New Independent Contractor Act in Illinois

December 10, 2007--the New Year is almost upon us, and while much attention in Springfield is upon the continuing Civil War between the governor and legislature, some important new legislation is already set to take effect on January 1, 2008.  For example, the Illinois Employee Classification Act becomes effective then, and it will have significant impact on how many construction (and construction-related companies) do business.

The Act tightens up considerably on the use of "independent contractors" in Illinois, at least for anyone in construction related work (including trucking.)  Essentially, unless the "independent contractor" is really and truly an independent business, the law will consider such workers as employees.  The "default setting" of the Act is that a worker is considered an employee unless the employer can satisfactorily demonstrate that the worker meets the stringent tests set out in the Act.

You can take a look at the full text of the ACT here. 

This new law looks likely to create some serious headaches for companies in Illinois that use "independent contractors" that aren't really and truly operating their own independent businesses.

War of the Words

July 5, 2007--Illinois politics may rarely be noble, but it is often a case study in the political process at its most elemental (think Lord of the Flies).  At the moment, House Speaker Madigan has written  an open letter to Governor Blagojevich, announcing that the Illinois House is meeting as a Committee as a Whole to try to resolve the current budget crisis, and asking (taunting?) the governor to stay in town until things are worked out. 

The governor has rejected the invitation, not surprisingly.

And so it goes in Springfield, with political egos strutting and maneuvering while the vital issues of the day get auctioned off like old laptops on Ebay.

At least the governor's ill-conceived Gross Receipts Tax looks to be thoroughly and irretrievably D.O.A.  But there is still a budget to balance, and scores to settle, and campaign contributions to be redeemed, so God only knows what will ultimately be decided by our august legislators and the governor (once they get done trying to knife each other, metaphorically.)

At the moment, Illinois government looks pretty dysfunctional.  These people need to learn to work together and get the people's business done, without all the bickering and posturing. 

How to Lose Friends and Alienate People...

June 7, 2007---That might be the title for a book about Governor Blagojevich's efforts to pass his Gross Receipts Tax in the Illinois General Assembly.  Even his own running mate, Lt. Governor Patrick Quinn, opposes the tax.  In the latest development, the Illinois House has voted 107-0 against the proposal, in a non-binding resolution.

In his efforts to try to strong-arm legislators, the Governor has only managed to bring his opponents together, and to bring many members of his own party into a state of revolt against his tactics.

Although some kind of loophole closing reforms may well come out of the legislature (perhaps an Alternative Minimum Tax on Illinois corporations) it now seems clear that the Gross Receipts Tax will not.  But Governor Blagojevich has revealed much about his personal and political character in this effort, and the revelations have not been flattering. 

The Governor Looks Increasingly Isolated

May 9, 2007--...in his attempt to get the Gross Receipts Tax passed, at least in any version that's even close to what he wanted.  His key ally in the Illinois Senate, President Emil Jones, is straining to keep the measure from being watered down in the Senate, while House Speaker Mike Madigan is clearly not inclined to help the governor at all.

The governor has managed to unite Illinois business groups in opposition to the proposal, though, revitalizing these groups a bit in the process.  Heck, even the Lt. Governor opposes this new tax (something that surely has endeared him to Governor Blagojevich.)

At the moment, it doesn't look too likely that the governor will get his new tax, in spite of his impassioned campaigning for it (and his vilifying of his opposition.)  This governor doesn't appear to be so good at compromising, but he may well soon get a crash course on the subject, thanks to his over-reaching on the GRT.

There may be a compelling case to be made that some Illinois businesses aren't paying their fair share.  But a more reasonable solution would appear to be to close the loopholes that allow that to happen--one interesting proposal is to create a corporate Alternative Minimum Tax--rather than resorting to the GRT.

Up Next--The Battle of Springfield

March 3, 2007--It's about to begin.  Governor Blagojevich is about to announce his plan to provide health insurance for all citizens of Illinois.  He reportedly won't immediately announce how he plans to pay for it, but that shoe is widely expected to drop shortly afterward.  And that 'shoe' is expected to be a tax on gross receipts for businesses in Illinois, a tax that would raise some $6 billion for the state's coffers.

Illinois business groups are convinced this is Blagojevich's plan, and have been very publicly gearing up for battle.  Such a gross receipts tax would replace the current Illinois corporate income tax, and levy taxes on a far broader base.  (Including, at least potentially, this writer's business.)  At the moment, since the governor has not actually announced officially any such taxing initiative, no one really knows what the details of his plan will be.  Some reports say it would exempt the first million dollars of a company's receipts, effectively sparing small firms like mine, but casting a very wide net over all businesses larger than that.

