Illinois Bucks Trend in Other States; Looks to Establish Competitive Workers' Comp State Fund

Illinois Bucks Trend in Other States; Looks to Establish Competitive Workers' Comp State Fund

Provided by: Property Casualty 360

Illinois state legislators are running counter to a national trend by proposing creation of a state workers’ compensation insurance fund that would compete with the private system.

The development is generating deep angst amongst Illinois insurers and industry trade groups.

The bill, H.B. 2919, cleared the Illinois State House’s Committee on State Government Administration late Wednesday.

According to Kevin Martin, executive director of the Illinois Insurance Association, the legislation was prompted by worker- and plaintiff- lawyer concerns that reforms to the system enacted in 2011 aimed at reducing the cost of workers’ comp aren’t working fast enough.

He said the bill has strong Democratic support in the House, and noted that Democrats control both the state House and Senate.

The legislature is in session until May 31, Martin said.

Rep. Laura Fine, D, who is sponsoring the legislation, didn’t respond to requests for comment.

The decision is counter to the current trend by the states to allow the private market to drive workers’ compensation systems.

For example, New York is moving to increase premiums charged by its state fund to the level charged by private insurers.

The Texas legislature is considering legislation that would end its last ties with Texas Mutual Insurance Co. TMIC, like the New York state fund, is the state’s largest workers’ compensation insurer.

And, the Oklahoma legislature is considering legislation that would privatize its nonprofit workers’ compensation insurance fund and turn it into a private domestic mutual insurance company.

According to data from the National Council on Compensation Insurance, Inc. cited by Martin, workers’ comp premiums in Illinois have dropped 9.2 percent since the reforms went into effect in September 2001.

That isn’t fast enough for supporters of creating a state-insurance fund, which includes most Democrats in the state legislature, he said.

The reason costs haven’t dropped are the usual -- the long-tail nature of workers’ comp claims plus increases in healthcare costs, Martin said.

Martin and Deirdre Manna, vice president of industry, regulatory and political affairs for the Property Casualty Insurers Association of America, say creating a state fund is not a good move.

“Illinois public policy must encourage private enterprise and free markets,” Manna says. “The best way to address escalating costs is to attack the cost drivers.”

She adds there “is no credible evidence that creating a state fund will lower the cost of coverage, and there are other ways to lower costs that do work.”

She notes that a state’s relative workers’ compensation costs are completely unrelated to the nature of the insurance mechanism, and proponents’ attempts to sell legislators and employers on the merits of a state fund based on these assertions are wrong.

“Moreover, self-insured employers have the same cost drivers in Illinois as private insurers,” Manna says.

Martin says one concern is that the state is already deeply in debt and doesn’t have the wherewithal to properly capitalize and staff a fund that would compete with the private market.

For example, he says that the proposed fund would be administered by the state insurance department. But he notes a decision by the state to encourage long-term state employees to retire in 2008 resulted in the loss of many experienced people at the department.

“It is going to be difficult for the state insurance department to ramp up to administer a new department given that a number of its most experienced people have decided to retire,” Martin says

0 Comments »

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.

0 Comments »

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

 

 

0 Comments »

Illinois Workers Compensation Insurance and the Work Comp Contractor Credit

Illinois Workers Compensation Insurance and the Work Comp Contractor Credit

For Illinois Contractors, one of the most important reasons for managing your Experience Modification Factor is the Illinois Contractor Classification Premium Adjustment Program (CCPAP).  In order to qualify for this credit your Work Comp Mod must be 1.00 or less.  AND, this credit can be as high as 40% which can be the difference in your bottom line for securing new business.

It's important to understand that controlling your long term costs take more than just getting an Illinois Workers Compensation Insurance quote at your policies renewal every year.  If you're struggling with your mod and would like to learn more on how to control it - give me a call.   Contact Info Link 

To learn more about CCPAP, including an overview of the program and how to complete an application, view the webinar available at NCCI.com via this link.


