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OFFICE OF THE GOVERNOR 207 STATE HOUSE

SPRINGFIELD, ILLINOIS 62706

BRUCE RAUNER GOVERNOR

To: Members of the General Assembly From: Bruce Rauner, Governor Re: Turnaround Agenda HB 4248 & SB 2154 - Workers Compensation Reform Date: August 4, 2015

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I want to update you on the workers compensation portion of our Turnaround Agenda. I appreciate the legislatures openness to reforming our system beyond the initial small steps that were taken in 2011. We all know more progress needs to be made in order to compete for skilled manufacturing jobs with our neighboring states. The Workers Compensation Commission has decided thousands of cases utilizing the reforms put in place in 2011, but employers have still not seen a significant drop in costs. Since 2011, Illinois has only moved four spots in the workers' compensation cost rankings, from 3rd most expensive to 7th most expensive. Incremental change is not making us competitive. Our workers compensation costs are more than double Indiana and 30% higher than the average workers compensation costs in Missouri, Wisconsin, Iowa and Kentucky. Our proposed legislation would bring us more in line with the workers compensation programs of more competitive states.

Current law Workers compensation is a no-fault system. To recover on a workers compensation claim, the employee bears the burden of showing s/he has sustained accidental injuries arising out of and in the course of employment. Currently, if the employment is related at all to the injury, no matter how tangentially, the employees injury is compensable. If a work injury aggravates or accelerates a pre-existing condition even slightly, the employer is 100% liable for the workers compensation claim. Nearly 30 states have higher causation standards than Illinois. Proposed Changes Causation Standard The causation standard should be raised from an any cause standard to a major contributing cause standard. The accident at work should be at least 50 percent

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responsible for the injury compared to all other causes. A causation standard restores fairness to the workers compensation system. Right now, an employer must pay for an injured worker, even if the main reason for the injury stems from conditions that developed outside of work, such as running marathons. If work is the primary cause of an injury, the worker will receive the same level of benefits as are currently available now. To address work-related injuries that can develop during an entire career spanning multiple employers, repetitive or cumulative injuries would be compensable so long as more than 50 percent of a workers condition is attributable to employment-related causes (even if that employment included multiple employers). For example, a trade worker sustaining an injury after years of using a jack hammer on different work sites would be compensated so long as the employment - not necessarily the current employer - was the major contributing cause of the injury. In addition, we are proposing set-offs for those injuries classified as man as a whole. These injuries are most commonly back injuries. Allowing set-offs for these injuries is consistent with the set-offs allowed for most other injuries in the Act. Traveling Employee The Workers Compensation Act is currently silent on a definition of traveling employee. However, the Illinois Appellate Court has greatly expanded the scope of what constitutes a traveling employee for purposes of workers compensation. Our proposal seeks to codify the factors from the Supreme Court case Venture-Newberg v. IWCC with regard to what constitutes a traveling employee for purposes of workers compensation. The travel must be necessary for the performance of job duties and the employee must receive reimbursement for the travel. In addition, we are seeking to clarify that injuries sustained while traveling to or from work and injuries that occur while running a personal errand or on break are not compensable. AMA Guidelines Our proposal gives arbitrators discretion to use the AMA guidelines as a sole factor to determine PPD awards. It does not mandate the use of the AMA guidelines or any other factor.

Fee Schedule Even with the 2011 fee schedule reduction, workers compensation medical fees in Illinois are significantly higher than the median of other states. Surgery costs are the most egregious fee schedule abuses, with rates 300-400% above Medicare rates and 100%-200% above group health rates. In 2011, the legislature passed an across-the-board 30% reduction in the fee schedule, which resulted in workers having trouble accessing care for certain services. Rather than taking another across-the-board approach which has the potential to limit access to care for injured workers, we are proposing only cutting those areas of the fee schedule with

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costs significantly above Medicare rates, group health rates or rates in our neighboring states.

