Travelers' Early Severity Predictor: A way to predict who'll become a drug addict in your workplace.

Allen, 25, works in a Trenton, New Jersey, auto body shop alongside a middle-aged man who’s straining to lift bumpers and fenders. Allen’s co-worker came back after a hip replacement because he feared that he would be fired. Allen knows this guy will turn to “street meds” to ease his pain.

Dr. Adam Seidner knows the same thing -- from his sky-high view as global medical director at Travelers Insurance (TRV). Armed with “big data” on 1.5 million injuries and disabilities, Seidner believes he can predict who’s at risk of becoming an addict -- and how best to treat them. That has led Travelers to develop a system to profile not actual painkiller addicts, but potential ones.

If Seidner is right, it could help address a problem that’s now a plague. Some 2 million Americans are hooked on highly potent prescription drugs like fentanyl, while another 500,000 are “in the clutches of heroin.” In recent years, more Americans have died annually from overdoses, 33,000 of them, than from car accidents - a list that includes celebrities such as Prince and Michael Jackson.

So what’s Seidner’s solution? First, get rid of the addiction fiction claiming that people choose to become junkies. “Perhaps 5 percent of addicts do it for the euphoria,” said Seidner, who spent years detoxing prisoners. “Most take opioids to relieve suffering from chronic pain.”

And that’s scary because it puts an estimated 50 million Americans who suffer from chronic pain in the cross-hairs of potential addiction. They come to doctors’ offices complaining of bad backs, repetitive stress, falls, strains and “soft tissue” injuries. Ever since the 1980s, about nine times out of 10, doctors have traditionally prescribed the most effective remedy for pain: drugstore opioids. They range from the mild, like codeine, to the strong, such as OxyContin (oxycodone) and Percocet (a combination of acetaminophen and oxycodone).

Although opioids curb the pain, they don’t cure the patient. And they have a will of their own. Within a month, these drugs invade the patient’s mind, which then tells the body to “feel” pain, whether it’s real or not, and thus creates a dependency. Patients then demand the opioid -- in stronger and stronger doses -- and if they can’t get it legally or through their medical plan, they may steal prescription pads, use drugs like Imodium that mimic some of opioids’ effects and ultimately move on to street sources, where a $10 bag of heroin is both cheaper and stronger than a $200 prescription.

After years of trying to “just say ‘no’” to an epidemic that kills 46 people a day in the U.S., the medical profession, along with federal and state governments, recognized the danger. “I will not willingly watch another 1,600 of our citizens die,” former presidential candidate and New Jersey Governor Chris Christie told his state legislature this year.
 
On Jan. 19, the mayor of Everett, Washington, also asked the city council to authorize a lawsuit against Purdue Pharma, the maker of OxyContin, alleging that it knew the painkiller was being diverted to the illicit market and didn’t do enough to stop it. But stopping the deadly flow of painkillers is a difficult process. As one doctor in Princeton, New Jersey, who asked not to be identified, said: ”What do you do when a patient comes to you in pain?” Physicians still write more than 200 million opioid prescriptions a year.

The latest data from Maryland, Ohio and New England, where the opioid crisis is most intense, shows an increase in fatalities. Drug companies have promoted medications like fentanyl, a synthetic opioid that can be as much as 50 times more potent that heroin. “It’s like pushing on one side of a balloon,” said Travelers’ Seidner. “It just bulges out the other.”

Travelers has a big dog in this fight. It’s the largest workers’ compensation insurer in a $45 billion business that helps companies manage medical benefits for employees injured on the job. It handles a quarter-million of these claims each year. The longer an employee stays off the job and runs up medical bills, the more the insurer loses. The average claim now runs $40,000 over three years. But with caps on temporary disability now declared unconstitutional in some states, claims could last for decades.

That’s where Travelers’ addict-prediction model comes in, because the first step is to identify a potential addict. To do that, Seidner has assembled “statisticians and brainiacs” to predict which injuries will turn into chronic pain cases and push the patient down the “slippery slope” to opioid dependency.

Travelers developed a program called Early Severity Predictor, which looks at four areas:

Pharmaceutical frequency - What drugs are the patients using and how much. Are they also popping pills on the side?

Co-morbidity - Are they suffering from other conditions, like diabetes or osteoporosis? Do they smoke?

Muscular health - Are they in good condition?

Mental health - Are they angry with their employers? Do they fear going back to work and facing the same injury?
 
Other factors - Sex, socioeconomic status, education and the nature of the injury: shoulder, knee or slipped disk.

A typical person with a chronic injury who might become dependent could be a middle-aged white male factory worker with a bad back. Identifying the potential addict is only part of the problem. Getting rid of the chronic pain and the potential addiction is the other. 

Once such a patient is identified, Travelers can begin to harness resources. It starts by talking to the patient’s doctor. In many states, doctors are under no obligation to talk to the insurer, but nearly seven in 10 will. This is probably because the insurer covers treatments like physical therapy, sports medicine, stimulation devices, yoga, stretching and psychology. “We embrace all modalities, but we don’t do traditional psychoanalysis,” said Seidner. “Instead, we use therapy that will change behavior.”

Seidner and his team have analyzed 20,000 cases of opioid addiction since 2015, identified 9,000 at-risk patients and worked with 2,500 of them. Since then, about 1,400 no longer demonstrate any significant use of opioids, and medical expenses have fallen by 50 percent. Much of that reduction has come from reduced use of opioids, which used to constitute 50 percent of all the prescription drugs that workers comp paid for, according to Travelers Vice President Rich Ives. Now it’s only 23 percent. Vice President Loretta Worters of the Insurance Information Institute, which represents the industry, concurred that “Travelers Early Severity Predictor is certainly helping.”

Let’s be clear. Travelers will only help the companies that pay its premiums and the people employed by those companies. But its strategy, including how to predict drug addiction, provides a roadmap for governments, doctors or anyone with a chronic injury who wants to escape the curse of opioid dependency. In some instances, it’s as easy as looking in a mirror. If you’re taking drugs for a bad back, consider stretching. If you hate your job, try to find another one before you’re reinjured. If you’re depressed, seek help. Opioids will only make things worse. And when you take an opioid of any kind, the addiction clock is ticking. If taken longer than a month, you may already be addicted and not even know it.
 
Finally, when you see a doctor for pain, ask whether another treatment beside opioids might work - before he or she pulls out the prescription pad. “Probably 80 percent of the time it’s a bad idea to prescribe opioids,” Seidner said. “We need to address the pain, but how we do it is the important thing.”
 
​For more information, Click Here.
 
Dan Zeiler
708.597.5900 x134
dan@zeiler.com
 
Source: http://www.cbsnews.com/news/a-way-to-predict-wholl-become-a-drug-addict/?ftag=CNM-0010aab7e&linkId=33675340&linkId=34113097

 

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How to Report Work Comp Fraud

The Illinois Department of Insurance has a newly redesigned Workers' Compensation Fraud Web Site.

They provide complete complaint checklists in order to report someone you suspect carrying out Work Comp Fraud.

Below are the pieces of information you need to complete the complaint and email to DOI.WorkCompFraud@illinois.gov

Provide the following information in matters that may involve fraud perpetrated by a claimant:

  • Identity of the claimant

  • Date of injury, if known

  • Type of Injury

  • Activity level with a vivid description of activity

  • Employer, if known

  • Insurance company, if known

  • Secondary employer, if known, or if claimant is self-employed

  • Additional witnesses

  • Complainant must submit in writing, identify themselves, and be willing to testify

If the target is an employer, healthcare provider, attorney, or insurance agent/company, the complainant should provide:

  • Name/address of company or business

  • Relationship to business owner or company if any (employee, partner, etc)

  • Name/address of insurance agent or company

  • Name/address of healthcare provider and dates of treatment

  • Name/address of attorney

  • Synopsis of what they believed constituted the fraud

  • Additional witnesses

  • Complainant must submit in writing, identify themselves, and be willing to testify

You may always contact the Illinois Department of Insurance directly at:

Illinois Department of Insurance
Workers’ Compensation Fraud Unit
122 S. Michigan Ave., 19th Floor
Chicago, Illinois 60603
877-WCF-UNIT (877-923-8648)
DOI.WorkCompFraud@illinois.gov

For more information visit - http://insurance.illinois.gov/wcfu/


Dan Zeiler

dan@zeiler.com

708.597.5900 x134

 

 

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How Prework Screening Can Help Reduce Workers' Compensation Claims

Look up the term “prework screening” and chances are you’ll find information about how drug testing, job history verification, criminal background checks and Social Security number traces can help protect your company from hiring questionable employees. But how can prework screenings help reduce workers’ compensation claims? The answer is simple–test prospective employees (who have accepted a conditional job offer) for their physical ability to do the jobs they will be assigned. It's important to do this as soon as possible, because umbrella liability doesn't apply here- so you could be at risk! 

Consider the experience of a policyholder in the automotive industry that was experiencing recurring injuries on its supply line. After instituting a prework screening program for physical abilities, they noticed a reduction in claims. Other companies EMC works with are benefitting from prework screening when hiring temporary workers and ensuring employees at recently acquired locations are right for the job. 

Six Steps to Effective Prework Screenings 

  1. Target the jobs to be tested—Review injury data (such as your injury records or your claims records) to identify problem jobs that should be screened first. Look for jobs affected by lost time from injuries such as musculoskeletal/back injuries, multiple injuries and trauma, and jobs where tasks include lifting and carrying, balancing, use of ladders, overhead reaching, repetitive motion and postutres, awkward postures or climbing.
  2. Analyze the physical demands—For the jobs targeted in step one, identify and measure the physical demands. EMC can help with this process or you can consult with the physical/occupational therapist who will design the test.
  3. Have the physical therapist develop the prework screening test features and pass/fail criteria.—Provide the job description with the physical demands outlined to the physical therapist. The therapist will then identify the prework screening test features and develop the actual performance tests. You should receive written documents from the therapist for your review.
  4. Establish procedures before testing begins (with the therapist)—Answer the following questions before you begin testing: 
    • Where will testing occur?
    • How will applicants be referred to this location?
    • What will happen if an applicant’s resting blood pressure and/or heart rate exceed safe levels for testing?
    • How will test-related injuries be handled?
    • How will pregnant or disabled applicants be tested?
    • How will the test results be handled?
    • How will the test failures be handled?
    • What information is to be shared with the employer?
  5. Test existing employees—To ensure that your prework criteria are as accurate as possible, test it on employees who already hold the jobs you have selected for prework screening. Use these results to correct any problems before job applicants are tested.
  6. Review outcome and follow-up data—You should receive periodic updates from your physical therapist on the pass/fail rates, the test items most frequently failed and any information regarding significant differences in fail rates based on gender, age or ethnic groups. Review this information to modify the testing process if necessary. Consider tracking your work-related injury costs before and after starting the prework screening program. This can help your organization decide whether or not to continue or expand the program. For more information on worker's compensation, please read here: How to Report Workers' Comp Claims.