CCPAP Webinar

 

 

 

 

0 Comments »

Common Mistakes Employers Make Regarding Workers' Compensation

Common Mistakes Employers Make Regarding Workers' Compensation

Most employers look at workers' compensation as just another necessary evil and unavoidable cost of doing business. It's usually one of those out of sight, out of mind things when rates are low. It's not until an employer is hit with a rate hike that they really start to give some thought to their workers' compensation rates.

Employers need to constantly look at workers' compensation as a tool to improve their business's bottom line, and they certainly need to make an effort to keep their low rates over the long-term so that they can take advantage of some significant savings.

Here are four common mistakes made by employers that frequently deter their workers' compensation savings:

1. Assuming that lower rates equate to lower costs.

Don't make the faulty assumption that your cost will automatically go down just because your rates have been reduced. Workers' compensation insurers use an experience modification factor to examine the actual losses incurred by the insured company and establish cost. The actual losses are compared to other industry-alike companies. If the insured company's past losses are below average, then the insurer gives the company a credit rating lowering their premium, but an added surcharge is applied to the premium if the insured company's past losses are above average.

2. Believing that employers have little control when it comes to the expense of workers' compensation.

Employers know they've got to have workers' compensation insurance. However, this acknowledgment shouldn't lend to an employer thinking they've got to pay excessively for it; employers don't and shouldn't.
Cost reduction starts at the hiring process. Initiate effective interview techniques and background checks to help ensure the right people are hired for the right jobs. That said, there's no way to completely eliminate the possibility of injuries in a workplace. Therefore, it's equally important to have an effective return-to-work program in place to simultaneously assist injured workers return to work as soon as possible and reduce the cost of their claims.

3. Neglecting or de-emphasizing cost containment and injury management during low rate periods.

Safety should be an unyielding focus at all times. This will not only help a company reduce their claim numbers, but also keep their rates low over the long-term. Employers need to keep an eye on the issues that frequently impact the costs of claims, such as medical care costs and lost wages. Also, remember that open claims mean escalating costs and negative impacts to the company's modification factor. Of course, this causes an increased cost for coverage.

4. Not making the association between cost containment and worker retention.

Studies have shown that fewer accidents occur among skilled workforces, but even skilled workers can have an accident. A large part of whether or not an injured skilled employee returns to work is based on how their employer responds to them during and after recovery. An important part of an employer's response will be in having a return-to-work program that includes maintaining constant contact with all injured workers and their health care providers to monitor how they're recovering and when and how they can get back to work as soon as possible. Skilled employees that are kept in the loop with a return to work program's periodic phone calls about what workplace changes are occurring in their absence are more likely to return. On the other hand, skilled employees that feel forgotten, undervalued, and disconnected aren't very likely to return. 

0 Comments »

Workers' Comp Premium Fraud: Don't Do It

Workers' Comp Premium Fraud: Don't Do It

Workers' compensation premium fraud is costing honest employers millions of dollars every year - and endangering workers who are frequently exposed without workers comp protection.

Most people are familiar with fraudulent claims of injury on behalf of workers who fabricate or exaggerate their injuries to collect claims they aren't entitled to.

That's small potatoes next to employers who commit premium fraud.

In one recent case, California prosecutors announced the arrests of three individuals - Osvaldo Molina, 40, of Fresno, Fortino Galeno, 46, of Fresno, and Alicio Galeno, 41, of Los Angeles - for committing workers comp insurance fraud via their company, Floor Care Systems. The company solicited other businesses to clean their store and showroom floors, generally at night.

According to prosecutors, these men had concealed over $5 million in payroll from their insurance carrier. Molina and Fortino Galeno were each charged with 61 felony counts. Alicio Galeno was charged with 23 felony counts. Prosecutors alleged that they paid workers under the table, failed to pay them minimum wage or overtime in accordance with both federal and state laws, and even locked employees in their worksites without supervision. According to the State of California, the fraud has cost insurers an estimated $782,000 in workers' compensation premiums and caused the State to miss out on $187,000 in withholdings.

