One of the great hurdles to achieving substantive and meaningful workers’ compensation reform is getting both sides to recognize basic facts about Illinois’ system. In the past, Illinois Senate President John Cullerton has made numerous statements about workers’ compensation that were either self-contradictions or outright falsehoods revealing that Cullerton either didn’t understand Illinois’ workers’ compensation system or was willfully promoting half-truths for political purposes. And now Illinois House Speaker Mike Madigan’s spokesman Steve Brown has joined the fray – countering calls for reform with more myths that crumble under analysis.
Brown has blamed the high cost of workers’ compensation in Illinois on insurance companies’ refusal to pass along savings to businesses, according to reports in The (Springfield) State Journal-Register and Crain’s Chicago Business. This accusation reveals an ignorance of economics and, carried to its logical conclusion, would mean Illinois has an OPEC-like cartel of insurers colluding to fix prices above market rates, to the detriment of their customers.
One serious problem with Brown’s claim is that what he is alleging couldn’t be happening unless insurance companies were colluding in violation of the spirit of antitrust laws, and there’s no evidence that they are. If such collusion existed it would mean that 332 insurance companies in Illinois are working together to violate the principle of federal antitrust law, from which the business of insurance is admittedly exempt. However, such evidence of collusion and price-gouging has never been presented. The trial bar simply says that workers’ compensation costs are high because insurers are gouging customers. It makes no logical sense.
In fact, the profit rate of Illinois workers’ compensation insurers has been consistently below the nationwide average for every year of the last five years, meaning that competition is likely keeping profit rates lower in Illinois than elsewhere. If there were collusion as the trial bar alleges, then Illinois insurers should be achieving unusually high profit rates.
On the contrary, overwhelming circumstantial evidence against the existence of any such insurance collusion in Illinois exists:
- Illinois has a competitive workers’ compensation insurance market, with 332 companies currently writing workers’ compensation insurance in the state. That’s more insurers than exist in any other state. More competitors mean more competition: It is simply unbelievable that 332 rivals would collude to fix prices.
- The profit motive drives businesses to compete and enter new markets. If all Illinois insurers agreed to fix prices above market rates, out-of-state insurance companies would flood into Illinois and open up new branches in the Land of Lincoln in order to make money writing insurance at lower but still-profitable rates.
If such obvious anti-competitive price collusion existed on a multibillion-dollar-per-year industry, Illinois’ trial attorneys would undoubtedly have provided firm evidence of it just as they would provide evidence of actual antitrust violations in a federal court.
Furthermore, workers’ compensation insurance customers like manufacturers, who actually pay the cost of insurance, would be alleging the same collusion. And insurance companies that wanted to profitably compete in Illinois would either be driving down prices or pointing out evidence of the Illinois insurance cartel to lawmakers.
So why are Illinois trial lawyers, who are not workers’ compensation insurance customers, the ones who are repeatedly blowing the whistle on this alleged collusion while providing no evidence? Because they want to distract lawmakers and the media from the real cost drivers in Illinois’ system. The trial bar doesn’t want lawmakers to fix the true cost drivers because Illinois’ broken system keeps enriching the trial bar.
Finally, the profit rates of workers’ compensation insurers are publicly reported. If the trial bar thinks that insurance profits are such a problem, then the trial bar should reveal their own data about profit and loss on workers’ compensation cases just as insurers do.
In addition to the illogic of the cartel myth, empirical evidence against the existence of a price-fixing insurance cartel in Illinois exists:
- Total insurance premiums collected in Illinois have risen to $2.8 billion per year in 2015 from $2.4 billion per year in 2011, a 17 percent increase. This increase has some crying foul about savings not being passed on to businesses after changes to the law made in 2011. However, according to the National Council on Compensation Insurance 2016 advisory forum, total premiums have increased nationally 25 percent over the same time period, meaning that Illinois’ total premiums are climbing much slower than premiums nationwide.
- Furthermore, Freedom of Information Act data on workers’ compensation costs for Illinois municipalities and counties showed average costs up 3 percent for municipalities and 31 percent for counties between 2012 and 2015. For Chicago, costs are up 12 percent over this period. Government costs provide a significant comparison because many governments like Chicago self-insure, yet they are still experiencing rising costs after the 2011 reforms.
- The Illinois Department of Insurance’s 2016 annual report showed the five-year average profit rate for insurers in Illinois was 2.7 percent, compared to a 7.1 percent average nationwide.
Though Brown and his allies in the trial bar are wrong about profit-hoarding in the workers’ compensation insurance market, this does not mean all is well with workers’ compensation costs in Illinois. Illinois has the highest workers’ compensation costs in the region, and is tied for the seventh-most expensive system in the nation. This costs Illinois workers jobs – especially those in risk-intense industries such as manufacturing – as employers relocate to save on workers’ compensation costs.
Officials are right to be concerned. But Illinois’ businesses and blue-collar workers deserve better than politicians spinning myths and grasping about for villains. Illinoisans deserve a government that honestly assesses the problem and prioritizes job creation for residents, who increasingly must leave the state to find work.