Our reforms ensure that workers who are injured on the job or sustain injuries because of their employment receive the benefits they deserve. Nonetheless, we have also addressed additional elements proposed by Senate Democrats:

Fixing Ambiguities of the AMA Guidelines

o Clarify that the Commission must consider the AMA impairment report if the report exists. This codifies the current practice that if the parties agree, an AMA report is not mandatory. AMA reports are expensive and not always necessary in smaller cases.

o This proposal is included in HB 4248 & SB 2154. We urge Senate Democrats to also

include our suggested changes to the use of the AMA Guidelines, which also gives

arbitrators discretion in utilizing the AMA Guidelines.

System Improvements

o Mandates that the Commission procure an updated IT system by January 1, 2017.

o This proposal is included in HB 4248 & SB 2154.

WEAR Commission

o Commission tasked with updating the Workers Compensation Code.

o This proposal is included in HB 4248 & SB 2154.

Move the Fraud Unit into the Commission

o Move the Workers Compensation Fraud Unit from the Department of Insurance to the

Workers Compensation Commission.

o This proposal is included in HB 4248 & SB 2154.

Ombudsman Program

o The Workers Compensation Commission has concerns about implementing the

ombudsman program as drafted by Senate Democrats. It will lead to ombudsmen performing lawyer functions for represented individuals and unrepresented individuals in conflict with attorney-client provisions.

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o Other states that have this program have a much smaller number of compensation cases and do not have as much attorney involvement in the system.

o Proposal in HB 4248 & SB 2154: Create an ombudsman program with a narrower scope. The ombudsmen will assist injured workers with using a newly created information portal on the IWCCs website to access case information, provide information regarding workers compensation fraud, assist injured workers with referrals to rehab and work placement program and respond to inquiries about the system.

Electronic Billing

o The Senate Democrats have proposed additional language regarding electronic billing including that the rules regarding electronic claims must have an enforcement mechanism, health care providers have at least 15 business days to comply with records requested by employers/insurers for the authorization of payment of workers compensation claims and that the health care provider is only responsible for providing records complying with HIPPA.

o Subjecting medical records to HIPPA is an attempt to limit the information an employer or insurer can gain about an injured worker. This would make it difficult for employers to evaluate claims. The Federal Government has specifically exempted workers compensation from HIPAA so it not necessary that Illinois subject these records to HIPAA.

o Proposal in HB 4248 & SB 2154: Keep the enforcement mechanism and 15 day reply requirement, but remove the HIPAA requirement. In addition, move the responsibility for promulgating these rules from the Department of Insurance to the Commission.

As you can see, we are willing to include and address a number of ideas outside our original proposal. That said, there are 2 potential ideas that we cannot support:

1. Increase Interest Rate on Appeals: Currently, interest is added to an award if the

employer loses on appeal. Some have proposed raising this interest rate, as it is tied to Treasury bonds, which are currently very low. An increased interest rate is an unbalanced disincentive to an employer who chooses to appeal an award without a similar mechanism for a petitioner.

2. Medical Dispute Resolution: Some have proposed allowing medical providers to add a $50 per day penalty for failure to pay a medical bill. The Act already provides a fine for non-payment of medical bills, 1% a month. Prompt payments to providers are important but an additional $50 a day is unnecessary in light of the current fine.

Providers currently have a remedy in civil court if they are not paid. Allowing medical providers to file claims at the Commission will result in increased litigation costs for employers. Additionally, allowing a third-party to file claims will also delay settlements to injured workers. The Commission estimates it will need an additional 20 more arbitrators to handle the amount of claims from providers. When California enacted a similar

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process in 2012, the system was flooded with so many filings from medical providers the system crashed.

As with our property tax freeze proposal, substantial common ground exists among the various workers compensation reform ideas that have been proposed. With a shared goal of making Illinois more competitive and more compassionate in mind, we should be able to come together to finalize an agreement on workers compensation reform as well as property tax-local control legislation in the near future. I look forward to receiving your feedback and continued thoughts on these important issues. As always please dont hesitate to reach out with additional ideas or suggestions. Sincerely, Bruce