In a similar case last year, the Liberty Mutual Insurance Company obtained a $1.4 million judgment against a company called Viking Industrial Security. In that case, Viking had actually maintained a false set of books. One set had a very small payroll, and that was what they disclosed to their insurers and to tax officials. That payroll was much smaller than their actual payroll. The fraud scheme was detailed and deliberate.

In that case, the insurance company was able to get a court order to download the company's computer records, including its QuickBooks records. This court order allowed Liberty Mutual to prove the payroll fraud, and get a handle on the amounts at stake.

Viking's owners compounded their error by attempting a fraudulent conveyance. That is, they attempted to transfer assets out of their own corporation into a brand new entity. The transfer had no legitimate business purpose other than to shield them from Liberty Mutual. This is illegal, and the courts entered a judgment against the new entity as well as against Viking.

This kind of fraud is much more difficult to detect than worker fraud. But the dollar amounts involved can be substantial.

Workers comp premium fraud, by its very nature, is almost always accompanied by tax evasion, including payroll tax fraud. While prosecutors come down heavy on all forms of fraud, the courts have taken a particularly hostile attitude toward employers who illegally withhold payroll taxes and who fail to deposit Social Security and Medicare taxes with the IRS. Don't count on your corporation to separate your personal assets from your business assets, if you are guilty of this kind of fraud. Courts can and do routinely "pierce the corporate veil," disallowing the limited liability benefits of corporations and LLCs in order to attack the personal assets of business owners who commit this kind of fraud.

Workers' compensation fraud is generally governed by state law, so specifics vary with your jurisdiction. Business owners who commit egregious violations of the law are subject to severe fines and long jail terms, in addition to whatever civil penalties may apply. If a worker is injured, the business and possibly the owner who allowed the workplace fraud generally face liability for the worker's cost of treatment.

For Illinois Workers Compensation Fraud detail CLICK HERE.

And that's before the IRS gets done with you for payroll tax fraud. 

0 Comments »

Illinois Workers Compensation Experience Rating Formula To Change

 Illinois Workers Compensation Experience Rating Formula To Change

The National Council on Compensation Insurance (NCCI) has announced changes in the formula that is used to calculate experience modifiers for employers in most states and Illinois is one of them.  Currently claims under $5,000 are weighted heavier then claims over $5,000…  in the work comp world this $5,000 mark is called the “split point”.

 In this change the split point will be incrementally increased from the current $5,000 to $10,000 in 2013 and $13,500 in 2014. Thereafter, the split point will be tied to an inflationary index that will start at $15,000.  NCCI cites medical inflation as the reason for the changes, and a need to make premiums more reflective of an employer's loss experience.  For example, in the first year of these changes, contractors with no losses greater than $5,000 should see a drop in their experience modification rating (EMR) factor, while those with a relatively large number of losses approaching or exceeding $10,000 will see an increase in their Experience Modification Factor.  There is no cap on how much an employer's EMR can increase in a given policy year.

These changes will impact all industries but perhaps the construction industry more than most due to minimum EMR requirements imposed on contractors by many project owners just to qualify to bid on a project.  Furthermore, it could affect eligibility for the contractors credit premium adjustment program (CCPAP), which provides discounts to contractors who pay higher than the state average hourly wage for employees in certain construction classifications. In Illinois contractors must have an EMR of 1.0 or lower to be eligible for the CCPAP discount.

Unfortunately, because the experience rating period covers prior years' losses, contractors will not have the opportunity to implement strategies that could reduce the impact of the changes before they become effective. However, contractors do need to prepare for the changes by calculating an estimate of their new EMR and account for the difference in premium in their 2013 budget.  If you feel that these changes may adversely affect your work comp mod we can work up an estimate of the new mod to see the full impact.