 

Hiring Considerations for Prework Screening Providers 
Retaining the services of a qualified prework screening provider is the most costly element of your prework training program. It is also one of the most crucial element for an effective program. When selecting a screening provider, convenience will certainly be a factor, but it shouldn’t be the only factor. You should pick a provider who: 

  • Is properly trained and experienced in administering prework screening and exam design methods
  • Understands the workers’ compensation system
  • Is a timely and skilled communicator
  • Is in close proximity to your job site(s)
  • Has demonstrated experience in both occupational and non-occupational therapy treatment
Some questions you should ask the screening provider include:
  • Do you have experience in conducting prework screening exams and functional job analyses? You may ask for written examples.
  • Are you knowledgeable about how the Americans with Disabilities Act (ADA) and Equal Employment Opportunity Commission legally influence the appropriate administration of prework screening exams? For more information about ADA visit www.eeoc.gov/policy/docs/preemp.html.
  • Are you willing to visit our workplace to observe, review, confirm and identify the essential job tasks and the related physical demands of those tasks in preparation for designing reliable test procedures?
  • Can you provide screening exams at multiple locations if needed?
  • What test orientation materials do you provide to the job candidates before undergoing a prework screen? You may ask for written examples.
  • Are you prepared to offer test accommodations to job candidates if needed/requested?
  • Have you accommodated a job candidate during a prework test? If so, please cite examples of accommodations you have made.
  • How do you communicate the results of the prework screen?
  • What is the cost to develop both the exam criteria and administration of each prework screening test? What is the cost to complete functional job descriptions? What is the estimated time to conduct the exam?
  • Describe your testing methods and reporting format (make sure these methods are compatible with the needs of your organization).
  • Do you have written medical standards and criteria defining when to start and stop a test for safety reasons related to the job candidate? Can you provide a copy of these?
  • How do you handle a potential injury during testing? Cite examples.

If you have questions or would like more information, call any of our 3 locations in the Chicago-land area today. Our customer service representatives are eager to share their knowledge and speak with you about any insurance related topic. Zeiler Insurance is an independent insurance agent and has been providing quality customer service for 101 years in our Alsip, Chicago, and Gurnee locations. Our goal is to help you understand insurance as well as provide you with the most competitive insurance rates in the industry. Whether you are a customer or just want more information, let us help you with our years of expertise in the insurance business.

Dan
dan@zeiler.com
708.597.5900 x134

 

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Don't Let Poor Workplace Environment Quality Make Your Employees Sick

Don't Let Poor Workplace Environment Quality Make Your Employees Sick

Workplace conditions have a substantial impact on employee performance. By workplace conditions, we aren't just referring to an employee having the opportunity to advance, being recognized for a job well done, or salary or benefit offerings. Believe it or not, the quality of the air in the workplace has just a substantial impact as all of the above. Most have already heard the term sick building syndrome (SBS) being used to describe situations where occupants of a particular building experience health and comfort effects from spending time in the building. However, employers have just recently begun to realize the extent to which a sick building can effect employee output.

What Causes Air Quality Problems In The Work Environment?

Every environment has a unique combination of external and internal factors. So, what causes problems in your neighboring business isn't necessarily what's causing problems in your business. Knowing this, each environment must be evaluated to determine what combination of factors are present in any particular building.

One factor that's received a great deal of attention from the media lately is chemical contaminants. The consequences of chemical contaminants are sometimes fatal. This type of contaminant enters the air one of two ways - off gassing occurring from the internal operation of equipment or machinery or from the contaminants found in chemical products like pesticides and fertilizers being blown inside the building. In either case, these contaminants are likely to accumulate in the environment and cause health effects if there isn't an adequate supply of circulating fresh air.

Contaminants caused by fungi, mold, or bacteria are also concerns. Building fungi and bacteria are often the result of carelessness and are usually discovered during routine site inspections. If the environment is hospitable, fungi and bacteria begin to grow very quickly. They are commonly found in places like a wastebasket containing food, a poorly or infrequently cleaned coffeepot, or filthy staff break room. All of these sites of contamination can quickly add up and become a major problem. On the other hand, mold is an all together different issue. It's more often uncovered through a professional inspection and requires professional removal. These issues affect employers workers compensation and must be taken seriously.

The detrimental effects of poor air quality can spread rapidly. Resolutions should be initiated immediately after the source of contamination is identified. Here is some information on workplace conditions:  Understanding Workplace Injuries, Illnesses and Saftey Hazards.

Of course, it's best to prevent the contaminants from becoming an issue in the first place. According to The National Institute of Occupational Safety and Health, the following steps can be helpful to maintain good air quality in your building:

1. While the HVAC isn't running, the condensation pan should be inspected and cleaned of debris. A solution of one to five percent sodium hydrochloride can be used to sanitize the condensation pan. Rinse the pan with clear water.

2. Some HVAC units with rooftop outdoor air intakes may need to have a bird screen installed. The installer of your unit can usually tell you if this is a necessary step. If so, it should be inspected monthly.

3. Make sure that all rooftop exhaust fans are within operational guidelines. If not, they should be immediately replaced or repaired.

4. Since a leaky air filter can decrease the effectiveness of the filter, it should always fit tightly within its rack and not have any open spaces or gaps.

5. Routinely inspect intake air vents. Negative pressure may occur if the exhaust fans are operational and the air vents are blocked. This can cause the HVAC system to become imbalanced and produce moister untempered air. The end result is moisture control problems.

6. Routinely clean any accumulated dust from the fan coil unit and fiberglass liner. If the fiberglass liner has deteriorated, has turned black, or is otherwise soiled, then it should be replaced.

7. Prior to turning the HVAC system on, you should properly exhaust the building. Any warm and humid air that has accumulated during non-operational hours can condense when it's mixed with the cool air from the air conditioner. The added moisture from condensing might create a rain forest effect.

If you have questions or would like more information, call any of our 3 locations in the Chicago-land area today. Our customer service representatives are eager to share their knowledge and speak with you about any insurance related topic. Zeiler Insurance Services is an independent insurance agency and has been providing quality customer service for 101 years in our Alsip, Chicago, and Gurnee locations. Our goal is to help you understand insurance as well as provide you with the most competitive insurance rates in the industry. Whether you are a customer or just want more information, let us help you with our years of expertise in the insurance business.

Dan
dan@zeiler.com
708.597.5900 x134
http://www.zeiler.com

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Experience Modification Looks Complicated, But It Isn't

 

Experience modification (experience mod) is a key factor when monitoring workers compensation premiums. Experience mod is a rating factor that determines your workers compensation premium based on loss experience. A 1.0 rating means expected losses equal actual losses that occur. A rating below 1.0 indicates that actual losses occurred are less than expected losses, resulting in a lower premium. A rating above 1.0 means actual losses are higher than expected losses, resulting in a higher premium. In short, your experience mod compares your workers compensation claims to companies of similar size and industry.  

Experience mod ratings are calculated based on certain components. One component is the payroll for the business. Workers compensation claims are highly dependent on payroll numbers being accurate, therefore payroll figures are often audited. A second component is the loss history of the business. The loss history can be determined from analyzing claim data that has been filed. When calculating the premium for the policy, items such as the frequency of claims are essential to provide an accurate premium. It gives an insight as to how the business operates and if there are trends regarding workers compensation claims. The last component is reserves used for claims. Claim data provides information to help compute payments, and reserves are required for claim totals. Reserves are assigned to open claims and represent future payouts. Claim adjusters often handle large amounts of claims, so it is imperative to have open claims reviewed for accuracy to avoid the formulation of the experience mod can become incorrect.  

In the real world injuries will happen, but the response can help keep your experience modification rate from increasing. Having a plan to manage injuries and workers compensation claims is imperative for getting control. An effective safety program that eliminates hazards is the starting point. Also, your experience mod is influenced more by small, frequent losses rather than large infrequent ones. Implementing a Return to Work Program is important for any business. Having a program in place will help lower days off which in turn will keep your experience mod down. For example, if an employee sprains their ankle, what can you do to decrease their days off? Can they input data while sitting at a computer or maybe help out somewhere else? Read our article  Illinois Workers Compensation Insurance - Keep Your Premiums Low  to learn more.

If you have questions or would like more information, call any of our 3 locations in the Chicago-land area today. Our customer service representatives are eager to share their knowledge and speak with you about any insurance related topic. Zeiler Insurance is an independent insurance agency and has been providing quality customer service for 101 years in our Alsip, Chicago, and Gurnee locations. Our goal is to help you understand insurance as well as provide you with the most competitive insurance rates in the industry. Whether you are a customer or just want more information, let us help you with our years of expertise in the insurance business.

Dan
dan@zeiler.com
708.597.5900 x134
http://www.zeiler.com

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When An Employee Refuses Work Comp Treatment

Based on the geographic location of your business, many state workers’ compensation statutes limit and mandate certain employer actions when a worker is injured. Depending on the state, there are specific timelines to follow and forms to complete. But what about when a worker is injured and refuses to accept treatment or file a claim? What are your responsibilities? While the exact legal answer depends on your situation and state laws, consider the following to limit your liability.

When You Notice

If you notice that an employee has been injured, even if the employee has not mentioned it, gently bring it up and discuss the circumstances of the injury with the employee to determine whether the injury is job-related. Many state workers’ compensation statutes obligate employers to report injuries as soon as they have knowledge of them. Delay in reporting the injury could result in much more costly claims. Completing the paperwork to report injuries is not an admission of your liability—on the contrary, it could protect you.  

In the Case of Refusal

When you do discuss the injury with the employee, explain that reporting job-related injuries entitles injured workers to certain benefits while recovering from the injury. If the employee does not wish to file a claim for the injury, file the employer’s portion of the report with a statement of refusal to pursue a claim signed by the employee. It is crucial that you document this conversation to protect your organization from being penalized in the future.

Employees that do initially report injuries but then refuse treatment under the physician or facility that your organization furnishes should sign a similar form confirming this refusal.

Benefits for Employees that Refuse Treatment

State workers’ comp statutes vary, but in most cases, workers’ compensation benefits are suspended for employees that refuse to comply with any reasonable request for examination or refuse to accept medical service or physical rehabilitation which the employer elects to furnish. Benefits may not be payable for this period of refusal of treatment—check with your workers’ comp carrier.

What to Do Now

It is important that you prepare for an eventual employee refusal to submit a claim or refusal to accept treatment for a workplace injury. All employers should have a legal representative draft a form for refusal of treatment that complies with state requirements so it is immediately available when needed. Discuss with supervisors the importance of documenting and reporting all injuries, whether or not the worker chooses to report them.

Workers’ compensation insurance is obligatory in most states. Contact the insurance professionals at Zeiler Insurance Services for more information.

Similar Articles: Workers Compensation Insurance Chicago Illinois

If you have questions or concerns on this issue, do not hesitate to call Zeiler Insurance and speak to one of our customer service representatives. As an independent agency, Zeiler Insurance prides itself with quality customer service for the people of the Chicago-land area and the rest of the Midwest. Customer or not, we can review your insurance and see if you are being protected appropriately for the right price.

Dan
dan@zeiler.com
708.597.5900 x134

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Illinois Workers Comp and College Interns

Are interns covered on work comp? 

It’s that time of year - Chicago area businesses will be adding college interns to their summer workforce. Whether they are paid interns or not - the question is “are interns covered on workers compensation in Illinois?”.

99% of the time the answer is YES – interns are covered… even if unpaid. The question falls back to the definition of an employee and for this you can refer to the IRS website for the definition. The IRS sites Common Law Rules.  If the intern is deemed an employee then under the Illinois Workers Compensation Act they would be covered on your Workers Compensation policy. From the IRS website:

Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories:

  1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

Please call with questions. 

Dan 

dan@zeiler.com 

708.597.5900 x134

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Illinois Workers Compensation Insurance ERA Credit

I want to remind you about the importance of taking advantage of the Experience Rating Adjustment (ERA) factor offered in Illinois. 
 
