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The state of Illinois earlier this summer went through that almost overwhelming class of political convulsion called "major workers' compensation reform." Business and labor will return in a few years with a verdict on whether it created a better, or even different, system.

Two features of that turmoil deserve more attention than the insurance media has given. Both signal that radical change is challenging the status quo.

So look at the nuclear option a little more dispassionately.

When I explored the Texas opt-out program recently, I was told that more employers would join if workers' compensation insurance became more expensive, which many say is not far off. At the time, I wrote that, from the employer's perspective, the opt-out system was attractive for its urgency, simplicity and savings.

Neighboring Oklahoma, engaged in its own system reform crisis, has advocates for opt-out. They have failed so far to obtain significant legislative support. In a time of Tea Part activism and conservative majorities in many state houses, I am puzzled why support for the concept has not spread rapidly to others states. That may be because workers' compensation is at best a secondary concern of most state legislators, a once-every-five-year séance.

But who knows what could happen if workers compensation rates rise tomorrow?

The other feature in Illinois is an easy-to-overlook provision that actually passed as part of the reforms. Two unions now have the right to create labor-management agreements that carve out designated workforces from the workers' compensation system. Its advocates are busy setting up a program to cover some 30,000 members of the international operating engineers union. Ironworkers may come along.

Illinois thus endorsed a strategy that has never really flourished after some 20 years of experience.

States such as Massachusetts, California and Wisconsin have already passed laws to authorize their creation. They authorized collective bargaining for a specified workforce to require alternative dispute resolution and use of a closed network of medical providers. In some states, benefits such as indemnity payments can be increased. Thus, the carve-outs only partially carve out.

Massachusetts was the first state to step forward, in the early 1990s while in the grip of a crisis of surging premiums. Bechtel, the construction firm, and unions created a carve-out for a large power-plant project. As a businessman, I was involved in delivering the managed-care part. It was one of the most positive, interesting episodes in my life in workers' compensation.

Unions like carve-outs because believe they lower workers' compensation costs, protecting their take-home incomes in two ways. These unions are mostly in the construction industry, and they see nonunion contractors taking work away from them due to lower bids. Secondly, the unions see how high workers compensation costs indirectly suppress wages.

Mark Poulos will be involved in launching the Illinois program for operating engineers. He is particularly keen to get lawyers out of work injuries, saying that lawyers tend to promote longer durations of disability with the aim of scoring higher settlements.

The dysfunctional dimension of the conventional workers' compensation system had a Kafka moment in June when a court in Maine awarded $140,000 to a worker for a non-lost-time injury because the claims-payer's efforts to submit the initial report electronically caused a one-day delay in filing.

Both the nuclear option and the carve-out are designed, implicitly, to isolate work injuries from these moments.

PETER ROUSMANIERE is an expert in workers' comp.

July 11, 2011

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