 

For more detail on the subject the NCCI has produced a few videos on the subject:

Mod Change Introduction – 8 minutes

 

 

 

 

 

Detailed review of Experience Mod Changes – 24 minutes

 

 

 

 

 

Feel free to contact me with any questions.

Dan Zeiler

708.293.5500

dan@zeiler.com

 

0 Comments »

Illinois Business Insurance Premiums

 Why Insurance Premiums are IncreasingIllinois Business Insurance Premiums

Insurance premiums are a function of these factors: The perception of future risks, recent catastrophic claims and the return available on investment. Huge fires and other disasters factor in, such as the Colorado Springs blazes earlier this year and other natural disasters have also forced large payouts. Even the devastating Japanese earthquake and tsunami from 2010 affects insurance premiums in the United States, since insurance companies routinely purchase re-insurance coverage from very large companies. And these reinsurance companies, such as General Re, have been increasing their rates. In addition, jury awards and settlement costs in a variety of commercial fields have put pressure on insurance company reserve funds.

Yes, insurance companies are just like you: They assess the risks they can cover, and then buy insurance themselves to protect themselves against very large but unlikely events that would overwhelm their reserves.

We saw a similar tightening of the property and casualty insurance world across the board, in 2001, following the 9/11 attacks on the World Trade Center. The direct costs themselves were significant, but reinsurance companies also increased their rates then, in order to cover their own risks and ensure clients were protected in case of acts of war, nuclear strikes, chemical strikes, etc.

Fortunately, their worst fears weren't realized, but prudent insurers are in business to cover the worst case scenario, and so they had to plan and set premiums accordingly.

Fast forward to today, though, and we have a different phenomenon at work. Reinsurers had just started to climb out of the substantial capital shocks of 2008 and 2009 when they got hit with the Japan tsunami, which put pressure on capital pools. But as they work to replenish their reserves, all insurers, all over the world, have been forced to reckon with a new reality: Low interest rates.

Insurance companies make money in two ways: Bringing in premiums, and investing the "float." Normally, insurers break even or even run a slight loss on premiums. This keeps premiums affordable, but is only possible because they can invest their accumulated reserves at a profit.

Ten years ago, an insurance company could get 5 or 6 percent on a portfolio of Treasuries. Now that same insurer struggles to get 2 or 3 percent on a AA-rated bond portfolio, and U.S. Treasuries - the traditional mainstay of conservatively-run insurance companies, may well be generating a negative real return after inflation.

Something has to give.

That's what we're seeing now: Actuaries have no choice but to increase premiums to cover anticipated payouts in light of the new lower interest rate environment. To do otherwise risks insolvency, which does no service to the insured at all, and even defeats the purpose of insurance.

The tightening of the reinsurance market, combined with adjustments to account for the lower returns on assets, is now making its presence felt on Main Street: Aggregate commercial insurance ratios increased for the fifth consecutive quarter, and by 5 percent in the first quarter of 2012 alone. That's the biggest increase we've seen since 2004 (remember those summer hurricanes in Florida that year?)

The two lines responsible for the largest increases, according to a Towers Watson survey, were the two segments most vulnerable to jury award and medical cost increases (workers compensation), and increased reinsurance costs from megadisasters and lower interest rates (commercial property insurance), respectively.

Insurance markets tend to cycle along with other industries. As reinsurance pools of capital get replenished, or as interest rates rise, allowing carriers to generate more revenue from the "float" rather than rely so much on point-blank premium collection, rate increases tend to moderate, and new carriers spring up to compete for business.

So if you are seeing rates increase, it's more a matter of prudence in the face of risk and low returns on capital, which affect all carriers everywhere. As a result rates increase to make sure there are enough in reserves to cover future claims . No one is exempt, and it's a bigger issue than any single insurance agency, carrier, or insurance line. 

