to earn a living.

But not all employers are cut from that cloth, of course. And I imagine it isn't that terribly difficult to concentrate so much on Adam Smith type raw capitalism that you never look up from the Profit and Loss statement to notice the blood on the floor of your business.

No, I take that back. No matter how focused you are on your ledgers, you probably notice the screams of people being maimed and mangled at your "farm".

So according to this ProPublica article, this company found what they thought was an ingenious way to crank up profits in an industrial fashion. They started using mainly Guatemalan refugees in their chicken processing operations. And since these workers were fleeing a place where death squads murdered children with impunity, the kind hearted masters of Case Plantation errr, sorry, Case Farms--figured out that these traumatized people would tolerate a lot of shit that other workers wouldn't.

In fact, when the current owners of Case Farms bought the place, it used mainly local Amish women in the chicken processing operations. But those folks soon fled from the changes initiated by the new owners. But the humanitarians at Case Farms had a much more cooperative source of workers, those aforementioned desperate refugees from Guatemala.

Pretty soon, more than chicken pieces were turning up in the products of Case Farms (according to this ProPublica article, at any rate) and sometimes the processing machines deboned more than chickens.

This leads me into musing about how Case Farms handled Workers Compensation. Periodically, I see news stories about some genius legislator advocating for making undocumented workers ineligible for Workers Comp benefits. And I have written previous pieces pointing out that this would actually reward employers who use such undocumented workers, as it would give them significantly lower Workers Comp insurance costs because premium charges are based, to a considerable extent, on prior loss history of the particular employer.

Given the nasty practices described by ProPublica, it isn't surprising to read that Case Farms allegedly wasn't very scrupulous about following the Workers Compensation statutes of Ohio.

The article describes how Case Farms would allegedly often make workers wait months before seeing a doctor for workplace injuries, and allegedly fired injured workers who could no longer process chickens fast enough for their liking.

ProPublica goes into some detail about how Case Farms allegedly bullshitted away a claim from one Claudia Gonzalez. She fought back in court, but didn't appear to get much, if any justice, from our enlightened and compassionate court system.

So read the article, and then tell me again about how government regulation is always a bad thing and how employers are stifled by old fashioned regulations designed to address workplace problems that are now ancient history.

In the meantime, I don't think I'll be buying any Case Farms chicken at my local grocer.

A Very Nice Meeting With the Illinois Dept. of Insurance

I got to meet Deputy Director Brett Gerger of the Illinois Department of Insurance last week, for a very cordial and wide-ranging meeting. We discussed some of our pending cases, where we've filed Consumer Complaints against some insurance companies who, in our opinion, have substantially overcharged some of our clients and don't want to return the money.

The Illinois Dept. has historically been very helpful in instances like that, but with recent personnel changes there we wanted to re-introduce ourselves to folks at the department who weren't so familiar with our long history of working with the Department on behalf of Illinois business.

The other thing we discussed was my long-tabled proposal to license people like me, people who do premium review and recovery work. I had made a proposal for such licensing some ten years ago but it went nowhere. But the current Deputy Director expressed an interest in looking at it, so I have forwarded my proposal and we shall see if anything comes of it.

This would address one of my long-standing concerns about this industry I helped to start, some thirty five years ago, the fact that there really is no regulatory oversight or control over this kind work. Anyone can set up shop on the internet and claim to be the world's greatest expert on Workers Comp audits, but sometimes a careless or inexperienced person can cause problems for a policyholder. And it's easy for an insurer to try and disregard the efforts of consultants like us, precisely because we don't fit into the old existing framework of agents or brokers. Being licensed by the state could change that, and help us better help employers who have been overcharged on their Workers Comp insurance.

An Alternative to Insurance Companies in Illinois?

The Illinois House has just passed a bill that would establish a not-for-profit Workers Comp insurer to compete with the existing insurance marketplace.

If it ever were to become law, this could create an effective alternative to the Assigned Risk Plan for small employers in Illinois (with potentially huge cost savings for those employers.) It would also provide some competitive pressure on existing insurance companies who sometimes get a little carried away with the pricing on some accounts (for more details on this, read the history of this blog, or our website at www.cutcomp.com).