I'm working with a potential client on ways to help control their Workers Compensation insurance expense.  The incidents on the Specific Loss Report shown below are actual claims on the Experience Mod of a Chicago, Illinois business.
 
The report below shows the effect of three claims on the Experience Mod and the additional premium projected (for the three years that it affects the Mod):
1.) A large loss ($113,256). Kind of what you might expect from the mechanics of an insurance policy. The company gets hit with a loss and your premium is affected with paying a surcharge. In this case the three year cost is $28,266 with a 17% effect on the workers compensation experience mod.
2.) A small claim ($2,883) that included “indemnity”.  Indemnity is basically disability payments for time off for the injured worker.  This employee sprained his ankle.  Take a peek at the three year claim cost…Yep!!  $5,519. The Insurance Company actually profits on this one.
3.) A second small claim ($2,083).  This claim was medical only with no “indemnity” paid.  As you can see, the three year cost on this claim is $1,206.
 
The reason for the big difference between 2 and 3?  Experience Rating Adjustment (ERA) factor. Only 70% of the claim cost is used in the experience modification calculation for Medical Only Claims. The purpose of which is to encourage businesses to report small claims.
 
 
Going back to our employee that sprained his ankle - what type of work could you have him do around the office, even though his ankle is sprained, so that his days "off" don't rack up your Experience Mod? 
 
Do you think you might have some safety manuals he could read or better yet maybe even wash a truck or two?
 
From the report, this claim affected the mod by 3.35%.  What if the mod for this business was floating in the 1.00 area?  
 
 
On a side note - If this example involved a contractor, this 3.35% could have disqualified the contractor from the Contractor Classification Premium Adjustment Program (CCPAP). These credits can be 40% of the Workers Compensation premium.
 
Please call with questions.
 
Dan Zeiler
 
708.597.5900 x134
 
dan@zeiler.com
 
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“Primary Causation” Added to Illinois’ Workers’ Compensation Law

 

“Seeking to help Illinois attract investment, create jobs, and end fraud and abuse,” state Sen. Dale Righter (R-Mattoon) filed legislation that would add “primary causation” to Illinois’ workers’ compensation law.

“For years, a higher percentage of Illinois citizens have been out of work, compared to our neighboring states,” Righter said. “We are plagued by people moving for better jobs to neighboring states and new businesses choosing other states. According to my constituents and business owners in Illinois, a significant reason our state isn’t competitive is because we lack ‘primary causation’ in our workers’ compensation law.”

Righter’s Senate Bill 846 would require an employer’s workers’ compensation insurance to pay a claim only if the employee’s injury was caused primarily by a workplace accident. Under current law, any connection to a workplace accident. Under current law, any connection to a workplace accident, regardless of how remote, obliges the workers’ compensation policy to cover 100 percent of the costs associated with the injury, according to a press release from Righter’s office.

“In far too many instances, our law has allowed simply the slightest connection with the workplace to justify a workers’ compensation policy to pay the entirety of the costs related to an injury. It is unfair and an abuse,” Righter said.

“Requiring primary causation would strike a fair balance.”

Righter estimates that adding “primary causation” to Illinois’ workers’ compensation law would save employers $1 billion per year in reduced insurance premiums. By way of evidence, prepayments point to Indiana and Missouri, where premiums are less than half of what employers pay in Illinois. Twenty-nine states have a more stringent causation standard than Illinois.

“I am optimistic with a governor who understands how to make Illinois competitive, we can make this legislation law,” Righter said. “It’s ridiculous our job creators are on the hook for paying millions in bogus claims. It has to end now.”

Senate Bill 846 also states that if an employee is discharged from his or her employer for cause, then temporary partial disability and temporary total disability payments will not be paid.

 

Please call with questions.

Dan 

dan@zeiler.com 

708.597.5900 x134

www.zeiler.com

Source: http://www.dalerighter.com/Media/News/TabId/273/p/27565/v/2000/workers-compensation-reform-legislation-makes-illinois-more-competitive.aspx 

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"Workers' Compensation costs are too high." - Illinois Gov. Bruce Rauner

Illinois Gov. Bruce Rauner on Thursday began laying out priorities for his first year in office, saying property taxes and workers’ compensation costs are too high, Medicaid spending is unsustainable and state workers’ salaries and benefits are too generous.

In a speech he said was a preview of the State of the State address he’ll give next month, the Winnetka Republican said Illinois is in “massive deterioration mode.”

He said he will propose a number of reforms to turn the state around, and indicated they would involve making Illinois more attractive to businesses while slashing spending on everything from health insurance for the poor to public-worker pensions and the state’s payroll. 

“This is the critical lesson that we’re seeing: We’re on an unsustainable path,” Rauner told students at the University of Chicago Booth School of Business. “We need fundamental structural change and raising taxes alone … isn’t going to fix the problem, and in a lot of ways it’s going to make it worse.”

While he didn’t outline specific proposals, many of Rauner’s ideas are likely to draw heavy opposition from majority Democrats and even some fellow Republicans in the General Assembly, as well as public-employee labor unions.

He said higher-than-average costs of workers’ compensation and unemployment insurance are driving businesses out of the state, property taxes are “brutally high” and “shenanigans” in the public-employee pension system have made Illinois’ multibillion-dollar pension debt “a time bomb for taxpayers.”

Rauner said public employees’ average salaries are among the highest of any state in the U.S. and the state’s share of health care premiums is too high. Anders Lindall, spokesman for the American Federation of State, County Municipal Employees Council 31, said Rauner was using numbers that are inaccurate and in some cases outdated. He said public union employees are not the cause of the state’s challenges.

AFSCME, the state’s largest public-employee union, is set to begin negotiations with Rauner’s administration on a new contract. “The type of misleading statement and false facts we see today are not an encouraging first step you want to see from someone who is truly trying to work together for the common good,” Lindall said. 

Rikeesha Phelon, spokeswoman for Senate President John Cullerton, said the Chicago Democrat wants to see how Rauner’s statements translate into legislative policy and a proposed budget. Rauner is scheduled to deliver his budget address on Feb. 18, two weeks after his State of the State.

But Cullerton clearly wasn’t pleased after Rauner ripped legislators in his inaugural speech for leading Illinois into a budget disaster, saying afterward that many of the new governor’s comments were inaccurate and that he “is going to have to learn about state government.”

Rauner on Thursday also named new members of what he’s calling his “Turnaround Team” — people he said have experience in budgeting and management. They include former Hawaii Gov. Linda Lingle, a Republican who will serve as senior adviser. - See more at: http://thez.zeiler.com/workers-compensation-costs-are-too-high-illinois-gov-bruce-rauner#sthash.gpILWH1h.dpuf

 

Dan Zeiler

dan@zeiler.com

708.597.5900 x134

www.zeiler.com

Source: http://chicago.cbslocal.com/2015/01/23/rauner-previews-1st-year-priorities-cut-taxes-medicaid/

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A Brief History of Workers Compensation Insurance Programs

Workers Compensation in the Ancient World

Almost as long as workers have been getting injured on the job, we have had some formal or informal system of compensating workers for workplace injuries. Workers compensation claims management and processing is, if not the oldest profession in the world, at least pretty close! The earliest recorded formal and legally-mandated workers compensation scheme in the world dates back to at least the year 2050 B.C., in ancient Sumeria, in what is now Iraq. Stone tablets recovered from the city of Ur - about 9 miles from Nasiriyah - established a set system of payments to injured workers, itemized by injury.

The Code of Hammurabi later adopted the practice, as did the Greeks, Babylonians, Romans, Arabs and even the Chinese.

Into the Modern Age

The Prussians, under Otto von Bismarck, were the first modern nation-states to adopt a formal workers' compensation system following the Industrial Revolution, with the Accident Insurance Bill of 1884. Originally conceived as a measure to prevent Marxist political movements from making inroads into the Prussian/German working classes, the Bismarck program actually contained two important innovations that are at the heart of the American workers compensation system today: First, claims were separated from the tort system, so that workers seeking remedy under workers compensation rule could not sue their employers for damages in the courts. Second, claims were processed under an early version of today's "no fault" provisions. Claims could be paid promptly, because there was no need for a magistrate to assign fault or blame through a detailed fact-finding.

The system worked so well, and was so popular, that the largely German-American population of Wisconsin, in 1911, enacted the first workers compensation insurance program in the United States - modeled closely after the Prussian system.

Development in the U.S.

While the U.S. lagged a few years behind the United Kingdom in adopting workers compensation plans, there was a very limited program created for workers who were directly involved in projects involving interstate commerce, such as railway workers, established in 1908. It was limited only to this population because the sentiment at that time was that programs like workers compensation to everyone else was properly left to the states.

At the grassroots level, however, there was a growing public awareness of the hazards of industrial age employment thanks to populist, muckraking writers such as Upton Sinclair, who highlighted the plight of slaughterhouse workers in his novel, The Jungle. This awareness of the hazards of modern industrial employment in the unforgiving factories, plants led to a number of failed attempts to pass legislation in the state assemblies, early on - first in New York (1898), then Maryland (1902),  Massachusetts (1908) and Montana (1909).

The "Great Tradeoff"

Ultimately, the first state to successfully enact a broad workers compensation was the largely German-American population of Wisconsin - then very much the heart of the American Progressivist movement. Their program was modeled closely after the Prussian system, though only after a long debate between business and labor interests. In the end, they came up with the same "great tradeoff," in the parlance of the time, that was at the heart of the Bismarckian model: Employers agreed to provide substantial wage replacement for injured workers through an insurance system, without any fault-finding requirement that would cause devastating delays in payouts to workers who depended on their wages to survive. In return, labor interests agreed to give up the right to sue their employers for covered claims. This allowed employers relief from the risk of outsized claims and judgments.

Once Wisconsin broke the seal though, other states quickly followed suit: 11 more states passed plans of their own that year, four more in 1912, and eight more in 1913. By 1935, some 45 of the 48 states then existing had passed workers compensation laws of their own, and By 1948, a similar program had been established in all 48 states in existence at that time, as well as the future states of Alaska and Hawaii.

Today, all 50 states have enacted similar legislation, including these provisions:

•A no-fault approach to claims processing - workers don't have to demonstrate that their employer was negligent for benefits to be paid.
•Employers are protected from lawsuits (a tort exemption) over workers compensation issues.
•Employers fund workers compensation benefits by paying premiums, which vary depending the state and the occupation of the covered worker.

Additionally, 45 of the 50 states delegate responsibility for claims administration to special boards. Five states - Wyoming, Tennessee, New Mexico, Alabama and Louisiana, keep the process within the judiciary, though in each case a state agency exists to help with administration and prompt disbursement of funds to injured workers.

If you have questions or concerns on this issue, do not hesitate to call Zeiler Insurance and speak to one of our customer service representatives. As an independent agency, Zeiler Insurance prides itself with quality customer services for the people of the Chicago-land area and the rest of the Midwest. Customer or not, we can review your insurance and see if you are being protected appropriately for the right price.

-Dan Zeiler

dan@zeiler.com

(708) 597-5900  X134

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Five Ways to Avoid OSHA Penalties

Five Ways to Avoid OSHA Penalties

During the first half of October 2014, the U.S. Occupational Safety and Health Administration announced a dozen citations against employers. A New Hampshire roofing contractor was fined $61,600 for not providing adequate fall protection. A Connecticut roofing contractor faces several citations following a fatal accident in July. A metal parts processor in Ohio was cited for 10 serious violations and $64,000 in fines over the accidental death of a supervisor. A cabinet maker in New Jersey faces a six-figure fine for exposing employees to a carcinogenic chemical. The death of an employee on a conveyor belt has a Mississippi lumberyard facing a $75,000 penalty.