0 Comments »

Chicago contractors Should require Workers Compensation Insurance

Chicago contractors Should require Workers Compensation Insurance

Good risk management plans allow workers' compensation coverage for any hired subcontractors. Since subcontractors are not able to hide behind statutes for contracts, workers' compensation coverage may be required whether there are statutory provisions or not.

For those who are in contractor and subcontractor relationships, over 40 states including Illinois have statutory regulations regarding workers' compensation benefits. Employees of subcontractors must also be offered workers' compensation benefits if they are injured. The benefits are paid by the immediate employer or the company hiring the immediate employer for the job. As a rule, general contractors face the responsibility of offering workers' compensation to employees of uninsured subcontractors. This is true regardless of the number of employees the subcontractor has. Premiums are also assigned to the general contractor.

General Contractors & Independent Contractors

It is important to avoid confusing the subcontractor-general contractor relationship with an owner-independent contractor relationship. A general contractor is the entity the owner contracts with to complete various projects. A portion or all of the tasks are then assigned to subcontractors. In order for a general contractor's relationship to function, there must be three separate parties. These parties include the owner, an independent contractor and a subcontractor. If any portion of a job is subcontracted, a general contractor's status changes to independent contractor.

An independent contractor is a party contracting directly with an owner or principal to complete a job. In most cases, independent contractors perform jobs that the principal or owner does not normally do. The entire job is completed by the independent contractor and employees. Keep in mind that they are not considered employees of the principal or owner.

As a rule, principals are not usually financially responsible for an independent contractor's injured employees. They are also not responsible for the injuries of employees of subcontractors hired by the independent contractor. General contractors are financially responsible for an uninsured subcontractor's injured employees.

Principals & General Contractors


If the subcontractor and general contractor both lack workers' compensation coverage, the principal may be sued for out-of-pocket expenses incurred by an injured worker. Since the principal does not qualify as a general contractor or employer, financial responsibility is not usually an issue. While employer status is nonexistent, there are other theories of liability that may constitute the need to pay compensation. For example, failing to provide a safe workplace could result in the principal paying an injured non-employee individual. In such a case, a workers' compensation policy or a general liability policy usually provides adequate defense.

It is important for general contractors and principals to require any contracting entities to provide workers' compensation coverage. When an independent contractor or subcontractor purchases this coverage, the act shows that the party does not have any misconceptions about an employer-employee relationship. Contracts between principals and general contractors should be specific in placing responsibilities. In the contract, a general contractor should agree that failing to require this insurance could result in personal statutory responsibility for the subcontractor's injured employees. The general contractor should also agree to hold the principal harmless in an injury case.

Establishing Relationships With Subcontractors


While relationships between contractors and subcontractors are most commonly found in the construction business, they are also found in other industries. For example, cities hire special consultants to analyze traffic patterns. The consultant then hires engineers to perform various studies. They may also perform maintenance on traffic lights, or the work may be contracted out. There are plenty of other examples. However, all contractors and subcontractors
are subject to the laws regarding workers' compensation. To avoid facing financial responsibility for injured workers, it is important for general contractors to require all lower tiers of workers to carry their own workers' compensation insurance.

0 Comments »

Illinois Workers Compensation Insurance Pay As You Go

Illinois Workers Compensation - Pay As You Go

Here's a video highlighting our Workers Compensation Cash Flow Premium Program.  Feel free to contact me with any questions.

 

0 Comments »

Illinois Workers Compensation Quote

Illinois Workers Compensation quotes...   we have very competitive work comp rates but it's important that we do more in order to control your long term costs:

  • We make sure you are getting the best workers compensation mod rate possible.
  • We make sure your open reserves don’t adversely affect your mod.
  • We will help prepare a workers compensation premium audit before the auditors arrives.
  • We help establish a working relationship with occupation health clinics.
  • We help prepare job descriptions to avoid bad hires.

Let me know if we can help you with your workers compensation program.


