6-6-2016; Springfield/Chicago--Where Democracy Goes to Fail; WCRI Research Analyzes the IL WC System; Matt Ignoffo on Important Wisconsin Insurance Coverage Ruling and more
/Synopsis: Springfield/Chicago—Where Democracy Goes to Fail.
Editor’s comment: Political news in this State and Chicago keeps getting worse and worse. Last week, legislative efforts to come up with an annual IL state budget again failed with State Democrats creating a wacky, cut-off-debate budget that fell $7 billion short of its necessary funding. As everyone expected, Governor Rauner quickly and properly vetoed it and State Democrats didn’t have sufficient party unity to override the veto. It appears we may never have an actual state budget, causing fear/consternation and bankruptcies in the private sector for businesses and social agencies that rely on our state government for their well-being. Schools and colleges/universities are also petrified on how to stay open. Without any question, there isn’t enough money and some things are going to have to be wisely cut and State Democrats simply won’t address these important issues, as they strain to give away more and more money they simply don’t have.
On the workers’ comp side, the Governor’s suggested “Turnaround Agenda” reforms or what we prefer to call minor ideological tweaking (other than the slashing of some medical fees again), also were lost in the shuffle. Due to the infighting in Springfield, every indication is nothing is going to happen to reform IL WC this year or any time soon. As we have advised our readers, we expect our state’s WC costs to continue to drop as the Arbitrators and Commissioners appointed by this Governor quietly exert their best efforts to bring Illinois into the mainstream of U.S. WC costs. We should have a better idea at the end of year when the State of Oregon issues their every-other-year analysis of WC insurance premiums—you can watch this spot for those important stats. You may also want to carefully review the next article below.
IL WC veterans can only grin to hear the public relations silliness spun by Steve Brown, the press secretary for House Speaker Michael Madigan, our leading State Democrat. “Workers’ compensation has always been on the table,” said Mr. Brown. But Brown claimed last Wednesday that IL workers’ comp reforms passed in 2011 resulted in significant savings that those evil but unnamed WC insurers somehow did not pass along to employers, “which is no surprise to anyone,” per Mr. Brown. Democrat Lawmakers are considering mysterious and magical ways to “force” insurers to pass along those ethereal and hard-to-define savings.
The last we looked, almost all of our defense clients had self-insured retentions for their WC coverage which means if the benefits are lower, they pay out less.
Mr. Brown is also threatening to expand the IL WC Fraud Unit. “More employers are being investigated for fraud than individual workers,” Brown said without the slightest bit of evidence to support this claim. “We’re looking at all those things. The Governor and his friends, the business guys, say just take everything out of the pockets of the doctors and employees. He would basically deny workers any kind of benefits.”
When you stop giggling to read such tripe, please note Governor Rauner has recommended four fairly minor legislative changes that will keep most of IL WC the same as it has been for years. Those changes don’t take “everything out of the pockets” of anyone.
On the continuing Chicago Fake Government Pension Funding Catastrophe, Mayor Rahm Emanuel fought for and got an extension to further “unfund” the Chicago Police and Fire fake gov’t pensions until year 2020. As Mayor Emanuel already has to come up with about $700M by the end of this month that he doesn’t have to fund the fake Chicago Teacher’s Union pensions, he would have had to dramatically and immediately raise taxes to pay this additional police/fire pension debt. From a purely political perspective, he went begging to Springfield, not to try to make any sense of a fake pension program that can’t be made to make sense; he just wants more time, as his current mayoral tenure coincidentally ends in 2019. This is “I’ll Be Gone; You’ll Be Stuck” Illinois politics at its very worst.
As stunning as it may sound, the IL General Assembly voted to override Gov. Bruce Rauner’s veto of Mayor Rahm Emanuel’s plan to delay payments to Chicago’s police and fire pension funds — at a cost to Chicago taxpayers of an additional $18.6 billion over the next 40 years. Worst of all, delaying the pension payments sets Chicago taxpayers up for massive tax hikes. The law calls for Chicago to automatically begin dramatically raising property taxes in 2020 to pay for the postponed pension contributions. You may want to diary the year 2020 as a date to reconsider maintaining a business in Chicago, as real estate taxes are sure to skyrocket and/or the next mayor of Chicago may try to get a law passed to allow them to file for bankruptcy.
