Synopsis: Center for Tax and Budget Accountability (CTBA) Confirms IL WC Reform Not A “Crisis.” Whether You Agree Or Not, Take a Look.
Editor’s comment: I support Governor Bruce Rauner in his efforts to bring fiscal sanity to the moderately insane State of Illinois and City of Chicago. In my view, our State/City leadership has made numerous mistakes and misjudgments. Illinois and Chicago taxpayers are paying and will continue to pay a heavy price for this tragic and continuing government dysfunction. I agree something has to be done to protect our jobs, homes, schools, places of worship and lives in this state.
That said, Governor Rauner’s “Turnaround Agenda” regularly features workers’ comp reform as his number 1 or number 2 priority. Governor Rauner almost seems to make take the concept to “crisis” levels. I have literally no idea why, as workers’ comp reform or moderate cost-cutting should be
· Easy for him to implement and
· Should be the 33d thing he would care about in “turning around” IL State government.
Why Should It Be Easy for an IL Governor To Implement WC Reform?
Governor Bruce Rauner, and no one else in IL gov’t, completely controls the jobs of all of IL WC Chairperson Fratianni, the nine Commissioners and our Arbitrators! As I have said repeatedly, if the Governor wants to cut WC costs, all he has to do is send a memo, call a meeting or send up smoke signals telling the above administrators and hearing officers to bring the costs down. If they don’t do it and the results aren’t measurable in, let’s say a year, find others who will. Seems like a no-brainer to me.
While he is at it, we suggest he consider cutting the IL WC Commission’s budget along with the budgets of the other 87 state agencies. If he orders the Agency heads to cut costs, for example, 10, 15 or 20%, the impact on spiraling/skyrocketing debt would be almost immediate. I vote fire the IL gov’t agency heads that don’t get the message—seem easy, Gov?
Why Should WC Reform Be the 33d Thing in “Turning Around” IL State Gov’t?
We saw this brief study on the web from CTBA or the Center for Tax and Budget Accountability. We agree with some of it. If you look at the CTBA Board of Governors, you may see there are several union officials but there are also representatives of industry and government. We aren’t completely buying into all their concepts but we think you might want to consider their thoughts and research.
This is taken from http://ctbaonline.org/reports/turnaround-fact-sheet-1-workers-compensation. If you want their footnotes, please go to the link.
Turnaround Fact Sheet #1: Workers’ Compensation
About This Series
This is the first in a series of CTBA Fact Sheets reviewing the proposals in Governor Bruce Rauner’s “Turnaround Agenda.” These initiatives have taken on great significance in Illinois, given the Governor’s decision to make enacting his Agenda a condition of passing a final General Fund budget — something the state has failed to do in the first two years of Rauner’s gubernatorial term.
As many of the policies included in the Turnaround Agenda are not traditionally part of the state budget process, the Rauner Administration has justified their inclusion in a budget deal by arguing that they will speed economic growth, thereby increasing the tax base and easing the state’s revenue shortfalls.
This series will identify whether there is evidence to indicate that the individual elements of the “Turnaround Agenda” will promote economic growth, and identify how Illinois compares to other states in these policy areas.
1.1 Workers’ Compensation Background
Workers’ compensation insurance plays two critical roles. First, it helps ensure that employees who are injured on the job and either unable to work (those with “total disability”), or are limited in their ability to work (“partial disability”), are not impoverished. Second, it limits the exposure of businesses to liability as a result of injuries suffered by their workers while on the job.