Dan Zeiler
dan@zeiler.com
708.293.5500
2 Comments »

Illinois Workers Compensation: General Contractors and Independent Contractors

Illinois Workers Compensation - Why Every Contractor Should Require Workers' Comp Insurance.

Good risk management plans allow workers' compensation coverage for any hired subcontractors. Since subcontractors are not able to hide behind statutes for contracts, workers' compensation coverage may be required whether there are statutory provisions or not.

For those who are in contractor and subcontractor relationships, over 40 states have statutory regulations regarding workers' compensation benefits. Employees of subcontractors must also be offered workers' compensation benefits if they are injured. The benefits are paid by the immediate employer or the company hiring the immediate employer for the job. As a rule, general contractors face the responsibility of offering workers' compensation to employees of uninsured subcontractors. This is true regardless of the number of employees the subcontractor has. Premiums are also assigned to the general contractor.

General Contractors and Independent Contractors

It is important to avoid confusing the subcontractor-general contractor relationship with an owner-independent contractor relationship. A general contractor is the entity the owner contracts with to complete various projects. A portion or all of the tasks are then assigned to subcontractors. In order for a general contractor's relationship to function, there must be three separate parties. These parties include the owner, an independent contractor and a subcontractor. If any portion of a job is subcontracted, a general contractor's status changes to independent contractor.

An independent contractor is a party contracting directly with an owner or principal to complete a job. In most cases, independent contractors perform jobs that the principal or owner does not normally do. The entire job is completed by the independent contractor and employees. Keep in mind that they are not considered employees of the principal or owner.

As a rule, principals are not usually financially responsible for an independent contractor's injured employees. They are also not responsible for the injuries of employees of subcontractors hired by the independent contractor. General contractors are financially responsible for an uninsured subcontractor's injured employees.

Principals & General Contractors

If the subcontractor and general contractor both lack workers' compensation coverage, the principal may be sued for out-of-pocket expenses incurred by an injured worker. Since the principal does not qualify as a general contractor or employer, financial responsibility is not usually an issue. While employer status is nonexistent, there are other theories of liability that may constitute the need to pay compensation. For example, failing to provide a safe workplace could result in the principal paying an injured non-employee individual. In such a case, a workers' compensation policy or a general liability policy usually provides adequate defense.

It is important for general contractors and principals to require any contracting entities to provide workers' compensation coverage. When an independent contractor or subcontractor purchases this coverage, the act shows that the party does not have any misconceptions about an employer-employee relationship. Contracts between principals and general contractors should be specific in placing responsibilities. In the contract, a general contractor should agree that failing to require this insurance could result in personal statutory responsibility for the subcontractor's injured employees. The general contractor should also agree to hold the principal harmless in an injury case.

Establishing Relationships With Subcontractors

While relationships between contractors and subcontractors are most commonly found in the construction business, they are also found in other industries. For example, cities hire special consultants to analyze traffic patterns. The consultant then hires engineers to perform various studies. They may also perform maintenance on traffic lights, or the work may be contracted out. There are plenty of other examples. However, all contractors and subcontractors are subject to the laws regarding workers' compensation. To avoid facing financial responsibility for injured workers, it is important for general contractors to require all lower tiers of workers to carry their own workers' compensation insurance. 

0 Comments »

Illinois Workers Compensation Policy

A quick review of the workers compensation policy declarations (Dec) page prior to renewal and upon receipt of the renewal policy can turn up opportunities to save premiums or avoid disputes with the insurer. Take a close look at the following items and give some thought to the possibilities.