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Synopsis: Real and Important Research Analyzing the Illinois Work Comp System—Is the System Truly Getting Better?
Editor’s comment: While looking up other things we saw the great team at WCRI or the Work Comp Research Institute put out a series of reports provides ongoing annual monitoring of how IL WC indemnity benefits, medical payments, and benefit delivery expenses per claim change over time, as well as how the Illinois workers’ compensation system compares with other study states on many key metrics. Their research analyzed claims with injury dates between 2009 and 2014 (evaluated as of March 31, 2015). In some cases, they used a longer time frame to supply a historical context for what they felt were key metrics and to provide a broader context for evaluating effects of changes related to the 2011 WC legislative reforms in Illinois.
In 2011, Illinois legislation HB 1698 introduced several changes to our workers’ compensation system that was designed to impact key claim cost components. These changes included a 30 percent reduction in the medical fee schedule rates, the introduction of WC preferred provider programs (WC PPPs) for selecting a network of treating physicians, and the addition of the option to use utilization review based upon recognized treatment guidelines and evidence-based medicine. In addition, the 2011 Amendments to our IL WC Act introduced the American Medical Association Guides, 6th edition, for the evaluation of impairment ratings and set specific limits on the duration of benefits for carpal tunnel injuries and wage differential benefits.
Major Statistical Findings For IL WC System
The major findings for the WRCI research are as follows:
· The average total cost per WC claim with more than seven days of lost time decreased since 2011, which they felt was due mainly to the reduction in medical fee schedule rates. Compared with the other study states, total costs per claim in Illinois remained higher than typical for 2012/2015 claims.
· Indemnity benefits per claim were higher than those in the other study states due to the following:
o More frequent and larger permanent partial disability lump-sum settlements coupled with longer duration of temporary disability in Illinois compared with other study states with PPD benefit systems.
o The average lump-sum payment per claim changed little, and the percentage of claims with lump-sum settlements decreased. These changes were observed after 2009 for both less and more mature claims.
o Offsetting components resulted in typical litigation expenses per claim: Illinois had among the lowest defense attorney payments per claim (with payment greater than $500) of all the study states.
o Defense attorney involvement was higher than typical. Both the use of medical-legal services and the average medical-legal expense per claim were higher than typical in Illinois. Litigation expenses grew faster in Illinois than in most study states.
· Medical payments per claim were closer to the median study state for 2012/2015 claims than they were before the 30 percent reduction in the medical fee schedule rates in 2011. Prior to the medical fee schedule rate reduction, medical payments per claim were among the highest of the study states.
Total Costs Per IL WC Claim Were Clearly Reduced Since 2011
The average total cost per claim with more than seven days of lost time in Illinois was 19 percent higher than the cost in the median study state for 2012 injuries evaluated as of the first quarter of 2015. For 2008/2011 claims, total costs per claim in Illinois were 37 percent higher than the median study state. The change in Illinois’ interstate ranking mainly reflects the impact of the 30 percent reduction in the fee schedule rates for all medical services. Between 2010 and 2012, based on more mature claims, total costs per claim decreased 8.0 percent in Illinois. This was the largest decrease of the study states. In 2013 and 2014, based on less mature claims, total costs per claim in Illinois grew moderately, reflecting small to moderate increases in medical payments per claim, indemnity benefits per claim, and benefit delivery expenses per claim.
Indemnity Benefits in IL WC Remain Higher Due to Higher Value Settlements and Duration of TTD/TPD
Indemnity benefits per claim with more than seven days of lost time in Illinois were higher than those in the median study state in 2012 (evaluated as of 2015). This result reflected longer duration of temporary disability coupled with more frequent and more costly PPD/lump-sum settlements.
In Illinois, temporary total disability (TTD) benefits are paid at a rate equal to 66⅔ percent of the worker’s pre-injury wage, capping at 133.3% of the SAWW; in most study states the maximum benefit rate is set at 100 percent of the SAWW. The higher weekly benefit maximum in Illinois than in other study states likely contributed to higher-than-typical average weekly benefit rates. In addition, compared with the other study states, Illinois had among the largest gaps between the maximum weekly TTD benefit rate ($1,337) and PPD benefit rate ($735). This difference in benefit rates likely affects the duration of temporary disability benefits and proportion of claims with temporary disability and PPD benefits.