Noncompliance with OSHA regulations can cost employers a lot of money. The good news is that complying does not have to be cumbersome or expensive. These procedures and attitudes can help a company keep its name out of an OSHA news release.

Improve record keeping. Good documentation is an employer's first defense against an OSHA inquiry. Information gaps in the OSHA 300 log (the record of work-related injuries and illnesses) may prompt inspectors to conduct comprehensive safety audits of businesses. Filling in missing information for the past three to five years can save your business a lot of grief and expense. Check personnel files and workers' compensation loss records for details of accidents.

Focus on ergonomics. Preventing repetitive motion disorders can help businesses avoid citations and penalties. It also reduces workers' compensation insurance premiums in the long run. Analyze how workers are performing their tasks and look for ways to reduce the strain on their joints, necks and backs.

Fix the routine violations first. Some safety issues are simple and cost little or nothing to correct. For example:
•Blocked exits
•Lack of protective equipment, such as gloves and safety goggles
•Poor housekeeping
•Improper storage of materials such as flammable liquids

These problems can accumulate over time. OSHA has penalized businesses with large numbers of violations like these, so it pays to monitor and correct them.

Have a plan for disasters. The weather has become more volatile, as the tornadoes of recent years and storms like 2012's Superstorm Sandy have shown. Contagions such as the Ebola virus can come seemingly from out of nowhere. Businesses must be ready for the unexpected. Disaster plans should include:
•Training for employees on what to do in the event of an emergency
•Procedures for safe evacuation from the building
•Workplace hygiene
•Stockpiling of emergency supplies such as first-aid kits
•Training for employees on how to administer first aid and CPR
•Arrangements for operating from remote locations
•Communications with employees, their families, customers and vendors

Although OSHA is not concerned with some of these aspects of the plan, having them in place will help the business survive the event.

View safety as a profit driver, not a cost center. Preventing workplace injuries costs money, but it also can improve a business's profitability. Some project owners and general contractors will consider bids only from contractors with workers' compensation experience modifications lower than 1.0. Firms with a reputation for safe operations will attract better workers. Also, insurance does not cover many of the costs from workplace accidents, such as time spent on investigating the incident, reduced employee morale, lost productivity, reporting costs, and the cost of OSHA penalties. Money saved on prevented accidents goes straight to the bottom line.

Some workplace injuries occur despite an employer's best efforts to prevent them. However, reasonable steps to improve workplace safety reduce the frequency and severity of injuries, make the business more competitive, and avoid problems when an OSHA inspector visits. To learn more, speak with us!

If you have questions or concerns on this issue, do not hesitate to call Zeiler Insurance and speak to one of our customer service representatives. As an independent agency, Zeiler Insurance prides itself with quality customer services for the people of the Chicago-land area and the rest of the Midwest. Customer or not, we can review your insurance and see if you are being protected appropriately for the right price.

-Dan Zeiler

danz@zeiler.com

(708) 597-5900  X134

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Following Work Place Injuries

Why You Should Be Following Workplace Injuries in Chicago, IL

No matter what type of business you operate, all employers should be ready, willing, and able to conduct their own injury investigation immediately following an incident. Early intervention on your part will be essential in cases where there's been a serious injury or an injury of questionable nature. Such a proactive approach will allow you to keep the incident from spiraling out of control and reduce your liability exposure. After all, the last thing any employer wants to do is engage in costly court actions, some of which could spell the demise of the business.

The following are the three main reasons you must immediately investigate an incident:

1. This time will be your only opportunity to look into the legitimacy and cause of the injury while it's fresh, not possibly tainted by elapsed time.

2. It will be the best opportunity to make an informed managerial decision based on the most thorough understanding of the underlying cause of the incident.

3. It will be the best chance to obtain witness accounts of the incident. Time elapsing could allow witnesses to forget vital details, collude with others, or be intimidated into a false statement.

Now that it's clear why you need to investigate, you'll want to understand how to do so. An investigation is basically an objective, logical process that's conducted step-by-step. It's vital that assumptions aren't made and that conclusions aren't jumped to without completing the process.

It's best to designate specific individuals to carryout investigations. Of course, this designated investigator should thoroughly understand both federal and state laws. He/she should also understand the importance of keeping the results and details of the investigation confidential. Alternatively, it will also be of vital importance to the investigation process that your immediate supervisors have been trained to provide as much detail as they can about incidents.

The investigator will determine if a worker's alleged workplace injury had any casual connection with their employment. For example, it needs to be determined whether or not the worker was exposed to a particular risk or danger at the time of the incident.

Keep these three essential steps in mind as you begin any investigative process:

1. Protect the incident site.

Make every effort to preserve the incident site until either it's no longer viable, legislative requirements have been met, or the investigation has been completed. If this isn't possible, then at least do what you can to make a thoroughly detailed representation of the site. You may use plastic containers or bags to help preserve the integrity of the evidence collected and prevent it from becoming contaminated. You may find it necessary to gather, remove, and store physical evidence in an alternative, secure area.

2. Document the incident site.

If possible, don't remove any physical evidence from the incident site until you've documented it with video, pictures, and drawings. The distance and physical location of evidence can be shown with a diagram. If any equipment was involved in the incident, then you should document the machine's serial number, manufacturing information, and maintenance and service records.

3. Take witness statements.

Of course, you should in no way jeopardize or interfere with an injured worker receiving medical treatment. However, if the severity of the injury allows, you should obtain an immediate statement from the injured worker. Then, you should make a list of all potential witnesses and interview them as soon as possible. If feasible, you can sequester the witnesses and interview them separately to help avoid any possible collaboration, collusion, or intimidation from taking place. Make it perfectly clear to all the witnesses that they aren't to have discussions about the incident with other co-witnesses or co-workers. Make sure that the written statements from the witnesses are in their own words, even if grammatically incorrect, and doesn't contain any blank spaces. Ask the witnesses to sign and date their final statement.

It will be significantly easier for you to determine the validity of disability and compensation claims when you've used the above investigative process to determine the cause of the injury. You'll have the detailed documentation to address any questionable issues and possibly even thwart unfounded litigation claims.

If you have questions or concerns on this issue, do not hesitate to call Zeiler Insurance and speak to one of our customer service representatives. As an independent agency, Zeiler Insurance prides itself with quality customer services for the people of the Chicago-land area and the rest of the Midwest. Customer or not, we can review your insurance and see if you are being protected appropriately for the right price.

Dan Zeiler

dan@zeiler.com

(708) 597-5900  X134

www.insurancenewsletters.com

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Illinois Workers Compensation rating and why does it matter?

What Is a Workers Compensation Rating and Why Does It Matter? 

Most business owners and executives understand the value of workers compensation insurance not just to protect the worker, but to protect the company as well. Fewer, however, are aware of the mechanics of how premiums are arrived at, and how their own company's safety track record figures into their rating.  Understanding the process, however, may well enable you to qualify for lower premiums down the road, saving your business money and making you more competitive.

Industry underwriters set workers compensation premiums using a process similar to how most companies price group health insurance: They look at the actual claims experience for similar workers in your area, and if there is a history of claims, at your company specifically. Where there is insufficient local claims experience to look at, underwriters turn to the National Council on Compensation Insurance, a clearing house of workers injury and compensation data.

Generally, underwriters will take your payroll and multiply it by an average claim factor for that type of worker. This produces a baseline average of the total number of expected claims, which they subdivide as claims per $100,000 of payroll, claims per year, or claims per time unit. The frequency of claims is considered to be a close proxy for the safety culture of the individual business. They then account for the average severity of claims for that type of worker in your industry and combine the two to arrive at a baseline prediction for expected losses.

Underwriters must then try to assess your business and answer the following question: Given the policies and procedures in place at your business and your claims history, is your company likely to produce losses that are higher than the industry baseline or lower?

Over time, underwriters have discovered that the most likely future claims predictor is a past history of claims at your company. Therefore, to save money on workers compensation premiums, it behooves the company to invest aggressively in preserving the safety of the work environment, both in terms of resources and management focus.

Your workers compensation agent and underwriting team will assign your company an insurance rating, with 1 deemed equal to the average claims experience in your industry for the area.

Any rating higher than 1 indicates a worse-than-average risk for workers compensation claims. If your rating comes out higher than 1, you may be able to qualify for lower rates in future years by reviewing your safety program and the types of losses your company has incurred. Identify any patterns and refcurring themes. You may benefit from bringing in a risk management consultant for an outside set of eyeballs. Some investment in equipment or improved training may be needed, or you may need to be more vigilant for workers compensation fraud in a few cases.

Best Practices

In the long run, your safety record is a reflection of your overall safety culture. That's not something limited to the rank and file worker and shop foremen, though. The most important link in the safety culture chain is at the top.

 

  • Invest in training your workers in all aspects of safety relevant for their jobs.
  • Appoint a senior manager with clout to monitor your safety and OSHA compliance, and empower him or her to enforce it throughout the company.
  • Empower any worker to halt work activities if he or she becomes aware of an unsafe work condition, until that condition can be corrected.

 

Everyone is part of your workplace safety culture - but senior management is the most important link in the chain, because management sets the tone throughout the organization.

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What Every Employer Needs to Know About Workers' Compensation

What Every Employer Needs to Know About Workers' Compensation

Employers must buy insurance to cover workers' compensation claims. This type of insurance provides funding for injured employees, and employers also receive protection from lawsuits stemming from a worker's injuries. State laws govern workers' compensation, and every state has a slightly different set of rules and payment rates.  The United States Department of Labor also provides information on its official site.

What Is Covered Under Workers' Compensation
Only work-related illnesses and injuries are covered by workers' compensation. However, this does not mean the injury has to happen in the workplace. If an employee is injured while out driving a company car off the premises of the workplace, the injuries will be covered. Both sudden and gradual injuries are covered if they are work related. An example of a sudden injury is an employee falling off of a ladder, and a gradual injury might be a foot condition that develops from walking or standing on a concrete floor every day for several years.

What Workers' Compensation Does Not Cover
Some problems that happen in the workplace are not covered. Some of the following situations are examples:

- Self-inflicted injuries
- Injuries from drug or alcohol use
- Injuries resulting from horseplay
- Injuries following termination or a layoff
- Injuries sustained from fighting
- Felony-related injuries
- Independent contractor injuries
- Injuries sustained while off duty but on workplace premises

When Employees Can Sue Employers
Employers are not protected from employee lawsuits in all situations. When an employee's injuries are due to the employer's intentional actions or there is no workers' compensation insurance, the employee is allowed to sue the employer in court for a wide range of damages. In some cases, employees may also be able to sue third parties that are involved and have caused damages.

Workers' Compensation Benefits
There are several provisions made possible by workers' compensation. These include the following:

- Replacement income when employees are off work
- Vocational rehabilitation training or placement assistance
- Medical expense payments for physician appointments, drugs and surgeries

If an employee is unable to work temporarily, that individual usually receives about 66 percent of his or her income as disability payments. There is a fixed ceiling amount for this percentage, and the benefits are available to people who are unable to do the same type of work that was done prior to the disability's beginning. Some people may be able to perform other types of work, but there are people who are unable to work at all. If this is the case, such a person will usually receive permanent disability payments.

