Now that Illinois' contentious primaries are over, state lawmakers have an opportunity to get back to business and tackle the litany of financial woes affecting the state. This year, Illinois ranked dead last on U.S. News & World Report's list of the most fiscally stable states.
Despite this ranking, some Illinois legislators continue to push bills that add undue stress to the state's business community. One key example is the push to put the state in the business of insurance. Specifically, both the House and Senate are considering bills that would establish the Illinois Employers Mutual Insurance Company (IEMIC), a workers' compensation insurance company funded by taxpayers and managed by the Illinois government.
For those of you who might be familiar with Illinois' workers' compensation system, you know that Illinois already has the most competitive marketplace in the nation -- 323 insurers currently compete for business in the state. With many private companies competing for business, there is no need for the government to enter the market.
Now, though the marketplace is vibrant, it is fair to say that there can be improvement to the current system, especially with respect to increasing the potential for lower costs. But unlike proposals such as HB 4595 and SB 2973, very few people are talking about the three reforms that would actually make a difference: instituting a Medicare-based fee schedule, investigating why Illinois pays more in indemnity benefits that anywhere else in the country and holding attorneys and medical providers to the same transparency standards as everyone else.
First, the fee schedule for medical reimbursement rates in Illinois is awkwardly and uniquely constructed to enrich Illinois' homegrown pharmaceutical companies and hospitals. Recent discussions at the state's Workers' Compensation Commission indicate that medical reimbursement rates in Illinois for many procedures average 200 to 300 percent of the scheduled Medicare prices for the same treatments.
In order to contain these costs, lawmakers should implement a Medicare-based fee schedule in Illinois. It would result in consistent, up-to-date, and predictable cost estimates for medical procedures and medications while maintaining high-quality care for Illinois workers.
Second, legislators should try and understand why Illinois pays so much more in indemnity benefits (wage replacement) than the rest of the nation. In Illinois, indemnity benefits are 53 percent of the total benefit costs, while medical care accounts for 47 percent of costs.
Nationally, however, indemnity benefits are just 41 percent of workers' compensation costs. These wage replacement costs can continue for weeks or months, depending on the severity of the injury, and can significantly increase the cost of a workers' compensation claim. We are not suggesting an increase or decrease in these benefits -- we only recommend that this divergence from the national average be closely examined to try and determine its cause.
Finally, attorneys and medical providers involved in the workers' compensation process should be subject to the same extensive reporting required of workers' compensation insurers, who must report information like the number of contested claims, the amount spent on legal defense, the total amount of medical costs billed to the employer, and much more every year. Attorneys and medical providers are not required to submit this data. As a result, legislators and regulators are not equipped with a complete body of information that can be used to thoroughly evaluate the impact and effects of any changes to the state's workers' compensation system.
These three proposals would be good first steps toward reducing workers' compensation costs in Illinois. Introducing a new, state-funded company, on the other hand, does nothing of the sort. It's like Gov. Rauner stated when he vetoed this exact same proposal last summer, "This bill does nothing to address the actual cost drivers and broken aspects of our workers' compensation system, which are significant contributors to the flight of businesses and jobs from Illinois and obstacles to the efficient and effective system that injured workers deserve."
Only when legislators focus on proposals that will actually lead to lowering the high cost of doing business in Illinois will the state begin to pull itself out of its financial sinkhole. Now that the political game is over for a few months, we hope that legislators will take the time to really tackle the tough issues.
Steve Schneider is the American Insurance Association's vice president of state affairs for the Midwest region.