Originally mandated by state laws in the early twentieth century, workers’ compensation systems generally require employers to pay premiums to either public or private insurance funds.[i] In Illinois, these insurance funds are private.[ii] When an employee is injured, they are eligible to receive benefit payments based on a schedule set by state law. These schedules are generally prorated to a standardized measurement of the extent to which the injury limits the employee’s ability to work. In exchange for paying into this system, employers are protected from lawsuits alleging negligence leading to worker injuries, significantly mitigating their risk.[iii]
1.2 Workers’ Compensation Reform in Illinois
Workers’ compensation insurance has long been criticized by business groups, which claim that its premiums unduly burden employers, and therefore reduce employment and business growth. In 2011, the Illinois General Assembly passed, and Governor Pat Quinn signed, a major reform bill aimed at reducing workers’ compensation insurance costs by cutting reimbursement rates to medical providers by 30 percent, among other measures.[iv]
As part of his Turnaround Agenda, Governor Rauner has proposed further reducing the fees paid to medical providers, as well as limiting the benefits paid to workers. This would be accomplished by requiring that work activities be the “major contributing cause” of an injury. That is a much higher standard than current law, which simply requires that work activities be a cause of the injury suffered. In addition, Governor Rauner would narrow the types of work-related travel that are eligible for coverage under workers’ compensation.[v]
In justifying his workers’ compensation initiatives, Governor Rauner has identified increased economic growth as the intended outcome, maintaining that: “We need to make Illinois a growth state again. That means structural reforms to major cost drivers for businesses.”[vi]
However, there is very little independent research linking lower workers’ compensation costs to higher rates of employment or economic growth. In addition, the strategy of reducing the cost of workers’ compensation to employers by cutting worker benefits is dubious, as recent national trends show employer costs rising even as worker benefits fall.
2. Workers’ Compensation Costs in Illinois Versus Other States
2.1 Employer Costs
There are two primary ways to evaluate the costs of workers’ compensation: the direct costs to employers, and the benefits paid to covered workers. Since the goal of Governor Rauner’s proposals is to reduce employer costs, those will be analyzed first.
According to data collected by the National Academy of Social Insurance, worker compensation costs for employers in Illinois are slightly less than the national average. (For more on the choice of data in this Fact Sheet, see the Methodological Note.) In 2014, Illinois employers paid $1.31 in workers’ compensation costs per $100 of covered payroll, just under the national average of $1.32, as shown in Figure 1. However, employer costs in Illinois are higher than some other Midwestern states, which have workers’ compensation costs that are significantly below the national average, including Indiana ($0.85) and Michigan ($0.94). Wisconsin ($1.67) is a notable exception, with employer costs that are higher than Illinois’. Other large industrial states also tend to have higher employer costs than Illinois, such as New York ($1.44), Pennsylvania ($1.49), and California ($2.00).
2.1 Employee Benefits
As with employer costs, Illinois’ employee benefits are also just below the national average.
In 2014, Illinois workers’ compensation insurance paid $0.90 in benefits per $100 of covered payroll. The national average was $0.91. Meanwhile, the state’s Midwestern neighbors Michigan ($0.55) and Indiana ($0.49) had much lower benefits — among the lowest in the country — while Wisconsin ($1.00) had slightly higher benefits, as shown in Figure 2. Other large industrial states, such as New York ($0.97), Pennsylvania ($1.08), and California ($1.32), also have higher worker benefits than Illinois.
2.2 The Divergence of Employer Costs and Employee Benefits
This distinction between employer costs and worker benefits is important, as the reforms proposed by the Rauner Administration aim to shrink costs to employers by further reducing benefits to workers. However, as Figure 3 shows, worker benefits per $100 of covered payroll have fallen precipitously in Illinois between 2010 and 2014, dropping over 20 percent from $1.13 to $0.90. But at the same time, employer costs have fallen just 4.4 percent, from $1.37 to $1.31 per $100 of covered payroll. In other words, for each one percent decline in worker benefits, employer costs have fallen just 0.2 percent.
Even more strikingly, while workers’ compensation costs for employers in Illinois have been declining, employer costs nationally have actually increased by 8.2 percent. Moreover, that national spike in workers’ compensation employer costs occurred despite the fact that worker benefits fell by 10 percent over the same period. In other words, substantial reductions in worker benefits have been associated with very weak declines in employer costs in Illinois, and increases in employer costs nationwide.
Therefore, the assumption that reducing benefits for injured workers will result in concomitant reductions in workers’ compensation premiums for employers is simply not supported by the real world evidence. This is troubling, given that the Rauner Administration’s proposed reforms make precisely this assumption, and rely on lowering worker benefits as a path to reducing employer costs.
3. Research Shows Little Connection Between Workers’ Compensation and Economic Growth or Employment
Workers’ compensation reform, though not a budgetary issue in the sense that it is not directly related to state expenditures or revenues, has nevertheless been included as part of the “Turnaround Agenda” that the Rauner Administration says must be part of any agreement to end Illinois’ budget crisis. The Administration argues that workers’ compensation is crucial to any budget solution because it will spur economic and employment growth, increasing the size of the state’s tax base.
