Taking Back the Reins in Workers’ Compensation: The Role of Self Insurance and High Deductible Coverage
When it comes to workers’ compensation claims:
If you’ve had a claim where it felt like you lost control,
If you’ve wished for more input in decision making,
If you’ve been blindsided by an untimely substantial payment in one or more claims,
If you’ve been frustrated with the time it’s taking to return injured employees to work,
If you’re concerned about how your claim history impacts your “MOD,”
If these statements are checking a lot of boxes, then self-insurance or a high deductible policy may be worth a closer look.
Illinois law requires employers to provide workers’ compensation insurance for almost everyone who is hired, injured, or whose employment is localized in Illinois. However, Employers may obtain permission to insure themselves for their workers’ compensation liabilities. Private employers may insure themselves individually or join a pool with other employers.
Self-insurance is a system that allows a company to administer its own workers’ compensation claims and pay them with its own funds rather than rely upon an insurance policy (excluding excess coverage). High deductible plans operate much the same way since the intent is most, if not all, of anticipated claims will not meet the deductible.
On a macro level managing workers’ compensation claims for a majority of employers can be a balancing act between cost, risk and benefits (no pun intended).
Unless you have high-deductible workers’ compensation coverage or are one of the approved entities who self-insure, your organization has opted for some level of “full coverage.” That insurance policy replaces a lot of the control on a claim-by-claim basis with convenience of the carrier making payments and decisions on your behalf. That arrangement also places the imposition of costs outside your company, whether it be individual claim payments or your annual premiums to maintain the coverage required by law. Case-specific strategy outcomes largely fall within the carrier’s discretion, along with the direction when early mitigation opportunities arise. The carrier’s judgment when making payments impacts a company’s risk, which is assessed by the recent “loss experience,” or the level of payments made over time. In 2016 the vaunted Oregon study found Illinois employers paid an average of $2.23 for workers’ compensation insurance for every $100.00 of its payroll.
To self-insure in Illinois requires application and approval by the Illinois Workers’ Compensation Commission. Getting approval carries a $500.00 annual fee, providing security (the sum is determined by financial strength and loss experience), payment of some smaller selected assessments, and securing excess coverage. The employer needs to also demonstrate 1) its safety program, 2) the ability to promptly pay benefits to injured workers, and 3) that it can effectively administer its claims.
Self-insured employers choose the manner claims are administered. Roughly 12% of them self-administer, with the rest electing to retain one of many fine available third-party administrators (TPAs). This arrangement empowers employers by inserting them to the extent desired into every step of the decision-making process for all submitted claims.
Additional advantages to self-insurance include the ability to promptly pay injured workers, to ensure timely and prompt care, improved cash flow as claims are paid as they occur, streamlining claims administration with return to work programs, and choice of legal representation to minimize exposure more effectively, among others. Most importantly, the employer’s involvement in the claims process can ultimately result in lower overall workers’ compensation costs.
In Illinois the 194 self-insured entities are 70% private (30% public) and employ as many as 35,000 people. Manufacturing (30%), healthcare (23%), and retail (8%) comprise the more common industries.
If you are interested in learning more about self-insurance for workers’ compensation in Illinois, I invite you to contact me, the Illinois Workers’ Compensation Commission, or the Illinois Self-Insurers Association.