A lot would depend on the details, of course. And this may all be just a pipe dream at this point anyway, as I suspect our current Republican governor would be eager to veto this proposal and I suspect there wouldn't be enough votes to override such a veto.

The bill in question is HB 2622, sponsored by Representative Laura Fine from Glenview.

If done right, this could provide some genuine relief for small business in Illinois who often get victimized by extremely high rates and premiums in the Assigned Risk plan, and other employers as well who can often be at the mercy of insurers who are more interested in big accounts.

But the insurance industry and Illinois Governor Bruce Rauner will likely strangle this idea in the crib. It's a shame, because it could offer some much needed relief to Illinois employers that doesn't involve reducing benefits for workers or payments to medical providers.

70 Point Reduction in X-Mod for California Client

Just got word from my son (and business partner) Scott that he has gotten the X-Mod (also known as the Experience Modification Factor) reduced by 70 (yes, 70!) points for a California client.

Well done, my boy. The client is, needless to say, rather happy.

Another Headline About Lower Workers Comp Rates...

 Just saw today a news item about Pennsylvania announcing lower Workers Comp rates that they say will save PA employers $150 million in premiums next year. This is good news, as it may reduce costs somewhat, for some employers. But I strongly suspect the actual impact for employers will be substantially less than advertised.

Here's why. A lot of states in recent years have been announcing reductions in what are known as "manual rates". My home state of Illinois has pronounced this kind of reductions for employers multiple times over the course of the past ten years or so. But overall premiums tend to keep going up. And what I observe by working with employers is that their Workers Comp premium charges generally aren't really declining.

This is because these "manual rates" are just the starting point in the computation of Workers Comp insurance premiums. And even when these manual rates decline, as was just announced in Pennsylvania, other elements of the Workers Comp pricing system change and more than offset those rate declines.

For instance, NCCI and some other rating bureaus have been busy in recent years tinkering with the formulas for experience modification factors. Those changes in the experience mod formulas translate to higher mods, and thus higher premium charges, for a lot of employers. For a lot of employers with a few costly claims in their recent history, the new mod formula more than offsets any reduction in manual rates.

Yet these changes in mod formula were not proclaimed loudly in press releases by governors and insurance regulators. They were quietly approved behind the scenes, briefly written about in the insurance trade publications, and then they became part of the complicated system of Workers Comp insurance pricing that is rarely, if ever, well understood by most employers.

Recent years have also seen the increasing use of "Large Deductible" Workers Comp policies for more employers. And it's not generally the case that employers clamored for these kinds of policies and the insurance industry responded by providing what was asked for. No, the insurance industry developed these plans for their own business needs and then gradually forced more and more employers onto them by not giving those employers Guaranteed Cost proposals any more.

If you think the standardized Workers Comp pricing rules were complicated, just try reading one of the convoluted "Side Agreements" that insurance companies use with these Large Deductible policies. Werner Heisenberg himself couldn't have done a better job of introducing the uncertainty principle into insurance pricing.

With Large Deductible policies, employers often have no damned way of really anticipating what their cost of Workers Comp insurance will ultimately be. Most of the agents and brokers who sell these programs can't really explain them well, because the programs are so complicated and jargon-laden that the people selling them don't really understand the details all that well.

But because these Large Deductible policies transform Workers Comp insurance pricing from being a function of payroll to being a function of claims (and not just paid claims but claims reserves, too) that employers can't, by definition, reliably know what their cost of Workers Comp insurance will really be, because the cost of the insurance will be determined by what the claims costs are.

So lower manual rates don't really make all that much difference in Large Deductible policies.

And of course, the premium shown on the policies is just an initial estimated premium. The real cost of the insurance is only determined after the policy ends, when the insurer does an audit. And again, any reduction in manual rates can be easily offset by just cracking down when the audit is done, enforcing obscure rules that were never clearly explained (if mentioned at all) when the policy was begun. Shock Audits, we like to call 'em.

And that doesn't even take into account Schedule Rating. This is a system of discretionary premium adjustments insurers tell regulators that they will apply based on certain objective criteria. They tell insurance regulators that, and then typically just use them as a way of manipulating premium charges to either discount accounts they're eager to acquire or to surcharge accounts when they think they can get away with it.