If a gross receipts tax is announced, expect a true battle royal in Springfield, as a variety of interests form alliances and have at it.  While health care reform is a good and noble cause, and one arguably overdue, this may not be the way to solve the problem.  Certainly it should not be expected that businesses will meekly agree to have a large new tax imposed on them while at the same time we read about drivers--DRIVERS--of various state bureaucrats being paid $84,000 a year (and having those bureaucrats lie about the duties of those drivers to sneak through such ridiculous salaries.)

It does not appear that this administration has truly brought wasteful government spending under control.  And this gross receipts tax could genuinely put Illinois business at a disadvantage with those in other nearby states.  That, in turn, could cost jobs for people in Illinois who have to actually work for a living.

Governor Says Poor People Don't Have Zip Codes

January 25, 2007--Really.  Illinois Governor Rod Blagojevich has directed the Illinois Department of Financial and Professional Regulation to issue a "designation" that, for the purposes of the Pilot Program to fight predatory lending, there are no zip codes.  Since the program required the department to implement the program by zip codes, the governor has thus managed to kill this program via a weird and Clintonesque use of language.  Apparently the governor is so eager to mess with Mike Madigan (sponsor of the program) that he is willing to go to these lengths to help so-called "predatory lenders." 

To take a look at the "designation" itself, take a look here.  It's a classic worthy of Franz Kafka.  Makes one wonder how much "predatory lenders" gave the Blagojevich re-election campaign.  It also makes one hope that the Federal prosecutors who are surely closing in on this governor would hurry up and get this over with.  Lt. Governor Pat Quinn is an honest man, and it would be nice to get him in the governor's mansion.  Quinn would probably even be willing to live there.

Balance Billing Not Yet Banished from Illinois WC

January 22, 2007--The last batch of reforms in the Illinois Workers' Compensation were supposed to finally eliminate "Balance Billing" by health care providers.  Balance billing is where the health care provider goes after the injured worker for charges not paid by the Workers' Comp insurance company (or self-insurer).  It's horribly unfair to an injured worker to have the doctor or hospital dun you and even initiate legal action, when Workers' Compensation is supposed to take care of the cost of workplace injuries without cost to the worker, and the most recent reforms to the Workers' Comp system in Illinois were supposed to finally drive a stake through the heart of this practice.  But health care providers are still dunning workers, still referring their accounts to collection agencies and lawyers.

It's connected to the ongoing and unresolved disputes over the medical fee schedule that was also a part of the last part of Workers' Comp reform here.  Employers thought they had finally obtained a medical fee schedule that would limit (to a certain extent) medical costs under Illinois Workers' Comp, in exchange for increasing certain other benefits under the system.  But the actual implementation of the fee schedule is being wrangled over by the various entrenched interests, and at the moment insurance companies are trying to pay health care providers what the insurers think is due under the fee schedule, but providers are still balance billing for the difference that they think is owed them.  And in the process, the injured worker gets the short end of the stick.

In the past, the Illinois Division of Insurance has offered some help to workers stuck in this Catch-22.  The Division has taken the position that insurance companies must either pay the bill in full or defend the worker from the legal collection efforts of the medical provider.  They had thought that there would no longer be a need for this policy, given the new provisions approved by the legislature, but that is clearly not the case.  So injured workers who are being subjected to collection efforts by medical providers over Workers' Compensation injuries should contact the Illinois Division of Insurance to discuss how the Division might be of assistance.

Will the Last Person At The Illinois Division of Insurance Please Turn Out The Lights

August 2, 2006--The ongoing decimation of experienced personnel at the Illinois Division of Insurance is likely to get worse by years end.  Informed sources at the regulatory agency tell AIM that many of the (few) remaining experienced people there plan to leave at the end of 2006.  The hiring freeze laid on by Governor Blagojevich (and the freezing of supervisor pay for the past several years) has hollowed out the Illinois Division of Insurance in recent years, making it difficult for the agency to perform its duties as the watchdog over the insurance industry.  These problems don't just affect the division of insurance, of course--the same problems are being inflicted on state agencies generally--but the impact on the division of insurance will create problems for all consumers of insurance, both personal and commercial.