  • Estimated payrolls -- If they look high, you could be giving your insurer a free loan. If they are too low, then expect severe sticker shock from an additional billing at the time of the premium audit.
  • Classifications -- Are these the jobs the employees are actually performing?
  • Discounts and Rates -- Are they similar to your last policy?
  • Credits -- Are they similar to last year? Have any credits been eliminated?
  • Deposit premium for the policy period -- Can you pay a smaller deposit premium and make monthly payments?
  • Insured's information -- Check the first section, usually listed or shown as Item 1, and verify information about the named insured, such as name, address, and entity type. Make sure that this matches your company's info exactly. (There can be major problems when the policy has a slightly different name or address.)
  • Coverage provided -- Item 3 of the Dec page details information concerning coverage. Check Section A, Workers Compensation Insurance, and Section C, Other States Insurance. If your company is operating in a state that is not listed, you could end up paying a WC claim out of pocket.
  • Premium calculation -- Usually Item 4, does this look right to you? Does it look similar to last year's policy?
This exercise only takes about 20 minutes, maximum, but could result in corrected errors that provide significant savings for your company.  We help employers in the Chicago Illinois area control their workers compensation costs.  Let us know if we can be of any help to you.
0 Comments »

Illinois Workers Compensation Modification Factor - Is it correct?

Having a handle on the method of computing your experience modification factor for your workers compensation is a must. Because of the many factors and hands involved in the process the potential of error  is very high.

 

  • As you know, your work comp premium is based on your payroll and the payroll used to compute your mod is derived from your payroll audits. Have you checked that the correct payroll is being used on the workers compensation mod worksheet? Are you confident that the payroll audit was correct? 
  • Experience mods are also developed from your loss history. Do you know when and where the claim data is pulled in order to compute your mod? 
  • When claim data is provided for the computation, any open reserves are used for the claim totals. Do you know that a claim adjuster can handle hundreds of workers comp cases? Have your open reserves been reviewed prior to claim data being sent to formulate your mod?

 

Mod Errors

 

We work with many businesses in the Chicago Illinois market. Our  processes ensure that your insurance premiums are at the minimum. Feel free to contact me with any questions.

0 Comments »

Illinois Workers Compensation Rates

In an article posted by Best’s Review in their November issue…   they’re reporting concerns with the claim vs. premium experience in workers compensation.    In summary:

 

  • Calendar-year combined ratio increased 7 points to 118.1% in the last 10 years.
  • Premiums have declined 30% since 2005.
  • Negative ratings for insurance companies have outpaced positive ratings.

What does this mean for the average business owner? Premium increases in workers compensation rates!!!   It’s time to setup procedures to help control your costs.

Process

 

Our agency helps employers in the Chicago Illinois area to control and monitor Work Comp Premiums. Give me a call if I can be of any assistance for your business.

Dan Zeiler
708.293.5500
dan@zeiler.com

0 Comments »

Illinois Pay as You Go Work Comp

Pay as You Go Workers Compensation

 

We are excited to announce a new Pay As You Go workers compensation program. The idea being that you pay your insurance premiums based on the wages in any given pay period. 

 

·         Improved cash flow

·         Eliminates large down payments

·         Minimizes audit adjustments

·         No late fee charges

 

Who are good candidate for this program?

 

·         Businesses with fluctuating payroll (Contractors!)

·         Businesses with past audit issues

·         Businesses with seasonal exposures

·         Businesses with a peak season

·         Any business that wants to improve cash flow

 

 Pay as You Go Workflow

 

Not only do we manage your workers compensation program,   we offer competitive pricing and now an online pay as you go program. Contact me with any questions or interest.


Dan Zeiler
708.293.5500
dan@zeiler.com
0 Comments »

Illinois Workers Compensation Rates

The key components of the recent workers compensation reform bill are aimed at reducing costs:

 

  • 30% reduction in the Medical Fee Schedule
  • Utilization of preferred provider organizations (PPO’s) which will heighten competition
  • Elimination of lifetime wage differential payments
  • Improved efficiencies in medical bill processing and automation

While these workers compensation measures are welcomed by Illinois businesses... the savings by the insurance carriers won’t be known for some time.   I believe the immediate 8% rollback on the rates was more of a political “feather in the cap” rather than a true measure of what this reform package will bring to Illinois businesses.   