Workers' Compensation And Employer Responsibilities
Under the workers' compensation system, employers have several obligations. When requirements are not met, employers may face fines. In addition to this, employees may be able to sue such employers.

Carrying Workers' Compensation Insurance
If a business does not have this type of coverage, the owner is vulnerable to lawsuits that may be filed by injured workers. In addition to carrying insurance, employers should post notices and provide employees with information about their legal rights. This should be done on a regular basis. Any posted notices should be placed in areas that employees use frequently during working hours. The literature should include the following bits of information:

- The name of the workers' compensation insurance carrier
- A self-insurance statement for employers who have their own insurance
- The name of the entity responsible for claims adjustments
- A statement that workers have the right to change doctors
- A statement that injured workers have the right to medical treatment
- Details about workers' compensation benefits

When hiring new workers, employers should notify them of all these points prior to starting work. Within 24 hours of an injury happening on the job, employers must provide workers with claim forms. They must also provide written information again about that worker's rights under the insurance plan and state laws. To learn more about workers' compensation insurance and how it works, feel free to contact me.

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Illinois Workers Compensation and Employee Drug Policies

Why Every Workplace Should Use Drug Tests and Have Strict Policies

Millions of people use illegal drugs every year, and experts estimate that about 60 percent of the world's illegal drugs are consumed by Americans. A survey showed that almost 23 million Americans reported using marijuana more than three times per week. In addition to this, more than 15 million Americans abuse alcohol. Almost 75 percent of illegal drug users and alcohol abusers are actively employed today. Studies have shown that drug use causes both physical and mental impairments, which can be disastrous in the workplace. In dangerous industries such as construction and mining, studies conducted by experts found that drug use was even more common.

In addition to putting their businesses at risk for fatal or serious accidents, employers who hire drug users may wind up paying for their mistakes. The following are some disadvantages about hiring drug users:

- They perform their work poorly.
- They usually change jobs frequently.
- They often file workers' compensation claims and collect benefits for longer periods.
- They are not very productive.
- They usually arrive late or call in sick.
- Their negligence often results in lawsuits.

By forming a solid plan against drugs and alcohol abuse, employers can help reduce their own risks. Every employer should require drug testing for new hires as a condition of employment. Random drug testing during employment is another way to discourage drug users from applying in the first place. This is especially important for larger businesses, and about 70 percent of big businesses already have these plans in place. Some small businesses may not be able to afford extensive testing and screening plans. However, some businesses may be able to find solutions by searching and using outside resources. Since drug users are starting to target small businesses they know do not have such plans in place, it is in these business owners' best interest to form screening programs. The benefits of having such a plan include the following:

- Employees have better attitudes about work.
- There is not as much theft in the workplace.
- There are less accidents in the workplace.
- Employers have lower staff turnover rates.
- Drug-free workplaces are more productive.
- Employers have less insurance costs.
- Employees enjoy a safer workplace.

Overall, drug programs can save money, so they are worth the time and money to implement. To create an effective program, employers should outline their expectations for employees. A plan should also outline how offenses and infractions will be handled. Some states have specific laws regarding employees and drug addiction, so it is important to keep applicable laws in mind. Whenever possible, an ideal program should include a no-tolerance policy. Employers should also outline what they consider to be illegal and intolerable drugs. Some policies may include designated smoking areas for cigarette users, and employers should always make it clear that alcohol use shortly before or during work is strictly prohibited.

With so many people struggling to fight their own personal battles today, it is important for employers to also show that they care about employees. While it is still good to have a zero-tolerance policy for drugs or alcohol, employers should make provisions in their programs for assistance to struggling workers. For example, a worker who comes to his boss to admit a drinking problem at home may not be violating any rules but may be in danger of violating them. If an employee honestly expresses concern, it is important for employers to provide information about alcohol treatment programs. Some workplaces may also do the same for people who have struggled with addiction in the past. Many workers do not know there are assistance programs available, so this information should be repeated frequently in the workplace.

Employers should also know how to identify possible signs of drug and alcohol abuse. Workers who seem depressed, angry or withdrawn should be monitored. If a worker is late frequently or calls in sick, these may also be signs to consider. Employees who seem anxious, distracted or paranoid may be using drugs. The key idea employers should remember is to look for noticeable changes in all workers. Employers can also offer incentives for employees maintaining a drug-free workplace.

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Illinois Workers Compensation and College Interns

It’s that time of year…. Chicago area businesses will be adding college interns to their summer workforce. Whether they are paid interns or not - the questions is “are interns covered on workers compensation in Illinois?”.

99% of the time the answer is YES – interns are covered… even if unpaid. The question falls back to the definition of an employee and for this you can refer to the IRS website for the definition. The IRS sites Common Law Rules. If the intern is deemed an employee then under the Illinois Workers Compensation Act they would be covered on your Workers Compensation policy. From the IRS website:

Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories:

  1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

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Illinois Works Compensation - Misclassification of Employees

Misclassification of Employees is Payroll Fraud. Here's How To Stay Out of Trouble

The Internal Revenue Service and Department of Labor have been going after employers who misclassify employees as independent subcontractors - and the construction industry is squarely in their crosshairs.

In late 2011, the DOL and IRS entered into a formal agreement of cooperation in sharing information and data in order to enforce employment laws. If you have been improperly failing to withhold income taxes and contribute the employer portion of the Social Security and Medicare taxes, and failing to pay unemployment insurance premiums and workers compensation premiums for people functioning as employees, and one of them complains to the Department of Labor, you can expect the IRS to get wind of it, too.

Additionally, if you are using an unlicensed contractor, and closely directing their work, the Department of Labor and IRS will consider this individual to be an employee, not a contractor. If that person is injured while functioning as an employee, the employer is liable… and you had better have workers compensation insurance in place.

The distinction is especially critical in the construction industry, because of the innately hazardous nature of the workplace. Independent contractors are generally expected to provide their own insurance. Employees are not, but are covered under their employers' plan. Failure to comply with employee classification laws risks employees falling through the cracks - and severe consequences for employers.

A Pervasive Form of Fraud

The deliberate misclassification of employees as independent contractors is an epidemic form of payroll fraud in the construction industry - and law enforcement at both the federal and state level nationwide are focusing resources on eradicating it.

Some studies indicate that as many as one worker in twenty is misclassified as a contractor when he should be considered an employee - and that companies that do misclassify workers as independent contractors do so routinely. Among employers that have been caught conducting this kind of fraud, they do so for an average of 40 percent of their workers.

This creates a substantial pricing advantage for dishonest contractors - and makes it that much more difficult for legitimate construction contractors to compete on a level playing field.

The practice also severely undercuts the industry as a whole, according to some observers and market participants. Marek Brothers Construction CEO Stan Marek maintains that as long as dishonest contractors circumvent wage and hour laws, there there is no viable career path for young people who might otherwise consider going into the construction industry. "We will never attract young men and women into the construction industry until there is a career path," he told a panel of Texas legislators and regulators. "There's a tremendous need for skilled workers. A lot of kids don't want to go to college. But if the construction industry is dominated by businesses that exploit workers, Texas kids aren't going to sign up… It is a cancer that is eating the industry. It is killing us."

 Penalties for Payroll Fraud

It's not just federal officials cracking down on employee misclassification and payroll fraud - state governments are also going after employers practicing this form of fraud, and a number of states have actually increased penalties in recent years.

Companies caught committing payroll fraud are typically charged back taxes and interest by both the IRS and state revenue officials. Companies are also fined up to hundreds of dollars per day per worker not covered by workers compensation insurance. Construction firms have also been hit with on-the-spot 'stop work' orders when state inspectors discover workers on site who aren't covered by workers compensation. This can lead to cost overruns, time delays and uncomfortable conversations with customers and prime contractors upstream.

In egregious cases, people have been sentenced to prison time.  For example:

On September 6, 2012, in Richmond, Va., Mark S. Holpe, of Midlothian, Va., was sentenced to 18 months in prison and fined $40,000 for evading the payment of employment taxes on unreported cash wages he paid employees of Nature's Way Landscaping, Inc. Holpe pleaded guilty to evading the assessment of $326,196 of employment taxes. Holpe worked for Nature's Way, a business that did residential and commercial landscaping in the Richmond metro area. He was originally the president, but became the treasurer in 2007 when he sold a portion of the business. In entering his plea, Holpe acknowledged that the company had two groups of employees during tax years 2006 through 2009. Holpe admitted that he paid one group of approximately 30 employees $2,132,000 in cash wages during that period, without withholding social security taxes.

 

 

Staying out of Trouble

It is true that there is substantial gray area in defining who is an employee vs. who is an independent contractor. The IRS has published a 20-point series of tests to help determine how a worker should be properly categorized. In the construction industry, a lot of it comes back to who is holding the license: If you hire an unlicensed contractor, and you are directing their work and telling them what to do on a daily basis, and they are operating under your license, this is clearly an employee.

If that worker is injured, the employer is liable, and if workers compensation insurance is not in place, the medical costs could potentially push an employer into bankruptcy - even before back taxes, penalties and possible criminal prosecution is taken into account.

By way of further examples, your independent contractor may legally be an employee if any of the following factors apply:

  1. You provide tools, training and/or materials for the job.
  2. You are closely directing what time the worker or workers must show up on the job.
  3. You are 'counseling' workers in writing about tardiness or other disciplinary issues.
  4. You are dictating methods. Contractors don't tell subcontractors how a job is to be done - they just define the scope of work and leave it to the subcontractor how best to complete it. If you tell someone how to do a job, rather than just describing the end state, chances are you could be turning them into a legal employee.
  5. You expect any kind of exclusivity.
  6. Do you require any kind of company-provided training?
  7. Do you pay transportation expenses or provide transportation for these workers?
  8. Do you reserve the right to terminate the worker at will?

The complete IRS 20-factor test can be viewed here.

Note that not all 20 factors need apply for the IRS, Department of Labor or state officials to determine that an employment relationship exists. Officials can and have determined that an employment relationship exists even when just a few of the 20 factors apply.

Meanwhile, if there is any doubt or gray area, it's important to address it immediately - and maintain legally required workers compensation, medical and other coverage until you are certain you are engaged in a bona fide contractor-to-contractor relationship, rather than an employer/employee relationship.

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An overview of the current status of Workers Compensation in the US

Topic provided by the Insurance Information Institute

Workers compensation insurance covers the cost of medical care and rehabilitation for workers injured on the job. It also compensates them for lost wages and provides death benefits for their dependents if they are killed in work-related accidents, including terrorist attacks. The workers compensation system is the “exclusive remedy” for on-the-job injuries suffered by employees. As part of the social contract embedded in each state’s law, in all states except Texas, where employers may opt out of the state’s workers compensation system, the employee gives up the right to sue the employer for injuries caused by the employer’s negligence and in return receives workers compensation benefits regardless of who or what caused the accident, as long as it happened in the workplace as a result of and in the course of workplace activities. There were 114,000 employers in Texas that did not participate in the workers compensation program, according to Best’s News Service, April 10, 2012, see also Background section of this report.

Workers compensation systems vary from state to state. State statutes and court decisions control many aspects, including the handling of claims, the evaluation of impairment and settlement of disputes, the amount of benefits injured workers receive and the strategies used to control costs. From 2010 to 2011 maximum income benefits for total disability increased an average 3.09 percent. The average maximum weekly benefit in 2011 was $806.62 according to the U.S. Chamber of Commerce 2011 Analysis of Workers Compensation Laws.

