Workmen's compensation: Recent changes in law mean higher insurance costs for employers

When a worker is disabled or dies of a work-related illness, the law often makes the employer or his insurance carrier liable. Illinois was considered laggard in this field until 1975 when General Assembly increased benefits and broadened coverage under W.C. and O.D. laws. The Industrial Commission refers claims to arbitrators and hears appeals. Cases may also go to court

WHEN a worker is disabled in Illinois or dies of work-related causes, who pays the benefits and how much are they? Answering these questions has never been easy, but it is especially complicated now. Last year the General Assembly substantially increased these benefits and broadened coverage to include diseases and disabilities caused or aggravated by working conditions.

There are Workmen's Compensation (W.C.) and Occupational Disease (O.D.) laws in each of the 50 states, and Illinois had been considered behind in its programs until 1975 when the General Assembly amended the laws (P.A. 79-79 and P.A. 79-78) to liberalize benefits and increase coverage. These benefits are not paid from state revenues but by employers, usually through insurance. Employer groups throughout the state are criticizing the W.C. and O.D. changes because their insurance rates have increased by as much as 50 per cent. In some high-risk categories, insurance is not even available to Illinois employers. Since public employers, such as city governments, municipal hospitals or airport authorities, are also liable for paying benefits to disabled employees, they will face the same higher costs for workmen's compensation insurance as private employers.

Organizations such as the Illinois Chamber of Commerce have alleged that the increased benefits — paid directly by employers or their insurance companies — will ultimately cost the public a great deal. Illinois companies, they claim, will be encouraged to leave Illinois because of the steeper insurance rates the new schedule of benefits will require. Approximately 275 insurance companies who write workmen's compensation claims in the state are proposing a 24.3 per cent rate increase. They will present their testimony to the Department of Insurance at a special hearing on June 1 at 10 a.m. in the Illinois Building at the State Fair Grounds in Springfield. Such an increase is subject to the department's approval.

The Illinois Industrial Commission, which administers the W.C. and O.D. laws, receiving claims and arbitrating disputes between employee claimants and their employers, is one of the state's most obscure official entities. Part of the reason why the commission's function is not well understood by the public is that all of its budget ($2,612,000 this year) goes toward administrative costs- It is worth repeating that the commission pays no benefits itself but determines, in effect, whether a worker has a legitimate claim and what size and type of benefit should be paid by the employer or his insurance company.

Private sector pays benefits
Unlike most social benefit programs, the costs of W.C. and O.D. programs have always been borne by the private sector. Workmen's Compensation benefits were one of the earliest forms of social insurance legislation enacted in this country. As early as 1908 the federal government passed such a law for its civilian employees. By 1920 all but six states had enacted W.C. legislation, and at present each state and Puerto Rico have their own laws. Unlike most other types of social insurance programs, state W.C. and O.D. programs operate independently of federal legislation and control.

Before the passage of W.C. laws, an employee injured on the job usually had to file suit in court against his employer and prove negligence to recover damages. The employer could defend himself against the negligence charge by proving that the injury was a normal risk of the work, that a fellow worker was responsible for the injury, or that

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The usual attorney's fee is 20 per cent. Several lawyers in this practice are said to earn more than $200,000 per year

the injured worker was responsible because of his own negligence. Even after the first laws were passed, it continued to be considered an adversary proceeding in most jurisdictions, and the burden of proof was on the injured party. Employers could contest the claim by trying to establish that the injury was not really work-related, that it was not really disabling, or that the degree of disability was not as severe as alleged. Although it has become increasingly easy for workers to receive compensation, W.C. and O.D. laws still have their roots in this adversary proceeding, and it is usually necessary for workers to be represented by an attorney in claim proceedings. It is unheard of for employers or insurance companies to show up without legal counsel.

