Keefe: Could This Be the Dumbest Reform in History of Work Comp?
Wednesday, May 31, 2017 | 666 | 0 | 0 min read
My amazing brother Joe has been in comedy for decades. Whenever it comes to politicians, he always recommends you vote for the funny ones. When politics eventually get boring, and they always do, Joe points out that you can always laugh at the funny politicians.
The Illinois Senate just passed a law that is certain to remain humorous, silly, dopey and goofy — if you understand what it is doing. Please note that this isn’t law yet and we hope if this bill gets past the state House that Gov. Bruce Rauner quickly vetoes it.
To my understanding, the Illinois Trial Lawyers Association doesn’t like to be told that workers’ comp in this nutty state is more expensive than it is in other states. To counter or block that news, it came up with the hilarious public relations story that our comp system isn’t pricey; the evil demon is the profit-hungry insurance companies.
The PR line from ITLA continues to claim there were some reforms in 2011, and costs may not have gone down. This supposed phenomenon was not because of the legislation or the Illinois Workers' Compensation Commission administration. The problem was the supposed hoarding of profits by those inconceivably wealthy comp insurance carriers.
In short, the state Senate has now approved/voted for a bill that would take $10 million from the IWCC Operations Fund to start a silly and fake, government-run comp insurance carrier to supposedly offer discount coverage and embarrass the heck out of the major players in the insurance community. When we stop laughing out loud, we assure you that the concept is stupid and we hope it is put to bed sooner rather than later. We assure our readers this should be forever called the “State of Illinois Fake Mutual Work Comp Insurance Co.”
Please also note that the annual budget of the IWCC is about $30 million. Every nickel of that money comes from business and local governments. My sources agree that the Workers’ Comp Commission, which has about 150 employees, would have to lay off about 50 if it is to lend/give up $10 million, or one-third, of its annual budget to this dopey, fake mutual insurance concept.
Not sure if anyone in the General Assembly even thought of that issue but we assure you, in a state with about $14.5 billion in unpaid bills and around $130 billion in pension debt, our legislators are again playing with what I call “magic money” that supposedly comes from nowhere to be spent by them on nothing for nobody.
The main reason I think the PR line from ITLA is completely balderdash is that most of my top clients aren’t actually “insured” for their work comp risks and costs. All moderate to major employers in Illinois, and across the country, don’t truly pay WC insurance carriers for “first-dollar” coverage. Almost any moderate to major employer has a significant claims deductible, or what is called a self-insured retention, where the insurance carrier actually is acting as an excess carrier when providing coverage.
For risks/costs from $250,000, $500,000, $1 million or even $2 million, the comp insurance carriers are spending my clients' dollars, not their own. They make a relatively minimal profit managing comp claims for the employers and, when they act like third-party administrators, any insurance profits are greatly limited.
Please also remember there are more than 300 comp insurance carriers and TPAs in this state. The competition is intense, and they are all looking to cut costs and be the least expensive, to win the annual request for proposals that bring in more business and cold cash.
I don’t know any successful insurance carrier/TPA that doesn’t greatly overtax the solid and hardworking comp adjusters who make the tough calls on their claims. Adjusters struggle with the Peter Principle that says the most work in any organization flows to the most competent worker. If an adjuster can do a solid job handling 125 litigated lost-time claims, he may receive as many as 200 or more claims (without matching compensation or bonuses) to ensure that the employers are getting the most money from their dedicated work.
On a related note, at one point across the U.S. there were lots of state-founded and later state-run WC insurance companies like the proposed insurance carrier our General Assembly may create. The concept failed miserably, for the most part. Those insurance carriers were moved out of politics and kookiness of their respective state governments and forced to succeed in the private sector or close their doors. Some of the state-run WC insurance carriers survived; lots of them closed their doors.
Please remember that the mega-carriers in U.S. workers' comp are multi-billion dollar international corporations. The General Assembly comically thinks it can use its clunky government model to compete with these well-tooled international organizations with an opening ante for our new mutual insurance company of only $10 million.
The chance that the General Assembly can outfit and run a competitive, state-run comp carrier and compete with the big boys/girls in our industry is impossible and humorous to even contemplate. Everything the General Assembly in this state touches turns to lead and drops to the bottom of the nearest river or lake. In my opinion, it is throwing away $10 million, and jeopardizing lots of jobs and the management of Illinois claims.
So why is the ITLA pressing this phony PR line to the point of having its puppets in the General Assembly pass a law that will require laying off IWCC workers? Well, it knows John Q. Public doesn’t understand what I am telling you above. It also feels that many citizens might innocently believe comp carriers are very profitable and are fighting to stop passing through the supposed giant savings that came with the 2011 amendments to the Workers' Compensation Act.
The real story is clear: Medical costs in Illinois comp are down a notch. That savings are being “passed along” to my clients. The Workers Compensation Research Institute's most recent reliable statistical report confirms such costs have dropped about 6%. The problem with that cost-cutting is that our sister states have cut even more overall WC costs. If you look at our surrounding states, if we can cut Illinois comp costs about 10%, we would and should be in the middle of that pack.
As a cautionary concept, we aren’t going to catch the cheapo Indiana comp system, as I assure you its benefits are terrible and Indiana should be ashamed of how it treats catastrophically injured workers and/or widows and widowers. If you don’t believe me and want my thoughts on that issue, send a reply.
If Illinois comp is to cut even more costs to get to the midstream, we told you in the past weeks that there are two simple ways to do so. The first is to immediately roll back the permanent partial disability values to the pre-2005/2006 numbers. This would be a 7.5% savings the day it is enacted. We believe the plaintiff bar in this state would accept that roll-back.
The second and even easier way to cut comp costs is for Gov. Rauner to tell the IWCC administrators who work for him to cut benefits by 10% or whatever value he feels best. If they won’t cut benefits, start to cut the administrators who aren’t listening. We believe the plaintiff bar will deal with mildly lower comp costs. Some may not be able to afford a second Maserati or Ferrari, but they will get along just fine.
Eugene Keefe is a founding partner of Keefe, Campbell, Biery and Associates, a Chicago-based workers' compensation defense firm. This column was reprinted with his permission from the firm's client newsletter.