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.