This argument, however, does not appear to be supported by independent analysis of the link between workers’ compensation costs and economic growth. In fact, there has been surprisingly little research on the question.[vii] But what has been done mostly suggests that there is no significant link.
In a 2005 paper, the Federal Reserve Bank of Kansas City found that “workers’ compensation costs are not a likely cause of jobs woes in most states.”[viii] The paper found that a 10 percent increase in workers’ compensation benefits reduced employment by just 0.11 percent, and wages by 0.10 percent. By contrast, gas prices had a five times greater effect on wages. A 10 percent increase in employer costs reduced employment by even less — 0.07 percent, with an even smaller effect on wages. The author concluded: “Recent claims by policy makers, businesses, and chambers of commerce that workers’ compensation costs are driving away jobs probably is unwarranted.”
Another study by researchers at Marshall University’s Lewis College of Business found that in nearly half of all states, there was no correlation between workers’ compensation benefits and economic development. Furthermore, even in those states that showed a statistically detectable correlation, the authors concluded that “the impact is so small that it is economically insignificant.”[ix]
Moreover, according to the Workers’ Compensation Research Institute, an independent research organization based in Cambridge, MA: “Our researchers note that workers’ compensation is a very small percentage of total compensation, so the impact of changes in workers’ compensation on a state’s fiscal health is presumably negligible.”[x]
It is necessary to go back to the early 1990s to find a study that suggests that higher workers’ compensation costs have economically significant effects on employment.[xi] And that study was undertaken at a time when workers’ compensation costs nationwide were significantly higher than today, and so presumably a more important cost factor for businesses. Indeed, between 1994 and 2014, workers’ compensation costs fell by 57 percent.[xii] Since that significant national decline in workers’ compensation costs, research has found no meaningful correlation between workers’ compensation costs and economic growth.
Governor Bruce Rauner’s “Turnaround Agenda” has made workers’ compensation reform a major priority for any Illinois budget deal. Although workers’ compensation does not directly affect state expenditures or revenues, the Rauner Administration has argued that reducing workers’ compensation costs for employers is key to improving the state’s economic growth and building the tax base. The Governor proposes to reduce employer costs principally through cutting benefits for injured workers.
CTBA’s review of the evidence suggests that this plan is flawed in a number of ways. First, recent trends show that the connection between worker benefits and employer costs is weaker than is often assumed. Between 2010 and 2014, worker benefits in Illinois fell by over 20 percent, but employer costs fell just 4.4 percent. At the same time, employer costs actually increased nationwide, despite the fact that worker benefits declined. There is no evidence that further reductions to worker benefits will yield significant savings to employers.
Furthermore, most independent studies have found that there is no economically significant relationship between workers’ compensation costs and either economic growth or employment. This seriously calls into question the appropriateness of making workers’ compensation reform a critical part of a budget deal.
Reports on workers’ compensation costs by state commonly cite either the National Academy of Social Insurance (NASI) or the Oregon Department of Consumer and Business Services (Oregon DCBS). NASI and Oregon DCBS use different methodologies that lead to sometimes widely differing results. Specifically, Oregon DCBS creates an index of workers’ compensation employer costs based on a sample of 50 industries common to Oregon, and then applies weights based on the industry mix of Oregon’s state economy.
Because workers’ compensation costs vary substantially by industry, these weights and sampling are significant. For example, Illinois’ workers’ compensation cost ranking is quite high in industries related to logging (it has the highest costs of any state in the Saw Mill sector, for example), but is much lower in some other areas (34th highest costs in Clerical Office Employees, and 36th in Home/Public Healthcare, according to Oregon DCBS). A weighting system that reduces the significance of Clerical Office Employees and increases the significance of Saw Mill workers will make Illinois’ workers’ compensation costs appear to be higher.
The Oregon DCBS itself warns that “Because not all premium classes were included in the study, the actual average premium rate for a state will differ from the weighted premium rate index, which is based on the characteristics of Oregon’s economy. If different classes had been selected, or payroll from a state other than Oregon had been used to weight the rates by class, the results would be somewhat different.” (Emphasis added.)
The NASI data, on the other hand, report true average costs and benefits based on the existing industry mix in each state. For that reason, CTBA has chosen to use NASI data in this report.
We appreciate your thoughts and comments. Please post them on our award-winning blog.
Synopsis: If An IL Claimant Wants Penalties/Fees on Medical Bills, They Have to be Tendered! IL WC Appellate Court Overturns 19L Penalties Awarded by the Commission.
