1. Illinois Trial Lawyers Association Workers’ Compensation Seminar
Legislative Update
David B. Menchetti
Cullen, Haskins, Nicholson & Menchetti, P.C.; Chicago, IL
November 11, 2016

2. Governor Rauner “Turn Around” Agenda
We have the 7th highest workers’ compensation costs in the country
Structural reforms to major cost drivers for businesses
Transforms our workers’ compensation system to bring costs in line with other states
The causation standard should be raised from an “any cause” standard to a “major contributing cause” standard. The accident at work must be more than 50% responsible for the injury compared to all other causes
Allow award to be based solely based on the AMA guidelines (Guides?)
Greatly limit the situations in which an employee “traveling for work” is able to recover
Reduce the fee schedule by 30% for all services except evaluation and management

3. Crain’s Chicago Business, 10/27/15
Medical payments fell nearly 15 percent, to an average of $14,513 per claim, during the 12-month period ended Sept. 30, 2013 (measured as of March 31, 2014), down from $17,140 per claim in , according to the Workers Compensation Research Institute, which is mostly funded by the insurance industry. Illinois' average payments are now lower than Indiana's ($18,863), Wisconsin's ($17,787) and Iowa's ($16,051), according to the study, which compares 17 states that handle more than 60 percent of the workers' comp cases nationwide.
That's not enough of an improvement, according to Catherine Kelly, Rauner's press secretary, who noted that Illinois' rate is double Indiana's.

4. NCCI Data 9-1-2011 -8.8% $2.25 billion 1-1-2012 +3.5% +3.7%
Date
Rate Recommendation
Loss Cost
Total Premium
# of Policies
-8.8%
$2.25 billion
+3.5%
+3.7%
$2.42 billion
-3.8%
-3.5%
$2.60 billion
188,018
-4.5%
-5.8%
$2.69 billion
-5.5%
-6.2%
$2.75 billion
No filing
$2.83 Billion
-12.9%
-13.4%
Total
-32.0%
-25.2%

5. NCCI Recommendations Applied to Calculate Premium Savings
Date of NCCI Recommended Rate Reduction
NCCI Recommended Rate Reduction
(Current) + (Previous) =
Cumulative
2011 WC Insurance Premium Base
Premium Savings if NCCI Recommendations Had Been Followed by Insurance Companies
-8.8%
X $2.418 billion
-$212 million
(+3.5) + (-8.8) = -5.3%
-$128 million
(-3.8) + (-5.3) = -9.1%
-$220 million
(-4.5) + (-9.1) = -13.6%
-$328 million
(-5.5) + (-13.6) = -19.1%
-$461 million
None + (-19.1) = -19.1%
(-12.9) + (-19.1) = -32.0%
-$774 million
TOTAL
-$2.58 BILLION

6. Oregon Workers’ Compensation Premium Rate Ranking Study
Year
Index Rate
Median
% of Median
Rank
2016
2.23
1.85
121 8
2014
2.35
127 7
2012
2.83
1.51
151 4
2010
3.05
2.04
149 3
2008
2.79
2.26
124 10
2006
2.69
2.48
108 20
2004
2.65 23
2002
2.74
2000
2.62 15

7. Comments from the Author of the Oregon Workers’ Compensation Premium Rate Ranking Study Lynch Ryan Workers’ Comp Insider Blog, 10/02/2016
“Employers can reduce their workers’ compensation rates through accident prevention, safety training, and by helping injured workers return to work quickly.” Table 2.
“This isn’t a report card! The study isn’t an overall evaluation of states’ workers’ compensation systems. There are other important aspects of workers’ compensation systems that are beyond the scope of this analysis. The study focuses on one aspect of workers’ compensation systems: rates paid by employers that purchase insurance.”
“Rank values are useful, but they have major limitations for interstate comparison. So, we publish a second comparison factor, Percent of Study Median. We recommend using this measure, rather than rank values, for comparing states’ relative rate position over multiple studies.”
“We study rates using a snapshot on January 1 of the study year. We look at where the rates are on the date of the snapshot, not whether they are going up or down.”