Workers compensation costs are one of the many factors that influence businesses to expand or relocate in a state, generating jobs. When premiums rise sharply, legislators often call for reforms. The last round of widespread reform legislation started in the late 1980s. In general, the reforms enabled employers and insurers to better control medical care costs through coordination and oversight of the treatment plan and return-to-work process and to improve workplace safety. Some states are now approaching a crisis once again as new problems arise.

RECENT DEVELOPMENTS

  • National: According to NCCI’s State of the Line analysis, in 2011 workers compensation premiums for private carriers and state funds increased to $36.3 billion in 2011, a 7.4 percent jump from 2010 and the first since 2005. (For private carriers alone, premiums were $32.2 billion, compared with $29.9 billion in 2010.) Because its premiums are directly linked to employment levels and wages, workers compensation insurance is the line most significantly affected by the economic slowdown and nascent recovery. Premiums dropped 27 percent from 2006 to 2010.
  • The combined ratio, the percentage of each premium dollar spent on claims and expenses, was unsustainably high at 115, NCCI says, the same as in 2010, and the highest combined ratio for any of the major lines of commercial insurance for the third straight year. A combined ratio of 100 or higher means that the industry is paying out more in claims than it is collecting in premiums.
  • Faced with the worst results in the past 10 years, according to Fitch Ratings, insurers are raising rates. Industry observers attribute the poor financial results largely to rising medical expenses and recession-related conditions: sluggish premium growth and injured workers’ inability to find work or return to their former workplace, which can increase the duration of claims.
  • Obesity has an impact on the cost of claims, according to a study by the NCCI. The duration of lost income claims was five times greater for the most severely obese workers than for workers who were not obese but filed comparable claims. The data came for insurers operating in 40 states. The study’s findings are similar to those of a 2007 Duke University Medical School report on its own employees.
  • Prescription drug costs now represent about 19 percent of workers compensation medical costs nationwide, according to the NCCI. One cost driver is doctor-dispensed repackaged drugs. The Illinois Workers Compensation Commission has been studying the issue in order to address the significant mark-ups on doctor-dispensed repackaged drugs over pharmacy-dispensed drugs. The commission found that drug repackaging firms often obtain a new National Drug Code number with a much higher unit price. One workers compensation group found that the average repackaged drug costs $115, a 236 percent increase over the average price of $48.65 for the same drugs not repackaged. The commission proposed that drugs dispensed outside of a licensed pharmacy be billed at the average wholesale price plus a dispensing fee of $4.18. The change was adopted by the state’s Joint Committee on Administrative Rules in November 2012. Currently, three states, Massachusetts, New York and Texas, do not allow physicians to dispense repackaged drugs and other states are considering such a move.
  • The Workers Compensation Research Institute (WCRI) recently published a study of the impact of a change in the law in California in 2007. Critics of proposed regulations on doctor-dispensed repackaged drugs feared that injured workers would not receive needed medications if doctors stopped dispensing them when it was less profitable to do so. Data from California show very few doctors stopped prescribing (55 percent before the law passed as compared with 53 percent three years later) so injured workers had similar access to medications but at a lower cost.
  • Another cost driver is the growing long-term use of narcotic painkillers. A new study by WCRI, Longer-Term Use of Opioids, found that nearly one in 12 injured workers who were prescribed opioids were still on the drugs three to six months later, highlighting a problem that contributes to overuse: failure of doctors to implement recommendations for drug testing and psychological evaluation, two steps that might help reduce the abuse of such drugs. A report from the insurance broker Lockton notes that opioids account for about 25 percent of workers compensation prescription costs and 35 percent for claims over three years old. Indirect costs to society include workers’ failure to return to work because they are addicted to the drugs. The Lockton study says there should be an evaluation of the validity of continuing to prescribe opioids when medical reports do not indicate progress in work and life skill functions and a reduction in pain.
  • State activities
  • California: At the end of August on the last day of the 2012 session, legislators passed SB 863, a bill developed by labor groups and some large self-insured employers that have been meeting since last fall to put together a legislative plan. Supporters claim that the measure will produce savings of $880 million, more than enough to offset the $610 million in increased payments to workers receiving permanent disability benefits. However, while praising the reforms, industry observers said it is too early to say whether the savings projected will actually occur. In the past, reform legislation has sometimes produced unintended results such the reduction in benefits for permanently injured workers that came about as a result of the 2004 reforms pushed by former Gov. Arnold Schwarzenegger. The California Workers Compensation Bureau said in October that it expected savings of 4.4 percent on 2013 policies, somewhat less than its earlier estimate of 4.9 percent.
  • At the end of November, State Insurance Commissioner Dave Jones approved a 2013 advisory rate increase of $2.56 per $100 of payroll for policies renewing or starting on or after January1, 20132. The commissioner explained his action by acknowledging the “steady and dramatic” increase in the cost of the state’s workers compensation system. He noted that insurers are currently paying out more in claims than they are collecting in premium and that the state cannot afford to overestimate the potential savings the new law will produce.
  • New York: Data from the Workers Compensation Research Institute (WCRI) shows that the reforms enacted in 2007 are beginning to achieve some of their goals, particularly bringing maximum disability benefit levels for injured workers more in line with national averages. The 2007 law also reduced the time injured workers receive permanent partial benefits, established medical treatment guidelines and required limits on prices for pharmaceutical products. The WCRI notes that the cost of pills covered by the pharmaceutical fee schedule has decreased by 10 to 20 percent.
  • Oklahoma: Business groups and regulators are again pressing lawmakers to consider ways of lowering the cost of workers compensation, which in some cases is as much as five times higher than in neighboring states, according to the state’s Chamber of Commerce. Insurance Commissioner John Doak has said that the high costs are pushing employers to think about relocating. The high costs are attributed by some legislators to the adversarial nature of the system, which provides lawyers with incentives to drive a workers disability rating higher to increase lost income benefits. Oklahoma’s level of attorney involvement is 50 percent higher than the national average.
  • In 2012, a bill that would have allowed employers with more than 50 workers that met certain criteria to opt out of the state’s workers compensation system failed because small businesses feared that the thresholds would exclude them, see also State Funds, below.
  • Insurance industry observers said that under the earlier opt-out plan, employee benefits would have been reduced substantially. Disputed claims would have been subject to mandatory arbitration or mediation and employers would have been able to avoid the Workers Compensation Court and state insurance and workers compensation regulation.
  • Oklahoma is one of a handful of states where the courts run the workers compensation system. Legislation modifying the court system and instituting other cost saving measures was passed in 2010 and 2011 but critics, including those promoting the current opt-out plan, say the system is still too expensive. Among the options being considered for the 2013 legislative session are an opt-out system with essentially no thresholds and an administrative system with a three-member Workers Compensation Commission to replace the current court-based system. The commission would be made up of a doctor, an attorney and an insurance professional with five years of experience in dealing with workers compensation issues. Gov. Fallin has called the system’s high costs an obstacle to job creation.
  • Under the 2012 proposal, employers that opted out would have had to provide an alternative benefits plan that included medical, disability and death benefits for injured workers and that would comply with ERISA, the Employee Retirement Income Security Act of 1974, the federal law that sets minimum standards for most pension, welfare and health plans offered by private industry. The legislation would have made the ERISA-compliant plans the exclusive remedy for opt-out companies, preventing workers from suing their employers in state court. The exclusive remedy is at the heart of the workers compensation social compact, see the introduction to this report. In Texas, the only state to allow employers to opt out of the workers compensation system, nonsubscribers, employers that elect not to participate, are fully liable under the tort system for workplace accidents and can be sued for negligence.
  • Texas: Major reforms were enacted in 2005 that transferred responsibility for workers compensation from a commission to the Texas Insurance Department, improved access to healthcare and advice for injured workers, promoted return-to-work programs, created medical treatment guidelines and raised injured workers’ benefits.
  • The department publishes a biennial report on system improvements. Highlights of the 2012 report indicate that since 2003 to the end of 2011 rates have decreased almost 50 percent; the number of days lost from work due to work-related injuries fell from an average 97 days (median 26 days) in 2004 to 6.0 weeks (median 21 days); and the amount of time needed in 2011 to resolve medical disputes dropped significantly, with fee disputes taking 197 days instead of 335 days as they did in 2005, pre-authorization disputes 20 days instead of 59 and retrospective medical necessity disputes 31 days instead of123. The percentage of employers that participate in the program (i.e., became subscribers, see Background section) rose from 62 percent in 2004 to 67 percent in 2012. Only an estimated 19 percent of Texas employees (about 1.7 million workers) were employed by non-subscribing employers.
  • State Funds, Competitive Funds: Following the successful change over in West Virginia from a state-controlled workers compensation system to a private competitive market, several states, including Arizona, Colorado and Oklahoma, all of which have workers compensation entities with some degree of state oversight that compete with the private market, have been looking into some form of privatization. Some impetus for the sale of these entities is the poor local economy and the resulting budget deficits.
  • Other states, such as Maryland, have been raiding the policyholder surplus of their state workers compensation funds to add to their states’ general funds. In May 2012, to end this practice, Maryland lawmakers agreed to privatize the State Fund, the largest workers compensation insurer in the state, converting it into a private company, Chesapeake Employers’ Insurance Co., effective October 2013.
  • In Arizona, the legislature has agreed to privatize the State Compensation Fund, requiring the transaction to be completed by 2013. The fund had a market share of 31.5 percent in 2009, according to the state’s department of insurance.
  • In Colorado, Pinnacol Assurance, a quasi-mutual company with almost 60 percent of the market, is also exempt from premiums taxes. A proposal to turn it into a mutual insurer that would also be the insurer of last resort was submitted to the governor in November 2011. The governor set up a task force composed of various stakeholders to review the proposal and make recommendations. Negotiations are continuing. An earlier recommendation from a legislative committee failed to gain support.
  • In Oklahoma CompSource, which insures about 35 percent of the market, has a 5 percent advantage over private insurers because it does not pay premium taxes. A legislative task force studying the options voted 5 to 4 in favor of creating a mutual company, but the idea was dropped when opponents said that it would result in higher premiums for small businesses. Most of the businesses in the state are small, with 98 percent having fewer than 100 workers and 75 percent having fewer than 10, according to the State Chamber of Oklahoma.
  • In Washington State, which has a monopolistic state fund, a ballot initiative that would have led to opening the market to private competition was defeated in the November 2010 elections. Voters rejected the initiative, I-1082, by a wide margin. The initiative was spearheaded by the Building Industry Association of Washington and endorsed by the National Federal of Independent Business. It would have created a task force on private competition to draw up legislation and make recommendations.
  • In Ohio, which also has a monopolistic state fund, there has also been interest in allowing some form of competition from private insurers. In November 2009 the Senate voted to create a task force to evaluate the current system, compare it with competitive systems in other states and review the options. At a hearing held in August 2010, the president of the Insurance Information Institute, Robert Hartwig, suggested that the state’s monopolistic system is out of keeping with economic reality. There is no other type of liability insurance in the United States where the state is the sole provider of coverage although states have had ample opportunity to create such a system. Ohio voters rejected a ballot initiative on privatization in 1981. Ohio has the largest monopolistic state fund in the nation. It would require a constitutional amendment to totally privatize Ohio’s system.
  • Meanwhile, in November 2011, the state introduced a new rating plan under which employers who adopt “best practices” aimed at reducing workplace injuries and getting workers back on the job faster can save money. Studies show that injured workers in Ohio take longer to get back to work than in other states, with the percentage who return within a year dropping from 75 percent to less than 69 percent over the past four years.
  • The move to privatize comes at a time when state funds are growing. According to a new Conning Research & Consulting study, Workers Compensation State Funds: Evolution of a Competitive Force, state-backed workers compensation funds operate in 25 states and account for one-quarter ($11.3 billion in premiums) of the workers compensation market. While they generally have higher losses than private insurers (they are often the market of last resort, insuring high risk businesses that cannot find coverage in the private marketplace) these are offset by higher investment income and operating results comparable to private insurers, the study found. State funds also work closely with other government agencies, such as state occupational and health and safety associations, to reduce injuries.
  • The Residual Market: Market share of the residual market pools serviced by NCCI, which had been dropping, increased from 4.6 percent in 2010 to 5 percent in 2011. Premiums grew by 13 percent, reversing a trend of declining residual market premiums that began in 2005, according to NCCI. However, the pools remain small.
  • Workplace Deaths and Injuries: Bureau of Labor Statistics (BLS) preliminary data show that 4,609 workers were killed on the job in 2011, slightly fewer than in 2010 (4,690) but far fewer than in 2008, when there were 5,071 workplace fatalities. The death rate for 2011 per 100,000 workers was 3.5, the same as in 2010 and 2009. Many experts attribute the significant drop over the last few years to the poor economy. Fewer people were working last year in jobs where many of the fatalities typically occur such as construction. Fatal accidents declined to 770, the lowest level since 2003. Fatal injuries for this group declined 48 percent from the high reported in 2006.
  • Workplace injuries requiring days off work have declined significantly each year since 2002 when the BLS first started using current reporting requirements. BLS data show the rate per 10,000 full time employees was 117 in 2011, statistically unchanged from 2010. The median number of days off work was eight, the same as last year.