Provisions for insurance
In Illinois an employer may either contract for private insurance coverage or file proof with the Industrial Commission that he can pay any benefits called for under the law and thus be "self-insured." This insurance pays for the periodic cash payments, lump-sum payments, medical services as well as death and funeral benefits provided for by law. These are defined by statute as total, permanent partial, permanent total, specific loss benefits and death compensation.

Temporary total payments are paid when there is a total inability to work for a temporary period of time. State law provides for a three-day waiting period before benefits begin. Prior to the effective date of the amended law (July 1, 1975), the maximum weekly benefit rate was $ 124.30 for a worker with four or more children, for a maximum of 64 weeks. Compared to the benefits paid by other states, this was a relatively low rate. Under the new law this benefit must equal 66 2/3 percent of the injured worker's weekly wage, unless it exceeds $410 — in which case 50 per cent of the weekly wage (no limit) is paid during the entire period the person is "temporarily" disabled.

Compensation payments to the survivors of a worker who died in a work-related accident came to a maximum of $34,000 under the old law. Under the 1975 legislation, survivor benefits are 66 2/3 per cent of the employee's weekly wage, or 50 per cent if the wage exceeds $410. These payments can continue for the life of the spouse, or go to children who are students until age 25. The new law also extended coverage to almost every employee in Illinois. The major exceptions are some domestic and part-time farm labor.

Although there is no statutory maximum for temporary total payments, there is a minimum of $102.50 per week except for individuals who earn less than that. For them, the minimum is their average weekly wage. Injured employees underage 16 who are illegally employed at the time of the accident receive an additional 50 per cent. A widow receiving compensation who remarries receives a lump sum payment equal to two years of benefits and relinquishes further rights to compensation. Under certain circumstances the law provides for payments to dependent parents, grandparents, grandchildren or other heirs dependent upon the injured worker.

Payments liberal and specific
Compensation for permanent disability and specific losses has also been liberalized under the 1975 amendments. The law contains a schedule for a specific loss payment, that is for loss of, or loss of use of a limb. This section of the law — rather gory reading — calls for 235 weeks of compensation if an arm is amputated below the elbow; if amputated above the elbow the worker gets an additional 15 weeks of compensation; but if it is amputated so close to the shoulder joint that an artificial limb cannot be used, the worker receives an additional 65 weeks. Loss of both hands, both arms, both feet, both legs or both eyes is considered total permanent disability.

There are further complexities. If a worker previously lost one arm in an industrial accident and was compensated for that loss and then later loses another limb in another industrial accident, there is a legal question of who is liable for the permanent disability payments. In this situation the law provides for a second injury fund into which certain employers and certain insurance companies pay a set amount or a certain per cent of an award. From this second injury fund, which is administered by the Industrial Commission, injured workers receive the difference between the current employer's liability and what the law prescribes he should receive. The 1975 law has also had an effect on this second injury fund; it now provides for additional situations in which payments are made to this fund. Beginning in July 1977 payments will be made from the second injury fund to individuals who have been awarded compensation since 1965 as a kind of cost-of-living adjustment. Those still receiving payments on the effective date will receive two checks, one from the state (from the second injury fund) and one from their employer or insurance company.

The 1975 law also liberalizes the medical and rehabilitation benefits payable to an injured worker and now provides that all necessary medical, surgical and hospital services, as well as necessary physical, mental and vocational rehabilitation costs are to be paid by the employer. Critics allege that this and the other changes may have far-reaching implications.

One change that has received much criticism is the new provision for payments to employees who have work-related illnesses. Previously, diseases "to which the general public is exposed outside of the employment" were not subject to compensation. The law previously mentioned silicosis, asbestiosis and radiation disease as occupational diseases, but O.D. claims represented only a very small percentage of the claims filed.

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The new law now states that the term occupational disease means "a disease arising out of and in the course of the employment or which has become aggravated and rendered disabling as a result of the exposure of the employment." Critics allege that this provision opens a Pandora's box, a box filled with employers' money. They point out an individual could work against his doctor's advice, aggravate an existing medical condition, and then collect benefits. If this section is not amended, the commission and the courts will undoubtedly be involved in determining the extent of employer liability in O.D. claims of this type.