The dismantling of the Division of Insurance can't even be justified on the grounds of reducing government costs, because the budget for the DOI is paid by the insurance industry, not taxpayers.  Back when the DOI was fully staffed, they had a budget of $13 million.  Currently, their budget is around $2 million.  Things are so bad that even the insurance industry has indicated to the administration that they are willing to pay more for the DOI, if only to speed up the approval of policy forms and endorsements.  But no change appears imminent.  At the moment, the governor plans to outsource one function of the DOI--market conduct examinations of insurance companies.  Given that the governor's decisions have reduced the DOI's market conduct staff down to one person (from a staff of more than a dozen people in the past) outsourcing may appear necessary, but it makes one wonder what kind of campaign contributions are being made by those private companies hoping to obtain the contract for market conduct exams?

Insurance regulation has not been as effective as it might be for a long time--but the actions of the Blagojevich administration have thrown gasoline on a long-simmering problem.  If there is a strategic plan behind the governor's actions, it's not one that's discernible to this observer.  The reasons for many of this governor's decisions may not become known to the public for some time after the administration's tenure.  Right now, there are a lot of people at the Division of Insurance who hope that tenure is shorter rather than longer.

Illinois Files Suite Against Liberty Mutual

July 7, 2006--Illinois Attorney General Lisa Madigan has filed a civil suit in Cook County against Liberty Mutual Insurance, charging that the insurer engaged in illegal bid-rigging and steering of business.  In this action, Illinois follows the lead of New York Attorney General Elliot Spitzer.  Liberty is currently fighting similar charges brought by Spitzer in New York (rather than settling the matter by paying substantial fines, as other insurers did.)

The specifics of the charges should be familiar to those who have been following this unfolding scandal in other jurisdictions.  AG Madigan charges that Liberty participated in bid-rigging with broker Marsh, providing deliberately-high quotes for some accounts (to make it look like Marsh was obtaining competitive quotes for clients) yet still steering the clients to the insurer that Marsh wanted to write the account.

The way these schemes worked, allegedly, is that on some accounts Liberty would be the "high" bidder, while on some other accounts Liberty would be the "low" bidder, and thus everyone involved would get their share of accounts.  The participating insurers would pay so-called "contingent commissions" to Marsh behind the scenes, commissions that were not disclosed to the policyholders. 

The harm in such a scheme is that the policyholders are not really getting the benefit of competitive bidding for their accounts, merely the illusion of competitive bidding.  In reality, the insurers in such a scheme get to set prices where they want them, and the "competitors" set their prices artificially high, to make the winning insurer's proposal appear to be favorably priced.  As long as each of the participating insurers get their turn to be the "low" bidder and write desirable accounts at prices that are not really driven down by genuine competition, such a scheme can be very attractive from the perspective of an insurer.  And by paying handsome contingent commissions to the broker for such business, the only party that loses is the policyholder, who ends up paying higher premiums because the insurance program has not truly been competitively shopped.

If the allegations are true, this was a shameful scam perpetuated by some of the biggest and best-known names in the insurance industry.  More than ever, this story appears to confirm some of the worst suspicions about the insurance industry, and damns not only the insurers and brokers who participated, but also the insurance regulators on whose watch these alleged crimes occurred.  After all, it has not been the insurance regulators in the various states who have uncovered these scams--it has been Attorneys General, who are not part of their states' insurance regulatory systems, who have been responsible for uncovering and prosecuting these activities.

June 15, 2006--Illinois is the latest state to have significant retroactive reductions made by NCCI in their published advisory rates and loss costs for Workers' Compensation Insurance.  Most insurance companies use this NCCI rate data for their own Workers' Compensation insurance rates in Illinois, so these NCCI revisions (retroactive back to 2003) will affect many employers throughout Illinois.  The Illinois rate revisions affect only certain classifications (around 50, although the specific classifications vary from year to year) so not all employers will be affected--this is not an across-the-board rate revision.  Even so, it will be a major project to make sure all affected employers receive the premium refunds required by these retroactive rate revisions.

May 25, 2006--Employers generally support the idea of stepped-up enforcement of laws against Workers' Compensation fraud with enthusiasm.  That's because employers focus on fraud by workers who claim to be injured when they're not, or who exaggerate the extent of their injury.  But increasingly, that's not the only kind of fraud being investigated and prosecuted.  More and more, it's employers who are facing charges of Workers' Compensation fraud, and it's a trend I expect to see growing.

Here in Illinois, part of the recent package of reform measures is the creation of a Workers' Compensation investigative unit within the Illinois Division of Insurance.  And that unit is going to be looking not just at fraud by workers, but also at fraud on the part of employers.  I'm informed that initially they may take a hard look at improper actions on the part of employers regarding experience modification factors.