Editor’s comment: In Brittany Theis v. IWCC, No. 1-16-1237WC, issued March 17, 2017 was originally tried before the Arbitrator in April 2014. Shortly thereafter, an award was issued for permanency, temporary total disability and medical bills. Neither party appealed and after the award became final. Thereafter, Petitioner’s counsel filed a petition for 19K and 19L penalties and Section 16 fees before the Commission for non-payment of the award. These penalties/fees could have dramatically increased the award by approximately 70% of the amounts owed!
Petitioner’s allegation claimed medical bills which were awarded at trial had not been paid for several months following the decision becoming final. Petitioner, until October 2014 about six months after the award became final, repeatedly refused to “tender” medical bills to opposing counsel as required by the IL WC Act and simply submitted them for the record at earlier hearing. Petitioner counsel’s unusual argument was it was incumbent upon Respondent counsel to order a copy of the arbitration transcript or subpoena Petitioner’s providers to obtain full copies of all medical bills including needed documentation.
It was admitted during oral arguments that Petitioner’s attorney had not provided copies of Petitioner’s exhibits to Respondent, prior to, during or subsequent to the trial commencing. No reason for failure to tender copies of the bills was outlined in the record.
Respondent presented arguments and evidence submitted for the record specifically addressing this argument. Respondent argued it was Petitioner herself who created any delay in payment by failing to “tender” medical bills to Respondent or its counsel. This conclusion is one that utilizes common sense; how can a Respondent subpoena medical bills when they may not even know which medical providers Petitioner may have been seen by? Furthermore, the IL WC Act and prevailing case law is extremely clear as to the burden of proof resting upon Claimant. Requiring Respondents/insurance carriers to seek out medical bills unilaterally would impermissibly shift the burden of proof.
The Commission panel agreed and specifically found Petitioner herself was the cause of the delay in tender and payment of the medical bills. They confirmed the IL WC Act specifically requires a Petitioner “tender” medical bills prior to the accrual of any liability for Section 19K and 16 penalties/fees and by refusing to send these medical bills to Respondent, Respondent’s insurance carrier or Respondent’s counsel, Petitioner could not “hide the ball” and collect 19K penalties or Section 16 fees as a result of her inactivity.
Despite coming to this very specific conclusion, the Commission confusingly awarded 19L “late fee” penalties from the date of the award through the date the bills were eventually paid per the IL WC Medical Fee schedule. This period of time included several months where Respondent did not even know bills were still outstanding as they had not been presented with copies of any allegedly unpaid bills.
Respondent appealed to the Circuit Court and argued the Commission’s decision was inherently contradictory. The Commission appeared to have come to a very specific conclusion that a Petitioner should not be able to hide medical records from a Respondent and expect to collect penalties. Then the Commission panel contradictorily awarded 19L penalties.
The Circuit Court agreed with Respondent’s common sense arguments and vacated the award for penalties finding the Commission’s decision was against the manifest weight of the evidence and based upon the Commission’s own findings and conclusions, 19L penalties would be inappropriate.
The IL Appellate Court, WC Division agreed in their ruling in Theis v. IWCC. Petitioner cross-appealed the decision of the Circuit Court and again attempted to argue that Respondents should be expected to prove a negative. According to Petitioner, a Respondent should be held responsible for obtaining medical bills, possibly without knowledge of all medical bills existing and relying solely on a providers’ custodian of records that bills may be complete and provide needed documentation to allow processing.
This argument begs a number of questions. If a Respondent is expected to subpoena medical bills, when would the clock begin to run on penalties? At the time the subpoena is issued? What if a provider is non-compliant? Should the deadline start at trial? At the time a transcript is order or received? The purpose of this ruling may be to simplify future proceedings and provide concrete answers. This Court came to the abundantly correct conclusion in answering these questions as “none of the above.” The penalty clock should only begin to run after medical bills are “tendered” to a Respondent, as the Commission had stated originally. The IL WC Appellate Court affirmed the finding of the Circuit Court and vacated all penalties awarded as the Respondent had an adequate justification for the delay of bill payment, namely that Petitioner created the delay.
We appreciate your thoughts and comments. Please post them on our award-winning blog. This article was researched and written by Timothy O’Gorman, J.D. You can reach Tim with questions, concerns or to assign new claims at email@example.com.