Because of the changes made by the 1975 amendments, insurance carriers in Illinois have received permission to increase premium rates by as much as 50 per cent, and some small insurance carriers have withdrawn from offering W.C. insurance in Illinois. The Illinois State Chamber of Commerce issued a news release on February 26, 1976, asking for immediate legislation to correct the "detrimental" effects of last year's amendments. The chamber alleges that the program is headed toward total disaster.

Problems with high-risk
Some employers have been unable to buy insurance protection if they have employees in high-risk categories. The law provides that employers who are refused coverage by three different companies may apply to an assigned risk pool, operated by the Illinois Industrial Commission. Applications for coverage through the assigned risk pool are being received at a record rate, and delays in processing have left employers in a precarious position. In Illinois all but about 800 employers buy insurance coverage from private insurance carriers. The 800 that do not are self-insured, that is, they have established that they can cover their liabilities without carrying insurance.

Employees with W.C. or O.D. claims should notify their employer and also file a claim with the Industrial Commission as soon as possible. If the employee cannot agree with the employer or the insurance company on payments, then the case will be assigned by the commission to an arbitrator. The cases are assigned at random to one of 20 arbitrators— most of them lawyers— hired by the commission. Cases that are appealed beyond the arbitrator's decision go to the commission itself for settlement. Three or more members convene and hear oral arguments.

Since the commission has traditionally been a small agency, concentrating on arbitrating decisions, the compilation of data and the exercising of policing functions have been limited. The commission's office in Chicago is its only office. The commission is only now developing a computer system for complete record keeping. Although it is required that all injuries be reported (40,000 estimated in Illinois last year), the commission estimates that perhaps only 10 per cent of the total were reported.

At present, the commission has no way of knowing if W.C. and O.D. notices are posted by all employers, or if all employers have submitted evidence to the commission that they are insured or self-insured in accordance with the law. There are no records of who has received benefits, for what reason, or in what amount. When the commission pays out the "cost of living" payments from the second injury fund in July of 1977, it will have to rely on insurance companies to tell the commission who should receive the payments.

Industrial Commission Chairman: Melvin L. Rosenbloom (resigned in March 1976 but he continues to serve until successor appointed) Democrat/ representing management: Claude E. Whitaker Republican/ representing management: Leroy E. Duncan Democrat/ representing employees: Ted Black, Jr. Republican/ representing employees: vacancy Administrative secretary: Elsie Kurach Commissioners are appointed by the governor with the consent of the Senate to serve overlapping four-year terms expiring on the third Monday in January of odd numbered years. Except for the chairman, the law provides they are to be equally divided between representatives of management (employers) and employees and between the two major political parties; the chairman need not be affiliated with either political party, and he is not to be identified with either employees or employers. The statutes set the chairman's salary at $32,000 and the commissioners at $30,000 each. The secretary and other officers are appointed by the commission; the secretary and arbitrators are paid $25,000 each. The commission has more than 125 employees. Its appropriation for fiscal year 1976 is$2,612,099 (Public Act 79-621).

Attorneys and arbitrators
Of the cases that come before an arbitrator for a hearing, almost 95 per cent have an attorney representing the claimant. An attorney may be awarded a fee of not more than 20 per cent of the settlement for representing an individual before the commission. The fee may be set at less than this amount for less complex cases, if the commission so rules. There are about 120 attorneys in the state who specialize in this practice, and the commission estimates that several earn over $200,000 per year in fees. Most of those who specialize in this field are located in Chicago, and downstate attorneys often refer clients to them.

The majority of the cases filed with the commission do not require arbitration, but about 10,000-15,000 decisions each year are awarded by arbitrators. Thirteen of the arbitrators work exclusively in Chicago and seven work downstate. If either party in a case is not satisfied with the arbitrator's decision, a review may be requested from the commission itself. About 3,000 cases each year go to the commission for determinations. In claims where the State of Illinois is the employer, the decision of the commission is final. In other cases, decisions may be appealed to the courts.