Illinois is hardly the only state to be giving employers much closer examination, and sometimes criminal prosecution, in the area of fraudulent actions to reduce Workers' Compensation insurance premiums, or to avoid them altogether.  Ever day it seems I see another news item about some employer somewhere in the U.S. being charged with fraud in the area of Workers' Compensation insurance.  This is a relatively recent development--in the past, it was rare for an employer to face criminal charges over avoidance of Workers' Compensation insurance premiums.  Insurance companies would routinely file civil lawsuits seeking money from employers, but it was difficult to get prosecutors to pursue criminal charges, even when insurance companies were convinced deliberate fraud was involved.  That's changed in recent years.  And certainly there's a powerful benefit to society at large in prosecuting people who defraud the system.  Employers who deceitfully avoid purchasing Workers' Comp coverage gain an unfair advantage over their competitors, and endanger their workers.

The only problem I fear may develop is that prosecutors tend to rely heavily on the insurance industry in deciding what constitutes fraudulent behavior, and the insurance industry can sometimes exhibit a very selective perspective about what constitutes fraud and what might be mere honest error.  After all, the rules regarding computation of Workers' Compensation insurance are complicated enough that I find insurance companies themselves regularly breaking those rules and overcharging employers.  Yet some folks in the insurance industry are quick to condemn mistakes by employers that reduce premiums as necessarily indicating fraudulent intent, even while the insurance industry's own errors are charitably characterized as honest mistakes.

Having worked in the field of Workers' Compensation insurance for several decades now, I know that some employers can take a pretty rough and tumble attitude towards Workers' Compensation premiums, something like "all's fair in love and Work Comp audits." 

But employers need to be careful about being overly aggressive in trying to reduce their Workers' Comp insurance premiums, to make sure they don't open themselves up to charges of criminal behavior.  And it also means employers need to be more careful than ever in selecting an outside review firm to double-check Workers' Compensation premiums for overcharges.  Any improper actions taken by unethical or inexpert consultants could inadvertently expose an employer to charges of fraud.

A professional premium review consultant can save an employer thousands of dollars in Workers' Comp premiums--and an unprofessional one could cost an employer much more than money.

April 4, 2006--We have reported earlier on the dire situation at the Illinois Division of Insurance (formerly the Department of Insurance) and the consequences for Illinois policyholders.  Since then, we have received confidential reports from independent insurance agents and brokers that they, too, are seeing insurance companies deliberately and knowingly disregarding insurance regulations here in Illinois, confident that insurance regulators are so understaffed, budget-starved, and generally overwhelmed that insurance regulation here is effectively being crippled.

We here at AIM know first-hand that the good people at the Division of Insurance haven't given up, in spite of the way the Blagojevich administration has been working to starve them into submission, but it has also become clear that the Division is having a hard time handling complaints in a timely basis.  They just don't have the experienced people anymore to keep up with the workload, which is apparently just what the Governor and the insurance industry wanted.

And according to these reports we hear from agents and brokers, the insurance industry is becoming emboldened by this situation, so that they feel free to blatantly disregard the rules that govern such things as reporting data for experience modification factors, changing classification codes, and increasing premiums.  And the Division of Insurance informs us that they observe insurance companies increasingly inclined to try to ignore the insurance regulators when abuses are identified and complaints are filed.

The situation is serious--and ignored for the moment by the media, who typically have a difficult time focusing on the somewhat arcane subject of insurance regulation.  But if the insurance companies continue to get their way, every business in Illinois will suffer, as the rules and regulations that protect policyholders from overcharges fall into disuse.  As insurance company personnel start to learn that they don't have to worry about anyone slapping their hands anymore, the instances of overcharging for Workers' Comp and other kinds of insurance will snowball until overcharging becomes just "business as usual". 

December 16, 2005--There have been some apparently unrelated stories in the news lately that strike me as being unconnected dots--and when you connect them you start to see how bad things are in our state.  The other day, the Chicago Tribune ran a story about how crooks falsely assume the identity of legitimate real estate appraisers, as part of large-scale mortgage fraud that is becoming endemic.  And part of the problem, according to that story, is that the Department of Professional Regulation doesn't have the staff or budget to do its job anymore--among other things, they are supposed to regulate the profession of real estate appraisers, but their last full time person qualified to do that has retired.

Even more alarming, this dire picture is consistent with other reports I've gotten from my contacts at the Illinois Division of Insurance, which is now part of the Department of Professional Regulation.  My sources tell me that they too are being hobbled by manpower and budget reductions.  My contacts tell me that the oversight of banks that are state-chartered (rather than federally chartered) is similarly in a state of disarray, due to the same kind of manpower and budget reductions.

