Rauner vetoes proposal for state-owned workers’ compensation insurance provider

House Bill 2622 would create a state-run workers’ compensation insurance company, while failing to address the real problems with Illinois’ workers’ compensation system – the most expensive in the region.

On Aug. 18, Gov. Bruce Rauner vetoed a bill that would’ve created a state-run workers’ compensation company. Proponents of the bill claimed the new state-run insurance provider would mitigate Illinois’ highest-in-the-region workers’ compensation costs.

But Rauner stated that the proposal “does nothing to address the actual cost drivers and broken aspects of our workers’ compensation system,” according to the Chicago Tribune.

House Bill 2622 would mandate the creation of the Illinois Employers Mutual Insurance Company, or IEMIC. The state-based provider would be a nonprofit started with a $10 million loan from the Illinois Workers’ Compensation Commission Operations Fund.

If passed, the measure would have the governor select the board of the IEMIC with Senate approval. At that point, the government-appointed board would hire a CEO to run the company.

Supporters of HB 2622 claim the creation of IEMIC would bring more competition to the workers’ compensation insurance market, forcing private sector insurers to drop rates. However, Illinois’ market is already competitive, and this is unlikely to remedy the state’s high workers’ compensation costs.

Illinois has more than 330 companies writing workers’ compensation insurance, more than any other state, according to a 2016 report by the Illinois Department of Insurance, or DOI. There’s also evidence from DOI that Illinois workers’ compensation insurers have slimmer profit margins than in other states. From 2010-2014, Illinois workers’ compensation insurance companies had average annual profit rates of 2.7 percent, far lower than the national average of 7.1 percent.

While increased competition is good for the market, the establishment of the state-run IEMIC would not bring down insurance costs because it does not tackle the massive cost drivers of Illinois’ workers’ compensation.

Currently, Illinois employers in certain industries can save 5 percent of their payroll costs by moving to Wisconsin, and 10 percent of payroll costs by moving to Indiana. For blue-collar work, this makes Illinois uncompetitive and costly. Companies such as Hoist Liftruck have left Illinois for this very reason.

If lawmakers truly want to lower the cost of workers’ compensation, they should embrace commonsense reforms that have brought down workers’ compensation costs in other states. Tying medical fee schedules to Medicare or private insurance reimbursement rates, reforming overly generous maximum and minimum wage replacement rates, getting rid of financial incentives for doctors to overprescribe certain medication such as painkillers, and instituting light-duty work programs could all help cut high workers’ compensation costs in the Land of Lincoln. This would make Illinois more competitive for attracting blue-collar jobs.

Lawmakers should consider these policy ideas if they are serious about reducing workers’ compensation costs, and pass on the IEMIC.