Illinois state legislators are running counter to a nationaltrend by proposing creation of a state workers' compensationinsurance fund that would compete with the private system.

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The development is generating deep angst amongst Illinoisinsurers and industry trade groups.

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The bill, H.B. 2919, cleared the Illinois State House'sCommittee on State Government Administration late Wednesday.

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According to Kevin Martin, executive director of the IllinoisInsurance Association, the legislation was prompted by worker- andplaintiff- lawyer concerns that reforms to the system enacted in2011 aimed at reducing the cost of workers' comp aren't workingfast enough.

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He said the bill has strong Democratic support in the House, andnoted that Democrats control both the state House and Senate.

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The legislature is in session until May 31, Martin said.

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Rep. Laura Fine, D, who is sponsoring the legislation, saidIllinois state legislators are aware they are running counter to anational trend by proposing creation of a state workers-compensation fund in the state. She said the issue has been along-running one in Illinois because it is a “big cost burden forcompanies,” whether they are large or small. “We know there is alot of workers compensation insurance capacity out there, but webelieve if we create this entity, it will serve to bring priceseven lower,” she said.

“I have looked at what other states have done,and acknowledge that we haven't completely defined this, but thereare ideas out there,” she said. Moreover, there have been storiesof successes with state funds in other states, and we hope to beone of those success stories,” Fine said.

The decision is counter to the current trend by the states toallow the private market to drive workers' compensationsystems.

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For example, New York is moving to increase premiums charged byits state fund to the level charged by private insurers.

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The Texas legislature is considering legislation that would endits last ties with Texas Mutual Insurance Co. TMIC, like the NewYork state fund, is the state's largest workers' compensationinsurer.

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And, the Oklahoma legislature is considering legislation thatwould privatize its nonprofit workers' compensation insurance fundand turn it into a private domestic mutual insurancecompany.

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According to data from the National Council on CompensationInsurance, Inc. cited by Martin, workers' comp premiums in Illinoishave dropped 9.2 percent since the reforms went into effect inSeptember 2001.

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That isn't fast enough for supporters of creating astate-insurance fund, which includes most Democrats in the statelegislature, he said.

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The reason costs haven't dropped are the usual — the long-tailnature of workers' comp claims plus increases in healthcare costs,Martin said.

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Martin and Deirdre Manna, vice president of industry, regulatoryand political affairs for the Property Casualty InsurersAssociation of America, say creating a state fund is not agood move.

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“Illinois public policy must encourage private enterprise andfree markets,” Manna says. “The best way to address escalatingcosts is to attack the cost drivers.”

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She adds there “is no credible evidence that creating a statefund will lower the cost of coverage, and there are other ways tolower costs that do work.”

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She notes that a state's relative workers' compensation costsare completely unrelated to the nature of the insurance mechanism,and proponents' attempts to sell legislators and employers on themerits of a state fund based on these assertions arewrong.

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“Moreover, self-insured employers have the same cost drivers inIllinois as private insurers,” Manna says.

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Martin says one concern is that the state is already deeply indebt and doesn't have the wherewithal to properly capitalize andstaff a fund that would compete with the private market.

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For example, he says that the proposed fund would beadministered by the state insurance department. But he notes adecision by the state to encourage long-term state employees toretire in 2008 resulted in the loss of many experienced people atthe department.

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“It is going to be difficult for the state insurance departmentto ramp up to administer a new department given that a number ofits most experienced people have decided to retire,” Martinsays.

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Updated with comments from Rep. Fine, the bill'ssponsor.