Again, a ten percent reduction in manual rates can get washed away pretty easily when you can switch from a twenty percent discount one year to a forty percent surcharge the next. And Schedule Rating allows insurers to do that kind of presto-chango magic trick with premiums pretty much at will.

So color me skeptical about these announced rate reductions. They're real, don't get me wrong. They just don't tend to actually reduce premiums for most employers.

Happy Client!

We just got an email from a happy client. Refund checks totally $19,912 just arrived from their past insurer for policies going back to 2003. This is on top of the earlier $39,470 in refunds we had obtained for them back in December of 2016. It's Miller Time, I guess. But I don't drink beer. So, Macallan Time will do just fine. Neat, even.

Keep Up the Bad Work, I Guess..

Just talked by phone to an old friend that I used to work with at another shop, where we had started this whole premium review and recovery thing back in the early 1980s. His shop, which is part of a larger insurance agency, no longer does this kind of work but he keeps his eyes and ears open, and he mentioned that he hears a lot of field auditors nowadays are under such tight time constraints when doing premium audits that they can't really do some audits properly, which can be another source for erroneous overcharges. As I often like to say, the insurance industry sometimes seems to be concerned about whether or not we have enough work around here. And they appear determined to make sure we never run out of desperate employers who are being put through the wringer over a Shock Audit.

It shouldn't be that way. As I like to say, in a perfect world I shouldn't be able to make my living fixing all these mistakes by insurance companies. But it's not a perfect world. And I truly enjoy my work.

So I guess I can only say, "Keep up the bad work, guys," and soldier on, catching and correcting the mistakes insurance companies make when calculating Workers Comp premiums for employers.

Twin Traps For a Small Employer

Got a call from a local small business who has already stumbled into a classic small business Workers Comp trap, and who was about to stumble into another. The first one was a $6,000 fine from the Illinois Workers Comp Commission for running a biz without Workers Comp insurance. Since their only worker was the owner of the company, they thought they didn't need a WC policy. They did not realize that the 1099 workers they used were counted the same as W-2 type workers, so when the WCC came checking they had a little bit of trouble on their hands.

But the second trap, the one they didn't realize they were about to step in until we talked, was that they were now insisting these 1099 people obtain their own WC policies--without realizing that those 1099 people were being sold "Ghost" policies.

A Ghost policy is where the 1099 worker excludes himself or herself from coverage. So technically, the policy only covers any possible other workers this individual might hire. But with the Ghost policy, there aren't any workers, so the policy actually covers...no one. But for a minimum premium of around $1,000 it allows a Certificate of Insurance to be issued. And some unscrupulous agents don't bother to fill in the information on that Cert that would identify it as a Ghost policy.

The trap gets sprung when the insurance company audits the company that uses those 1099 people and figures out that these Certificates are really for Ghost policies. Major insurers, especially the ones writing Assigned Risk business, are getting really good at spotting Ghost policy Certificates (mainly because they themselves write those policies, through the Assigned Risk Plan.)

Now, the poor small business that relied upon these Ghost Certificates doesn't realize the Certs are misleading. And the insurance companies don't explain these little details until after the audit is done (that is, at the end of the policy, when it's too late to do anything about it.) And then the insurance company charges additional premium for these Ghosts, premium the small business didn't anticipate because they relied on those Certificates.

I was able to warm this particular small business about the perils of this second trap, so he can take action to avoid getting caught on his next audit. I wasn't consulted in time to help a different small business last year, though, and he suffered the full financial impact of this trap.

He had relied upon Ghost Certificates without ever being told the limitations of those Certificates (and the Certs in question made no mention of the limitations of the policies, even though they should have.) So when his major Assigned Risk insurer did the audit, they billed him an unexpected $20,000 additional premium for those 1099 people who produced Certificates of Insurance that didn't really cover anyone.

We tried to get help from the Illinois Department of Insurance, but all they would do was suggest this poor sap should request a legal hearing at the Department. And since this small biz couldn't afford the five grand or so it would cost for an attorney, he elected to not pursue that option. And thus died a small business, squeezed out of existence by a classic Workers Comp Premium Trap.