 

According to the NCCI, insurance companies in Illinois saw a combined ratio of 123% in 2010. And, the proposed overall rate change for our workers compensation premiums will be an increase of 3.5% for 2012.  

 

  • Manufacturers 4.2%
  • Goods and Service Companies 3.7%
  • Contractors 2.3%
  • Clerical 1.2%
My hope is that the reform bill will maintain the same level of service to our workers and bring down the combined ratio of our insurers. 
0 Comments »

Illinois Workers Compensation Experience Modification

Have a contractor client who had an employee with a bad back.  He was under medication and having regular treatments right up to the validation date.  Talking with the claims adjuster shortly before the validation date, we still weren’t sure if surgery was going to be needed.   Validation date hit and a $69,000 claim was added to the mod.   A month or so later there was no medical activity with the employee and he was on the job – actually he never took any time off.  Adjuster agreed to close the claim which went from $69,000 Med + Indemnity to $9,000 Med only.

I braced the employer as to the consequences of this claim and the effect on the mod.  Mod jumped 10 points to 1.05 and for the first time this employer did not qualify for the IL Contractor Credit…  another 40 points.   My plan was to work with the underwriter on additional scheduled credits to take the bite out of the additional premium for this one policy year.

A few weeks ago I received a call from the underwriter who was already working on this October renewal…  he noticed the huge premium increase.  I actually had to do a little explaining on the claim situation but he agreed to contact his NCCI unit at Hartford and see what he could do to refile the unit stat detail - which was done.  I just received the notification of the mod adjustment and we’re back under 1.00.  Employer is thrilled.

Thanks Hartford!

0 Comments »

Workers Compensation Reform to Lower Costs - Video

IL has passed a comprehensive reform bill that is aimed at lowering your workers compensation premium.   If there's any questions after review - I'm available.

Video Link


Dan Zeiler
708 293 5500
dan@zeiler.com


0 Comments »

NCCI Posted Annual Report

Not the greatest news but here it is...

NCCI Describes State of Current Workers Compensation Market as "Deteriorating"

 
Posted Date: May 05, 2011 

NCCI Contact: Gregory Quinn | Director, Media Relations | Telephone: 607-723-7878

View complete State of the Line presentation from AIS 2011

(Boca Raton, FL, May 5, 2011)—NCCI Holdings, Inc. today released its annual State of the Line workers compensation market analysis and described the current state of the market as "deteriorating." This year's report indicates that the workers compensation calendar combined ratio was 115 in 2010, up 5 points from 2009.

"In 2010, NCCI defined the state of the workers compensation industry as 'precarious' based on considerable uncertainty about where the market was headed," said NCCI President and CEO Steve Klingel. "Unfortunately, that uncertainty has, to a large extent, been resolved—and not in a positive direction. We have continued to witness ongoing deterioration in market fundamentals. Today, the workers compensation industry faces a number of difficulties that will confront market stakeholders in the weeks and months to come."

"The workers compensation line continues to experience an ever-lengthening list of challenges," added NCCI Chief Actuary Dennis Mealy. "Those challenges include poor underwriting results, declining premiums, healthcare reform uncertainty, and, now, an uptick in claim frequency."

As reported above, the workers compensation calendar year combined ratio for private carriers was 115 in 2010, up 5 points from 2009. However, 3 points of the increase in combined ratio again this year was due to one carrier adding more than $800 million to excess workers compensation reserves. This is the second straight year of significant excess reserve strengthening.

In terms of premium, economic recovery appears to help slow the precipitous declines in workers compensation net written premium for private carriers that had been experienced from 2007–2009. For 2010, net written premium for workers compensation private carriers declined just 1.3%—a much smaller decline than the prior two years. (From 2007 to 2009, the workers compensation premium declined a total of 20%.)

Link to Complete Article

0 Comments »