8. Comments from the Author of the Oregon Workers’ Compensation Premium Rate Ranking Study Lynch Ryan Workers’ Comp Insider Blog, 10/02/2016
“Pure premium rates are a big part of the rate comparison, but only a part. The study also includes factors for insurer overhead and state administrative agencies’ assessments, when these can be put on a comparable basis.”
“Study data don’t tell us why a state’s rates have been going up or down, or where they might be in the future. Nor do they tell us how effective a system is in minimizing disputes, getting injured workers back to work, paying out adequate benefits, or getting cost-effective medical treatment. Clearly, those are important performance areas too.”
“The study doesn’t consider insurers’ profitability, discounts, dividends, or activity in the state’s assigned-risk plan. Those items aren’t available for all states, and even when they are available, they’re often incomplete during the year we’re studying. Employers that self-insure (or, in a few jurisdictions, opt not to insure) aren’t included in the study because they aren’t paying workers’ compensation premiums.”

9. IL DOI 2016 WC Insurance Oversight Report
IL leads the nation in number of WC insurers (332)
IL is 3rd in nation, behind only CA & NY, in premium ($2.83 billion; 4.9% CW)
IL profits grew faster than the country-wide (CW) average (IL=1.7% ; CW=1.5%)
IL loss ratio is lower than the CW average (IL = 53.5%; National = 57.3)
IL loss ratio decreased more than the national average (IL = -7.2%; CW= -3.0%)
Reduction in assigned risk market
Total indemnity payments down; Total medical payments down
Total claims down

10. National Academy of Social Insurance WC Benefits, Coverage & Costs, 2014 October 2016
WC Total Benefits Paid per $100 of Covered Wages
2013: $1.00 per $100 (tied for 21st lowest)
Country Wide Average: $0.97 per $100
IL: 2012: $1.03 per $100; 2011: $1.10; 2010: $1.13; 2009: $1.17
Dollar amount change, : -$0.17
IL ranking, largest % decrease : 9th

11. US Department of Labor Does the Workers’ Compensation System Fulfill its Obligations to Injured Workers? October 2016
A "race to the bottom" in state workers' compensation laws has the Labor Department calling for "exploration" of federal oversight and federal minimum benefits.
"Working people are at great risk of falling into poverty," the agency says in a new report on changes in state workers' comp laws. Those changes have resulted in "the failure of state workers' compensation systems to provide [injured workers] with adequate benefits."
 In the last decade, the report notes, states across the country have enacted new laws, policies and procedures "which have limited benefits, reduced the likelihood of successful application for workers' compensation benefits, and/or discouraged injured workers from applying for benefits."
Without minimum federal standards for workers' comp benefits, Perez adds, the current system "is really putting workers who are hurt on the job on a pathway to poverty."
Another incentive for federal involvement, the report notes, is a shift of billions of dollars in workplace injury costs to taxpayers when state workers' comp benefits fall short and workers are forced to turn to Medicare and Social Security for treatment and lost wages.

12. Takeaways & Message
Loss costs: Also called "pure premium," the actual or expected cost to an insurer of indemnity payments and allocated loss adjustment expenses (ALAEs). Do not include overhead costs or profit loadings. Rating organizations such NCCI develop and publish loss costs. Insurers add their own expense and profit loadings to these loss costs to develop rates. Many insurers will file their own rates or file deviations of the published rates with the states in which they write business.
Allocated Loss Adjustment Expense (ALAE): Loss adjustment expenses that are assignable or allocable to specific claims. Fees paid to outside attorneys, experts, and investigators used to defend claims are examples of ALAE.
IL: 5th largest economy in US; ranks top ten in household income; ranks top ten in hospital costs
NY criticizes OR study: “A proper average rate comparison across states would consider all occupational classifications, and not a subset that may fit a particular state’s interest. While the Oregon study may be appropriate for the interests of Oregon stakeholders, it is inappropriate to use the study as a benchmark against which other specific states’ costs can be measured. NYCIRB suggests that a comparison based on all classes, giving consideration to wage and benefit level differences among states, would be more accurate and less open to misinterpretation.”
IL WC COSTS DECLINING AND UNDER CONTROL!!! MISSION ACCOMPLISHED!!!
COSTS VS. PREMIUMS!!! IF ONLY THE CARRIERS WOULD PASS ON THE COST SAVINGS!!!

13. So Why Are They Still Talking About…?
AMA Guides
Traveling Employee
Causation
Roll back of 2005 amendments
Credit for Man As a Whole
Wage Differential
Medical Fee Schedule
Pharmaceuticals

14. Why Aren’t They Talking About…?
Insurance Rate Review/Regulation
Self-Insurer Transparency
Safety Program Incentives
Fraud Unit Crack Down on the Criminally Uninsured
STATE FUND!!!!!

15. Reports
NCCI
Oregon Study
IL Dept. of Insurance
National Academy of Social Insurance
US Dept. of Labor