Broken workers’ compensation system costs Illinois taxpayers millions

Eric Kohn

Eric Kohn is marketing manager at the Illinois Policy Institute.

Eric Kohn
December 15, 2016

Broken workers’ compensation system costs Illinois taxpayers millions

Illinois’ uncompetitive workers’ compensation system doesn’t just hurt private sector businesses – it is also costing taxpayers more than $400 million per year.

When it comes to workers’ compensation costs, Illinois’ political and business leaders focus primarily on how the system affects private sector businesses, which pay the highest workers’ compensation costs in the Midwest.

But taxpayers bear the brunt of workers’ compensation as well. Workers’ compensation costs for state, county and municipal workers cost Illinois taxpayers more than $400 million per year.

Like private-sector businesses, Illinois governments must also pay for workers’ compensation “insurance,” which is meant to cover the cost of worker injuries on the job. High settlement payments, long wait times for workers and businesses and loopholes in medical cost controls are just a few of the factors that combine to make Illinois’ system particularly costly.

A review of Illinois state government and 500 local units of government throughout the state showed government costs for workers’ compensation are sky high. Annual workers’ compensation costs for Illinois state government were $132 million. At the municipal level, it was $225 million per year, and it was the third most burdensome spending mandate for municipal governments. And at the county level, workers’ compensation cost $45 million per year and was the fourth most burdensome spending mandate.

The $402 million tab for workers’ compensation for all levels of government in Illinois is about $190 million more each year than the average state doles out in government workers’ compensation costs.

So, why is Illinois paying so much for workers’ compensation for public employees? There are two key reasons.

First, Illinois’ laws and judicial rulings have created a much more expensive workers’ compensation system than those in surrounding states. For example, insurance rates for concrete construction workers in Illinois are more than four times as high as Indiana, and more than double those of Michigan.

Secondly, Illinois has an astonishing 7,000 layers of government. That’s by far the most of any state in the union, accounting for more than 628,000 full- and part-time government employees and more than $2.3 billion in payroll. And all those duplicative layers of government increase payroll costs to Illinois taxpayers – this also drives up workers’ compensation costs along with them.

As enormous as these costs are, they only represent a partial picture of the total cost to taxpayers for workers’ compensation payments to public employees. While this study looked at state, county and municipal employees, it also identified thousands of other levels of government likely incurring workers’ compensation costs that will add to the $402 million per year total. For example, Illinois has 895 school districts; 1,431 townships; 3,227 special district governments; numerous other municipal, county, township and other special police and fire districts; as well as publicly funded construction projects Illinois’ Prevailing Wage Act governs.

The public employees examined for this study represent $8.6 billion in annual public sector payroll. But, Illinois’ many layers of government have a grand total of $28.7 billion in annual payroll. Taking the annual cost for county and municipal government payrolls discovered in this study and applying them to the state’s total payroll costs would translate to around $900 million in workers’ compensation costs per year, just for local governments. While it is unlikely governmental entities like school districts and townships have workers’ compensation costs as high as municipalities and counties, or that all public-sector compensation would be considered “covered payroll,” the projected number is still alarming and indicative of the massive and out-of-line costs facing Illinois taxpayers.

There are several steps the state could take to get public employee workers’ compensation costs under control, and bring them in line with our neighboring states. These include reforms to the Illinois Workers Compensation Act; light duty, which would mean bringing back injured workers in a capacity that wouldn’t interfere with their recovery from injury, like light office work; and reforms to the Public Employee Disability Act and Public Employee Benefits Act.

While reforms are critical for making Illinois’ private sector economy competitive with surrounding states, it’s also critical we reform public employee workers’ compensation costs and bring them in line with our surrounding competitor states to lessen the burden being Illinois taxpayers are shouldering.

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