An important component of indemnity benefits is the duration of temporary disability benefits. In 2012 (evaluated as of 2015), Illinois had a longer duration of temporary disability benefits than most other study states. On average, injured workers stayed away from work for 19 weeks compared with 13 weeks in the median of states with PPD benefit systems. Longer-than-typical duration of temporary disability in Illinois might be related to lack of limits on duration of benefits, except as indicated in the PPD schedule. In contrast, other study states have features that lead to lower average duration, such as statutory caps on temporary disability benefits and allowing termination or modification of TTD benefits without a formal hearing.
One provision of the 2011 reforms, the introduction of the AMA Guides for the evaluation of impairment, may have a long-term impact on both the percentage of claims with PPD/lump-sum settlements and the average PPD/lump-sum payment per claim. Such an impact can be realized if the ratings for determination of the degree of impairment are applied consistently in the majority of cases. It is important to note that, under the reform legislation, the degree of disability is determined by five factors: the level of impairment (AMA rating); the injured worker’s occupation, age, and future earning capacity; and evidence of disability corroborated by medical records. The legislation specifies that the AMA Guides will be used to set the ratings, yet there is no provision for automatic admissibility of the ratings when determining the overall degree of disability. In 2011, the Illinois Workers’ Compensation Commission (IWCC) guidance to arbitrators provided that they do not need an impairment rating to approve settlement contracts, and they are not prevented from awarding PPD benefits at a hearing if there is no impairment rating on the record. System stakeholders noted some observations: starting in 2014, more cases have been reaching maximum medical improvement when an evaluation of impairment rating is done; and when submitted, the AMA rating is generally considered by arbitrators. Furthermore, not all cases need an impairment rating; for instance, when the negotiated amount is relatively small, the parties may decide that the cost of obtaining the rating is not reasonable compared with the amount in dispute. Prior to the 2011 amendments and introduction of the AMA Guides,7 there was no part of the statute that provided any instructions to the IWCC with respect to determining PPD benefits. As a result, PPD benefits were awarded based only on historical precedents, applying multiple factors.
In Illinois, a PPD benefit is viewed as a settlement after the injured worker completes medical treatment and is at maximum medical improvement. That is why 37 percent of Illinois claims with more than seven days of lost time received lump-sum payments, half as many as the median study state in 2012 (for claims with an average maturity of 36 months). The average lump-sum settlement per claim with more than seven days of lost time in Illinois was in the middle of the states with PPD benefit systems for 2012/2015 claims. For 2010/2015 claims, the average lump-sum payment per claim was among the highest of the PPD study states. Note than in Illinois, 49 percent of claims settled within 60 months of injury compared with 11 percent of claims that settled within 12 months after the injury. This means that any sizeable impact from the legislative changes related to PPD/lump-sum settlements may be seen only for more mature claims.
The trend in the average lump-sum payment per claim changed little in Illinois after 2009. However, the percentage of claims with settlements decreased between 4 to 7 points depending on claim maturity. System participants indicated that this result likely reflects the impact of the recession and especially slower recovery in Illinois, when higher unemployment rates might have created limited opportunities for injured workers to return to work with their preinjury employer or to find a job with a new employer. In addition, uncertainty related to the application of the new law for impairment rating evaluations may have also contributed to the observed results after 2012.
Medical Payments Per WC Claim Were Closer to the Median Study State for 2012/2015 Claims than prior to the IL WC Fee Schedule Reduction
For 2012 injuries (evaluated by WCRI as of 2015), the average medical payment per claim with more than seven days of lost time in Illinois was closer to the median study state than in previous years. Prior to the reduction in the fee schedule rates, Illinois had among the highest medical payments per claim of the study states. Medical payments per claim incorporate both utilization and price of services delivered by medical providers. Because utilization of medical services was relatively stable between 2010 and 2012 (at 12 months of claim maturity), most of the impact on medical payments per claim in Illinois could be attributed to lower prices resulting from the decrease in the fee schedule rates.11 As documented by WCRI, higher-than-typical medical payments per claim in Illinois reflected higher prices paid for professional services (except for evaluation and management services) and higher utilization, largely driven by physical medicine. After the reduction in the fee schedule rates, the average hospital payment per claim (both for inpatient and outpatient care) in Illinois was in the middle group of study states.