And at the same time I've been mulling over these reports, we've all been treated to the daily reports of the cynical thievery that was part of daily life under former Governor George Ryan, thanks to testimony at the trial of that gentleman that's ongoing in federal court.  The defendants, George Ryan and Larry Warner, have strongly argued that they did nothing illegal, that the unending payment of "lobbying fees" and "campaign contributions" that are now coming to light were just business as usual.

And that's what's wrong with these people.  They think they're entitled to rob us.

Worse, does anyone out there seriously doubt that our current state government is any less corrupt, any less full of lying thieves who are feeding off our tax payments as if they are some kind medieval princelings?  In spite of his ceaseless public pronouncements to the contrary, the smell of rank corruption seems to be wafting from the administration of current Governor Rod Blagojevich as strongly as ever it did from that of Mr. Ryan.  And our state legislature, I fear, doesn't even bother to make hypocritical pronouncements of civic high-mindedness, as so many of them are so hopelessly compromised as to make any honest citizen weep.

So we have the insane situation of our state being unable to perform important regulatory functions because they don't have the money to staff those agencies properly.  And at the same time, we hear daily tales of how the cost of government was being padded to take care of "lobbyists" who didn't lobby and "consultants" who didn't consult, and how our state government was turned into a criminal enterprise by elected officials and their cronies.

We have a lot of work ahead of us if we want to make sure that arrogant slugs like Scott Fawell aren't allowed anywhere near our tax dollars in the future.  We have a lot of work ahead of us if we want to insist that our state government do its job without wasting a third of its resources on sweetheart deals and phony consulting fees. 

We have a lot of work ahead of us.

December 2, 2005--The Illinois State Supreme Court has overturned a Madison County court decision, holding that the 1998 deregulation of business phone rates was constitutional.  Even though the deregulation was predicated on the idea that there would be competition for business phone service (and that has never really materialized) the Illinois Supreme Court has decided that it's not the business of the courts to second-guess the legislature, even when they make decisions that are considered unwise.  More details here. 

So there won't be any refunds of SBC (sorry--they're called AT&T again now) phone charges for businesses.  And there certainly doesn't appear to be much likelihood of serious competition for business phone service in Illinois.  So it should be a good day for stockholders of the new AT&T--bad news for everybody else doing business (at least by phone) in Illinois.

Blagojevich Administration Neutering Illinois Insurance Oversight

September 7, 2005--Reliable sources at the Illinois Division of Insurance (formerly the Department of Insurance, until the Blagojevich administration made the department a division of the Department of Professional Regulation) tell A.I.M. that the governor is hard at work to effectively eliminate the insurance regulator's consumer protection efforts by folding them into a consolidated consumer complaint operation covering all of the Department of Professional Regulation.  This will be disastrous for Illinois insurance consumers, including employers who purchase Workers' Compensation insurance and other commercial insurance.

The consumer complaints section of the Insurance Division has, in the past, been an effective advocate for policyholders who had been taken advantage of by their insurers.  Combining this function with consumer complaint staff who are not experienced with insurance matters will make sure that insurance companies can get away with abusing Illinois policyholders without any effective regulatory leash.

Already, the consumer complaint function at the Illinois Division of Insurance has been hobbled by budget and staff reductions imposed by Blagojevich.  "Our teeth are being pulled,"  said one senior administrator at the Division of Insurance, who wished to remain anonymous.  A consultant retained by the Blagojevich administration has already met with senior staff at the Division of Insurance, to coordinate this upcoming change.

The division of insurance is already demoralized by the budget and staff reductions by Blagojevich.  There has been a steady exodus of experienced regulators over the course of the past year, as Blagojevich diverts funds from insurance regulation (funds paid not by taxpayers but by assessments on the insurance industry) to other uses by his administration.  Now the insurance regulators of Illinois are going to be made utterly helpless to actually impose any restraint on insurance companies and brokers.  This at a time when scandal after scandal is being reported at major insurance companies and brokers.

As long time observers of the insurance industry in Illinois who have worked closely with insurance regulators in the past, we have to wonder what in the world this governor could be thinking.  If Blagojevich gets his way, insurance consumers in Illinois will lose their most effective protector and advocate.  If this is a reform administration, it makes one start to reassess the merits and weaknesses of the prior Ryan administration.  In spite of George Ryan's many, many failings, he never tried to leave insurance consumers defenseless with some sneaky behind-the-scenes maneuvering.  If, as some critics have alleged, the Blagojevich administration is essentially available for the highest bidder, it seems as if the insurance industry may be getting a bargain.  It must make Pat Quinn, our Lt. Governor and an old consumer-protection advocate, question his wisdom in joining forces with the Governor.