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'If these increased benefits were tied to a tax increase, it is doubtful the bill would have reached the governor'

The commission has little in the way of policing power, and if a worker finds that his or her employer has not contracted for insurance coverage and is not self-insured, the only recourse is to go to court and try to collect against the employer's assets.

In 1972 the presidentially appointed National Commission on State Workmen's Compensation Laws issued a report stating that the state programs were neither adequate nor equitable. The report offered several guidelines for revamping the programs and commented on the lack of information available from most states. Less than one-third of the states collected any data on the number of workers covered; less than one-half published any data about the amounts of benefits paid — by type of insurance or by type of benefits; and almost none had data on the number of persons currently receiving benefits. The report recommended a uniform information system among states. It also recommended compulsory coverage for all occupational groups, even by employers with only one employee. Regarding benefits, the report recommended a flexible maximum that would adjust to changes in the statewide average wage (adopted by Illinois in 1975). The initial maximum figure suggested by the national commission was equal to 100 per cent of the average statewide wage by 1975 (Illinois exceeded this figure with the 1975 amendments.).

In 1974 a white paper on workers' compensation entitled "A Report on the Need for Reform of State Workers' Compensation" was issued jointly by the U.S. Departments of Labor; Commerce; Health, Education and Welfare; and Housing and Urban Development. Also that year the President established an Interdepartmental Workers' Compensation Task Force. The 1975 Illinois amendments generally brought the state's W.C. and O.D. laws within the guidelines of these federal reports even though the guidelines did not have the force of law. The Illinois State Chamber of Commerce has pointed out that the Illinois legislation went far beyond the federal guidelines.

National estimates indicate that from 1962 to 1972 the dollar cost of the W.C. programs almost tripled and represented expenses equal to 1.12 per cent of covered payroll in 1972. By 1974 it was estimated that W.C. payments increased nationally by 12 per cent over the prior year and that total national payments were $5.7 billion, including $956 million in 1974 for black lung benefits which are federally administered and not part of the state programs. In June 1975 it was estimated that 29,346 individuals in Illinois were receiving federal black lung benefits for a total monthly benefit payment of $4,725,000.

In all but three states the statutory maximum weekly benefit for Workmen's Compensation increased in 1974. In that same year the 10 largest states paid 61 per cent of the total benefits paid in the country. The average cost to employers nationwide was estimated to be $1.24 per $100 of payroll in 1974. Actually, employers spent $7,780 million in 1974 to insure or self-insure their work-injury risks. This estimate was for $5,600 million in premiums paid to private insurance companies, $1,440 million in premiums paid to state insurance funds and-about$740 million as the cost of self-insurance. With benefits rising faster than costs, the loss ratio (benefits as a per cent of premiums) for all types of insurance rose from 59.8 per cent to 60.6 per cent in 1974.

Finally, the consumer pays for everything, and these costs will ultimately be borne by each of us. But the 1975 Illinois amendments did not increase state spending directly and were easily ad opted. If these increased benefits were tied to a tax increase, it is extremely doubtful that the bill would have reached the governor's desk. If it did, the governor certainly would have vetoed it.

News stories have recently publicized cases where a widow could receive as much as $40,000 per year (tax free) for life. To many, this seems an excessive benefit for someone who was killed at work, especially when an individual disabled in an on work-related injury could expect to receive much more modest benefits from Social Security or public aid. In 1965 the Social Security amendments contained a provision which stated that if an individual received both W.C. and Social Security disability benefits, the total from the two sources could not exceed 80 per cent of his average wage before he became disabled. The theory was that an individual might not be interested in being rehabilitated if he had more income when he was disabled than when he was working. Except for the fact that this provision is still a part of the federal Social Security law, the theory seems to have disappeared, at least in Illinois.

6 / June 1976 / Illinois Issues