 

STATES WITH A STATE-RUN WORKERS COMPENSATION FUND
 
Competitive with Private Insurers Exclusive
Arizona* Maine Oklahoma North Dakota
California Maryland Oregon Ohio
Colorado Minnesota Pennsylvania Washington
Hawaii Missouri Rhode Island Wyoming**
Idaho Montana Texas  
Kentucky New Mexico Utah  
Louisiana New York    

*Scheduled to be privatized by 2013.
**Compulsory for extra hazardous operations only. Employers with nonhazardous operations may insure with the state fund or opt to go without coverage.

 

 

WORKERS COMPENSATION LAWS FOR DOMESTIC WORKERS BY STATE (A)
As of September 2012
  Type of Law Threshold for Compulsory Coverage
State Excluded (b) Voluntary (c) Compulsory Time Worked Earnings Other
AL   X        
AK     (d)      
AZ   X        
AR   X        
CA     X 52 hours during 90 days prior to injury or exposure to disease Or $100 during 90 days prior to injury or exposure to disease Excludes a household worker employed by the worker's parent, spouse or child
CO     X 40 hours per week or 5 days per week    
CT     X 26 hours per week    
DE     X   $750 per 3 months  
DC     X 240 hours during quarter    
FL   X        
GA   X        
HI     X   $225 per every quarter during preceding 12 months  
ID   X        
IL     X 40 hours per every week for 13 weeks during year    
IN   X        
IO     X   $1,500 during 12 weeks prior to injury  
KS     X     Employer payroll over $20,000 in prior year for all workers
KY     X     2 employees, 40 hours per week
LA X          
ME   X        
MD     X   $750 per quarter  
MA     X 16 hours per week    
MI     X 35 hours per every week for 13 weeks during preceding 52 weeks    
MN     X   $1,000 in any 3 month period of current or previous year  
MS   X        
MO   X(e)        
MT   X        
NE   X        
NV   X        
NH     X      
NJ     X(f)      
NM   X        
NY     X 40 hours per week, non-farm    
NC   X        
ND   X        
OH     X   $160 per quarter  
OK     X     Employer payroll in preceding year of $10,000 per worker
OR   X        
PA   X        
RI   X        
SC     X     4 employees per employer; payroll more than $3,000 in previous year
SD     X 20 hours per week for more than 6 weeks in 13 weeks    
TN   X        
TX   X(e)        
UT     X 40 hours per week    
VT   X        
VA X          
WA     X     2 employees; 40 hours per week each
WV   X        
WI   X        
WY X          

(a) Domestic workers include household workers such as babysitters, housecleaners, gardeners, etc.; in some states excludes family members.
(b) Domestic workers are specifically excluded from the workers compensation system.
(c) Employers are permitted to provide workers compensation coverage voluntarily.
(d) Except for part-time babysitters and noncommercial cleaning persons.
(e) Elective or optional.
(f) Coverage is voluntary for domestic workers but on an elective basis, i.e., an employer may elect, in writing, prior to an accident, not to be subject to the law. However, this requirement renders the law compulsory in practice. In New Jersey, homeowners insurance policies must contain provisions covering domestic workers.

Source: "Workers Compensation: Exposure, Coverages, Claims,"
ISBN #0-923240-12-8. Standard Publishing Corp., Boston, MA. All rights reserved; PCI.

 

BACKGROUND

The Workers Compensation Social Contract: The industrial expansion that took place in the United States during the 19th century was accompanied by a significant increase in workplace accidents. At that time, the only way injured workers could obtain compensation was to sue their employers for negligence. Proving negligence was a costly, time-consuming effort, and often the court ruled in favor of the employer. But by the early 1900s, a state-by-state pattern of legislative proposals designed to compensate injured workers had begun to emerge.

Wisconsin enacted the first permanent workers compensation insurance law in 1911 (New York had enacted a law a year earlier but it was found unconstitutional), and by 1920 all but eight states had enacted similar laws. By 1949 all states had a workers compensation system that provided compensation to workers hurt on the job, regardless of who was at fault. The costs of medical treatment and wage loss benefits were the responsibility of the employer which were paid through the workers compensation system. As part of the compromise that made the employer liable for work-related injury and disease costs regardless of fault, the employee gave up the right to sue the employer for injuries caused by the employer's negligence.

The scope of workers compensation coverage has broadened considerably since its early beginnings. In 1972, states amended their laws to meet performance standards recommended by the National Commission on State Workmen's Compensation Laws. Many states took action not only to expand benefits but also to make the coverage applicable to classifications of employees not previously covered.

However, compensation levels are not uniform. In some states benefits are still inadequate, while in others, they are overly generous. Some states were slow in adopting the National Commission's guidelines and have still not embraced the entire package of 19 recommendations published in 1972. Many states exempt employers with only a few workers (fewer than five, four or three, depending on the state) from mandatory coverage laws. A major benefits issue still to be resolved in some states is the imbalance between levels of compensation for various degrees of impairment; permanent partial disabilities tend to be overcompensated and permanent total disability undercompensated.

Some coverage is provided by federal programs. For example, the Longshoremen's and Harbor Workers Compensation Act, passed in 1927 and substantially amended in 1984, provides coverage for certain maritime employees and the Federal Employees' Compensation Act protects workers hired by the U.S. government.

Employers can purchase workers compensation coverage from private insurance companies or state-run workers agencies, known as state funds. In 20 states, according to a Conning study, “Workers Compensation State funds, Evolution of a Competitive Force,” state funds compete with private insurers and in four states, the state is the sole provider of workers compensation insurance. (See list at the end of Recent Development section of this report.) Along with residual market pools, many state funds also function as the insurer of last resort for businesses that have difficulty getting coverage in the open market.

The only state in which workers compensation coverage is truly optional is Texas, where about one-third of the state’s employers are so-called nonsubscribers. In the event of a serious accident, those that opt out of the system can be sued by employees for failure to provide a safe workplace. The nonsubscribers tend to be smaller companies, but the percentage of larger companies opting out is growing. Some 25 percent of the state’s workers were employed by nonsubscribers in 2008, compared with 23 percent in 2006.

Some businesses finance their own workplace injury benefits through a system known as self-insurance. Large organizations with many employees can often estimate the cost of routine types of injuries. Self-insurance, along with large deductibles, which are in effect self-insurance, now account for more than one-third of traditional market premium. Put another way, workers compensation accounts for more than 40 percent of the alternative market, see also Captives report. Businesses that self-insure their workers compensation losses must prove that they are financially able to do so. They usually protect their assets by purchasing insurance coverage for catastrophic losses or losses in excess of a specific threshold.

About nine out of 10 people in the nation’s workforce are protected by workers compensation insurance. Laws vary by state for domestic workers, see chart, and at least 15 states do not require employers to provide workers compensation coverage to migrant and seasonal farm workers.

How the System Works: Workers compensation systems are administered by the individual states, generally by commissions or boards whose responsibility it is to ensure compliance with the laws, investigate and decide disputed cases, and collect data. In most states employers are required to keep records of accidents. Accidents must be reported to the workers compensation board and to the company’s insurer within a specified number of days.

Workers compensation covers an injured worker’s medical care and attempts to cover his or her economic loss. This includes loss of earnings and the extra expenses associated with the injury. Injured workers receive all medically necessary and appropriate treatment from the first day of injury or illness and rehabilitation when the disability is severe.

To rein in expenditures and improve cost effectiveness, many states have adopted cost control measures, including treatment guidelines that spell out acceptable treatments and diagnostic tests for specific injuries such as lower back injuries and fee schedules that set maximum payment amounts to doctors for certain types of care.

Most claims are medical only, but lost-time claims, those with both medical and lost income payments, though few, consume most resources. Claims are categorized according to the degree of impairment—partial or total disability—and whether the impairment is permanent or temporary. Cash benefits can include impairment benefits and, when the impairment causes a loss of income, disability or wage loss benefits.

Impairment can be defined in several ways. Payments may be based on a schedule or list of body parts covered and the benefits paid for a loss of that part. For injuries not on the schedule, benefit payments may be calculated according to the degree of impairment or the loss of future or current earnings capacity, often using the American Medical Association’s definitions.

Most states pay benefits for the duration of the injury. But some specify a maximum number of weeks, particularly for temporary disabilities. For workers with a total disability, the benefit amount is some percentage of the worker’s weekly wage (actual or state average). Cash benefits may not be paid until after a waiting period of several days.

Costs to Employers: Costs to employers include premiums, payments made under deductibles and the benefits and administrative costs incurred by employers that self-insure or fund their own benefit program. The percentage of total compensation costs that workers compensation premiums represent fluctuates. In the mid-1950s, private sector employers paid an average 0.5 percent of payroll for workers compensation. By 1970 this figure was 1 percent, escalating steeply in the 1980s and 1990s to a record high in 1994 of 2.99 percent. However, there is a wide variation in costs among states and industries, so that the highest rated (the inherently riskiest) groups could pay several hundred times that of the lowest rated (safest) groups, as a percentage of payroll. Also taken into account is the firm’s own safety record.

Insurance, particularly commercial insurance, is a cyclical industry marked by hard and soft markets. In 2000 as the economy expanded, premiums started rising, ushering in the hard market, when demand outstrips supply. In 2007, with a generally soft market for most types of commercial insurance and a weakening economy, premiums began dropping again. From December 2007 to mid-2009, as the recession caused payroll, the basis for computing workers compensation premiums, to drop significantly (3.6 percent) workers compensation insurers saw premiums contract. In fact, the recent recession had the most serious impact on workers compensation in terms of payroll in 60 years. In the recessions of the 1970s and 1980s, the impact was less severe because of continuous wage inflation. Inflation was not a factor in the 2007-2009 recession.

