Illinois’ 2005 workers’ compensation reform law

Illinois’ 2005 workers’ compensation reform law

Part 2 of Illinois’ broken workers’ compensation system: the reform law signed by Gov. Rod Blagojevich in 2005, which addressed medical fees and billing, provided benefit increases, and contained anti-fraud provisions.

Illinois’ workers’ compensation system is the most expensive in the Midwest, according to a 2014 biennial study of all states by the state of Oregon.

It’s a broken system. The major pain points in Illinois’ workers’ compensation scheme are: the overall cost and regulatory complications for businesses statewide; the particularly out-of-whack cost for working-class industries such as manufacturing, transportation and construction; and the drain on taxpayer resources due to government-worker claims.

Illinois’ recent history regarding workers’ compensation legislation began with House Bill 2137, which then-Gov. Rod Blagojevich signed into law in 2005. Public Act 094-0277 (formerly HB 2137), summarized on the Illinois Workers’ Compensation Commission’s website, made several significant changes to Illinois’ system. Some changes directly increased the cost of the workers’ compensation system, while others were designed to contain and regulate costs.

The 2005 law was notable for addressing workers’ compensation in a comprehensive way. However, the cost savings were not as advertised. In a press release, Blagojevich said, “Illinois is the 19th most expensive state in the nation when it comes to workers’ compensation premiums. Illinois companies pay 40 percent more for workers’ compensation than neighboring states Michigan, Wisconsin and Indiana.”

The 19th-most-expensive state soon became the fourth-most-expensive state for premiums, according to a study by the state of Oregon. Illinois is currently the seventh-most-expensive state in the nation for overall workers’ compensation costs and is easily the most-expensive in the Midwest – notwithstanding the passage of the 2005 reform bill and a 2011 reform bill, which was signed into law by then-Gov. Pat Quinn.

Following is a breakdown of the important changes included in the 2005 workers’ compensation legislation:

1) Medical fee and billing changes

The 2005 legislation changed regulations regarding medical fees, medical utilization and patient balance billing.

Medical fees

The legislation created a workers’ compensation medical fee schedule to regulate the cost of medical care sought through workers’ compensation claims. The payment schedule was set to be the lesser of the actually incurred medical fees or “90% of the 80th percentile of actual charges” within a geographic area for a given procedure. The 80th percentile charges for a procedure in an area are the charges that are more expensive than 4 out of 5 claims. Ninety percent of that amount is taken and set as a maximum that can be billed. The law also set up a Medical Fee Advisory Board to regulate and advise on this process.

Medical utilization review

The law created a way for employers to check the quality and medical necessity of health care services. This created an avenue for employers to reject certain health care procedures they think are unnecessary if another utilization-review physician supports the denial of medical necessity.

Balance billing prohibited

The law requires that medical bills be sent directly from the medical provider to the employer for reimbursement. If the employer does not pay the entirety of the bill, the medical provider is barred from billing the injured worker for the unpaid balance unless the Illinois Workers’ Compensation Commission determines that the unpaid balance should not be a part of the final settlement paid by the employer.

2) Benefit increases and changes

One of the ways in which the 2005 law drove workers’ compensation costs higher was through increasing wage-replacement rates, settlement awards and the valuation of certain types of injuries.

Death benefits and burial expenses

The maximum award for a work-related death was raised to the greater of $500,000 or 25 years of wage replacement from the greater of $250,000 or 20 years of wage replacement. In addition, burial expenses were raised to $8,000 from $4,200.

Minimum and maximum wage-replacement rates increased, maximum benefits for disfigurement and body-part loss raised

One of the major cost drivers of the 2005 law came from increases in wage-replacement rates. In general, workers’ compensation benefits are two-thirds of lost wages, untaxed. However, there are minimum rates of wage replacement that workers are guaranteed, as well as maximum wage-replacement rates that act as a cap on possible weekly benefits. The 2005 law put Illinois’ wage-replacement ratios out of line with those in surroundings states.

Minimum compensation rates increased

The minimum compensation-replacement rate was raised to the lesser of two-thirds of the minimum wage rate times 40 hours per week, or the employee’s full actual wages, untaxed. The following chart shows the minimum replacement-rate increases per dependent, using the minimum wage of $6.50 per hour in effect in Illinois in 2006:

Base rate: $6.50 X 40 =$260

Single person: $260 X 66 2/3% = $173.32

Person with 1 dependent: $260 X 76 2/3% = $199.32

Person with 2 dependents: $260 X 86 2/3% = $225.32

Person with 3 dependents: $260 X 96 2/3% = $251.32

Person with 4+ dependents: $260 (100% of calculation)

The idea behind this is to guarantee a decent wage replacement for low-income workers. However, it also ties part-time workers to a full-time wage-replacement schedule. And now, the numbers in the chart above are bumped up significantly based on Illinois’ current minimum wage of $8.25 per hour. In effect, a low-wage or part-time worker can get a pay hike by being on workers’ compensation.

With Illinois’ current minimum wage of $8.25 per hour, any part-time worker with no dependents making $220 per week or less ($8.25 x 40 x 2/3) will get all wages replaced, untaxed, by being on workers’ compensation. Adding dependents increases this minimum to $253 (one dependent), $286 (two dependents), $319 (three dependents) or $330 (four or more dependents). This effect is compounded by the fact that permanent settlement payments are also often based on this minimum compensation-replacement schedule.

The law also defined temporary partial disability benefits and raised the maximum wage-differential replacement to 100 percent of the state’s average weekly wage for partial disability injuries. In addition, maintenance benefits for vocational rehabilitation were defined and set as no less than a worker’s total temporary disability rate.

Finally, the maximum number of weeks of benefits for disfigurement or the loss of a body part was raised by approximately 7 percent across the board. For example, the maximum benefit for a thumb loss was raised to 76 weeks from 70 weeks, for an index finger to 43 weeks from 40 weeks, and so on to address the entire schedule of body parts including hands, arms, legs, feet, toes, eyes and ears.

3) Fraud statute established and miscellaneous other changes

The law established criminal penalties for fraudulent claims and made anyone convicted of fraud liable to the employer in a civil suit. So far, this fraud statute has seen little use. The law also addressed issues with vocational rehabilitation, the rate-adjustment fund, and expediting the Workers’ Compensation Commission process; it also increased some penalties for violations and established a workers’ compensation fraud statute.

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