Between 2013 and 2014 (claims with an average maturity of 12 months), medical payments per claim in Illinois increased 2.0 percent. One component of medical payments, prices paid for professional services, decreased slightly (1.7 percent) in 2014. Medical cost containment expenses are an important metric for showing whether the 2011 reforms in Illinois resulted in changes in the ways payers control growth in medical payments. Medical cost containment expenses per claim reflect the combined impact of fees for bill review, case management, utilization review, and preferred provider networks. After 2011, the growth in medical cost containment expenses per claim in Illinois continued (except in 2014). Such growth is not unusual because the reduction in the fee schedule rates may require more frequent use of bill review. It is also reasonable to expect, in light of the new utilization review rules, that companies would spend more on utilization review to determine the reasonableness and necessity of medical treatment. Under the new rules, when utilization review is invoked, the provider is required to provide a clinical report to support the request for treatment. The utilization review has to be based upon recognized treatment guidelines and evidence-based medicine.
If you want to purchase this important research for your organization, please go to this site: http://www.wcrinet.org/
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Synopsis: Wisco Court of Appeals: WC/EL Insurer has no duty to defend employee accused of sexual assault. Analysis by Matthew Ignoffo, J.D., M.S.C.C.
Editor’s Comment: The facts in Rhyner v. Rydberg involve Plaintiff Rhyner alleging Defendant Rydberg committed battery and intentional infliction of emotional distress when he manhandled her at work. Court of Appeals of Wisconsin, No. 2015AP2010 (May 25, 2016). Rhyner and Rydberg both worked at Veterinary Medical Services Corp. (VMS). Rydberg sought coverage for Rhyner's claims with VMS's worker's compensation and employer's liability carrier, General Casualty Company of Wisconsin. General Casualty intervened in the action and sought a determination that General Casualty had no initial duty to defend, no ongoing duty to defend, and no duty to indemnify Rydberg. The Circuit Court agreed and dismissed General Casualty from the case. Rydberg appealed.
The Court of Appeals indicated to determine whether there is a duty to defend it first must consider whether the policy granted coverage.
Regarding the WC policy, the Court noted the general rule of worker's compensation law is if an employee has suffered a job related injury then the right to recover worker's compensation benefits "shall be the exclusive remedy against the employer, any other employee of the same employer and the worker's compensation insurance carrier." An exception to the exclusive remedy provision is an employee injured by another employee by "an assault intended to cause bodily harm" is not limited to a worker's compensation remedy. Plaintiff Rhyner brings her allegations of battery and intentional infliction of emotional distress against Defendant Rydberg under the assault exception and was not seeking WC benefits.
Defendant Rydberg’s argument for why he should be covered under the WC policy was because Plaintiff could recover WC benefits based on her allegations if the claim were brought as a WC claim, then General Casualty’s WC policy should provide his defense. The Court disagreed noting Rhyner was not seeking a WC claim. General Casualty's WC policy did not cover individual employees, it provided worker's compensation coverage to VMS for worker's compensation claims. Rydberg was not the insured under General Casualty's WC policy. General Casualty's policy language states that it has "the right and duty to defend at our expense any claim, proceeding or suit against [VMS] for benefits payable by this insurance," and the benefits payable by this insurance are only "benefits required of [VMS] by the workers compensation law." As it was clear that General Casualty's WC policy was "not intended to cover the claim asserted, the analysis ends [here]."
Regarding the EL policy, Rydberg argues in the alternative that General Casualty owed a duty to defend Rydberg under the EL policy, which provides coverage for "bodily injury by accident" arising "out of and in the course of the injured employee's employment." Again the Court noted Plaintiff was not suing VMS and Defendant had no coverage under the EL policy as Defendant was not an “insured” under the policy. Plaintiff’s claim was an intentional tort action against Defendant, personally. As Defendant was not a named insured and as there is "no duty to defend a claim, proceeding or suit that is not covered by this insurance," the EL policy did not provide a duty to defend.
We note Defendant Rydberg is the owner of VMS and it appears he attempted to secure coverage for the intentional tort claim brought against him personally, under the policies of his corporation. It is clear General Casualty had no interest in doing so under its policies and the Courts agreed. Although this is a Wisconsin case we feel under similar facts and policy language the result would be similar in alternative venues.
This article written by one of our top Wisconsin defense team members, Matthew Ignoffo, J.D., M.S.C.C. Please feel free to contact Matt at mignoffo@keefe-law.com.