Claim Costs: As mentioned earlier, there are two components to workers compensation claims costs: payments for lost income, which are usually linked to a state’s average weekly wage, known as indemnity costs, and payments for medical care. Two decades ago, indemnity costs made up the greater part of total losses. In 1986 indemnity costs represented 55 percent of the total. By 1996 indemnity and medical had changed places, with indemnity at only 48 percent of losses. In 2008, as medical care costs continued to rise, indemnity accounted for 42 percent.

Growth in workers compensation medical costs for the most part has been much steeper than in the healthcare industry as a whole. The annual average rate of increase in workers compensation medical care costs was 3.9 percent from 1991 to 1995. Since then the rate of increase has more than doubled and, in most years, was more than twice the rate of increase in the medical Consumer Price Index (CPI). Between 2002 and 2007, the medical cost per lost-time claim -- where the employee was forced to take time off work because of the injury as opposed to just seeking treatment for the injury—increased by 6.7 percent compared with an increase of 4.0 percent in the medical CPI. However, in 2009 workers compensation medical care costs increased by only 2 percent, compared with a rise in the medical care CPI of 3.4 percent.

NCCI Holdings suggests that much of the difference between the cost of a healthcare claim and a workers compensation claim is due to the volume, duration and mix of services used by injured workers and group health claimants.

But while the size of claims (dollar amount) has been climbing due to the increasing cost of medical treatment, the number of claims filed (frequency) has been dropping steadily as insurers and their policyholders focus on safety. The frequency of lost-time claims dropped by 54.9 percent from 1991 to 2008. NCCI also attributes recent declines in the frequency of accidents to the use of robots, which reduce workers' exposure to hazardous activities; power-assisted devices that reduce physical stress, lighter and stronger materials; ergonomic designs that reduce strains; and cordless tools, which reduce the incidence of tripping over cords. Frequency declines, which first showed up among small employers are now evident also in large firms.

Insurance company financial results often report profitability in terms the combined ratio (the percentage of each premium dollar spent on claims and expenses). The combined ratio for workers compensation is reported in two different ways: by calendar year and by accident year. In 2008 the calendar year combined ratio started to deteriorate, moving from 99 in 2007 to 100 in 2008. The accident year combined ratio deteriorated more sharply going from 92 in 2007 to 101 in 2008, according to the NCCI. The accident year combined ratio hit a peak of 140 in 1999.

Calendar year results reflect claim payments and changes in reserves for accidents that happened that year or earlier. Insurance companies have to set aside reserves for accidents that have happened but where claims have not been settled. Workers compensation claims may not be settled for many years, if the accident victim needs increasingly more treatment, for example. Accident year results, in that they include only losses from a specific single year, may present a better picture of the industry's performance at a given point in time.

Reducing Costs: Workers compensation system costs are rarely static. Reforms are implemented and then, over time, one or more element in these multifaceted systems get out of balance. Soon employers and legislators complain that the cost of coverage is hurting the state’s economy by reducing its ability to compete with other states for new job-producing opportunities.

In the 1980s, with a view to increasing competition within the insurance industry in order to bring down rates, legislation was introduced in more than a dozen states to change the method of establishing rates from administered pricing, where rating organizations recommended rates that included expenses and a margin for profit, to open competition. Now insurers base their rate filings on more of their own company's specific data, rather than using industrywide figures in such areas as expenses and profit and contingency allowances. Rating organizations still provide industrywide data on "losses"—the costs associated with work-related accidents, which help small companies that lack access to large amounts of data.

More recently, states have begun to disband Second Injury Funds. Set up mostly after World War II, these funds were designed to protect employers that hire disabled workers from having to bear the full cost of the first disability when an injury that further disabled the worker occurred in their workplace. Many believe that these funds are now unnecessary in that passage of the Americans with Disabilities Act has made the protection they afford to disabled workers redundant. The Act protects injured workers from discrimination by employers. At least 10 states have repealed laws covering Second Injury Funds.

The aim of the workers compensation system is to help workers recover from work-related accidents and illnesses and to return to the workplace. A fast return to work is desirable from the employer and insurer’s viewpoint, lowering claim costs for the insurer but benefiting the worker too.

Research shows that the faster the insurer receives notice of an injury and can initiate medical treatment, the faster the injured worker recuperates and returns to work and the less likely he or she is to seek out an attorney for help in dealing with a claim. Studies also suggest that most people want to return to productive employment as soon as possible. Electronic communication has enhanced procedures to speed up the "first notice of claim" filing process to the workers compensation administrative office.

There are two important aspects to facilitating the return-to-work process. One involves getting the most effective medical care as soon as possible and reducing the emotional stress that may follow an accident. To help get medical treatment to the injured worker faster, some insurers help employers file promptly a "first notice of injury" with the state agency responsible for overseeing the workers compensation system, a step which triggers the claim process.

The other is to encourage employers to improve communications, first about the workers compensation system in advance of accidents—people who know what to expect and who receive medical attention promptly will recuperate faster and are less likely to turn to an attorney for help—and second when injured workers are off work, so that they feel that they are still part of the workplace team and are anxious to return. Insurers have also strengthened communications among all the parties involved in the case so that each knows how treatment is progressing.

Another aspect of the return-to-work process is successful reintegration into the workplace. Insurers help employers assess the injured workers’ needs and capabilities and encourage them to let workers know, in advance of any injury, that they will try to modify work activities to accommodate those who are permanently disabled.

Long absences from work can have a lasting negative impact on workers’ future employment opportunities and thus on their economic well-being. A study of injured workers in Wisconsin by the Workers Compensation Research Institute found that the duration of time off work and periods of subsequent unemployment are lower for injured workers who return to their pre-injury employer than for those who change employers.

Another factor pushing up costs in some states is the amount of attorney involvement. Workers compensation programs were originally intended to be "no-fault" systems and therefore litigation-free. Attorney fees are either set by law or subject to approval of the courts or regulator. Computations may be based on an hourly rate, a percentage of the total award, a specific percentage according to the level of the hearing on the case, or a sliding scale with percentages decreasing with the size of the award. Many states have caps on attorney fees.

Although attorney involvement boosts claim costs by 12 to 15 percent, because claimants must pay attorneys' fees there is generally no net gain in the actual benefits received. Overall, attorneys are involved in 5 to 10 percent of all workers compensation claims in most states—but in as much as 20 percent in systems where the number of disputes is high and in roughly a third of claims where the worker was injured seriously.

The involvement of an attorney does not necessarily indicate formal litigation proceedings. Sometimes, injured workers turn to attorneys to help them negotiate what they believe is a confusing and complex system. Increasingly, states are trying to make the system easier to understand and to use.

The workers compensation system plays a major role in improving workplace safety. An employer's workers compensation premium reflects the relative hazards to which workers are exposed and the employer's claim record. About one-half of states allow what is known as "schedule rating," a discount or rate credit for superior workplace safety programs.

In addition, a majority of states now provide for optional medical deductibles in workers compensation insurance policies as a cost-saving measure and, in some states, allowable deductible amounts were raised. (Deductibles reduce premiums because they lower an insurer's administrative expenses, which, for small claims, make up a disproportionately large portion of the cost of settlement.) Deductibles also encourage greater safety-consciousness on the part of the employer who must pay the deductible amount.

In some states, insurers must provide accident prevention services to employers. In others, employers are required by law to set up safety committees and other programs to deal with unsafe conditions in the workplace and assign specific responsibility for creating, monitoring or overseeing workplace safety to a governmental agency.

Some businesses are taking a more radical approach to bringing costs under control through coordination of workers compensation, healthcare and disability benefit plans. The integration of workers compensation and other employee benefit programs is a broad concept that ranges from a simple marketing approach that promises savings from using the same insurer for both coverages to programs that offer a managed care approach to the management of all types of disability, regardless of whether they are work-related.

Besides limiting overlapping programs and streamlining administration, proponents say such a change addresses the increasing difficulty of distinguishing between work- and nonwork-related injuries and illnesses, such as injuries due to repetitive motion and stress claims.

It also improves productivity since nonwork-related disabilities are managed with the same focus of getting the employees back to work as work-related cases, and at the same time addresses the potential for reporting injuries that occur outside the workplace as work-related to reduce the employee's out-of-pocket costs. Workers compensation pays for all reasonable medical treatment without deductibles and co-payments, as opposed to healthcare, where the policyholder incurs some out-of-pocket costs.

Residual Markets: Residual markets, traditionally the market of last resort, are administered by the NCCI in 29 jurisdictions. In some states, particularly where rates in the voluntary market are inadequate, the residual market provides coverage for a large portion of policyholders. In 1993 they represented about 26.5 percent of the total workers compensation market (excluding employers who are self-insured). Since that time, the NCCI has taken steps to reduce the size of the residual market by creating financial disincentives to obtain coverage from it.

Terrorism Coverage: Since the terrorist attacks of September 11, 2001, workers compensation insurers have been taking a closer look at their exposures to catastrophes, both natural and man-made. According to a report by Risk Management Solutions, if the earthquake that shook San Francisco in 1906 were to happen today, it could cause as many as 78,000 injuries, 5,000 deaths and over $7 billion in workers compensation losses.

Workers compensation claims for terrorism could cost an insurer anywhere from $300,000 to $1 million per employee, depending on the state. As a result, firms with a concentration of employees in a single building in major metropolitan areas, such as New York, or near a “trophy building” are now considered high risk, a classification that used to apply only to people in dangerous jobs such as roofing. Faced with the possibility of a huge death toll costing millions of dollars and the threat of insolvency as a result, all but the largest insurers are limiting coverage. This is forcing some employers to raise their deductibles, in effect self-insuring part of the risk, and to deal with several insurers to reduce the potential maximum loss for each.

KEY SOURCES OF ADDITIONAL INFORMATION

Issues Report, a yearly overview of the workers compensation system, National Council on Compensation Insurance.

"Property/Casualty Insurance Facts," Insurance Information Institute, annual publication.

"Analysis of Workers' Compensation Laws," U.S. Chamber of Commerce, annual publication.

Publications from the Workers Compensation Research Institute, Cambridge, MA. http://www.wcrinet.org

© Insurance Information Institute, Inc. - ALL RIGHTS RESERVED

 

 

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Illinois Workers Compensation and Sub Contractors

Manage Your Workers Compensation Independent Contractor Exposure

One of the biggest challenges that a contractor faces on a job site is managing its independent contractor exposure. Understanding the legal difference between what constitutes an "employee" versus an "independent contractor" enables the contractor to avoid becoming the legal employer of a contractor's or a subcontractor's workers. The most effective way to mitigate the exposure is to require the contractor to carry workers compensation insurance and take reasonable steps to verify that such coverage is in place. Other steps for reducing this exposure include:    

  • Check the state statutes for independent contractor qualifications. Seek legal advice for clarification as needed.
  • If the state requires independent contractors to register, check the state's online portal to verify the contractor in question is registered.
  • Execute a written contract with the independent contractor outlining the relationship. Avoid placing restrictions on the contractor's freedom to perform work for others.
  • Require the contractor to provide its own tools and equipment.
  • Pay the contractor based on completion goals rather than on a weekly or biweekly basis to avoid the appearance that the independent contractor is drawing a paycheck. Require an invoice for payment.

These suggestions were offered by Sonja Guenther, Senior Vice President, Willis of Colorado, at the "Controlling Workers Comp Costs in Modern Times" workshop during the 32nd IRMI Construction Risk Conference in Orlando.

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