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The issue of higher minimum wages is being watched by workers comp experts in the wake of Fight for $15 protests seeking a $15 minimum wage across the U.S., and McDonald's USA L.L.C.'s April announcement that it would raise employee pay to $1 above the locally mandated minimum wage for its corporate stores as of July 1.
In addition, a series of workers compensation reforms proposed in Illinois could increase the state's minimum wage, which sources say could result in higher workers comp system costs for employers with large concentrations of hourly employees.
Some comp experts say pushes for increased pay could raise workers comp benefit amounts for a significant population of injured workers.
“If you're writing a lot of (workers comp) business with minimum wage earners, such as (in) retail, you're going to have a major concern if you're an underwriter,” said Joe Picone, Glen Allen, Virginia-based claim consulting practice leader at Willis North America Inc.'s risk control and claim advocacy practice.
Illinois Gov. Bruce Rauner promoted his Illinois Turnaround plan in a statewide tour in April. The plan, posted online, includes several ideas to reduce workers comp costs in the state, which was named the No. 7 costliest workers comp state in the “2014 Oregon Workers' Compensation Premium Rate Ranking.”
Gov. Rauner's proposals include reducing Illinois' workers comp medical fee schedule by 30% for most services, requiring the Illinois Workers' Compensation Commission to use American Medical Association guidelines when determining permanent partial disability awards and tightening causation standards to limit awards to injuries that are caused directly by a person's job, rather than the exacerbation of a pre-existing condition.
The comp proposal also notes that Illinois is considering a minimum wage increase from the current $8.25 an hour to $10 by 2022. That wage hike “should only come in conjunction” with workers comp reforms, as well as reforms to the state's unemployment insurance and tort systems and policies that would give workers a choice of whether to join a union, the plan says.
Rita Nowak, vice president of commercial lines and research for the Property Casualty Insurers Association of America in Des Plaines, Illinois, said the association hasn't watched the minimum wage issue as closely as it has workers comp reforms that the group believes are needed in Illinois. Still, she said, a minimum wage could increase comp benefits for certain workers.
“There may be a potential impact to those employees who are injured who are at minimum wage that ... they would receive a higher indemnity benefit, assuming that their injury was work-related,” Ms. Nowak said.
Bills for Gov. Rauner's workers comp proposals have not yet been introduced in the Illinois General Assembly, which has made it difficult to determine the potential effect of those reforms, Ms. Nowak said.
Observers said the minimum wage increase likely was included in Gov. Rauner's plan to help the Republican governor negotiate with a Democrat-controlled legislature.
“He's got to figure out a way to get them to the table and have discussions about what he wants,” said Jeffrey Junkas, assistant vice president of state government relations at PCI.
“I think (Gov. Rauner) sees that in order to get some decent reform out of underlying business programs, such as unemployment insurance and the workers comp system, that he needs to offer up some support of a scaled-in increase in the state minimum wage,” said Stephen Schneider, Midwest region vice president at the American Insurance Association in Deerfield, Illinois.
Illinois' consideration of minimum wage increases echoes similar discussions about the issue nationwide.
Fight for $15 protests have been held recently in cities such as Atlanta, Chicago, New York, Pittsburgh and St. Louis.
Steve Easterbrook, president and CEO of Oak Brook, Illinois-based McDonald's Corp., said in an April 1 statement that the company's wage increase, along with paid-time off for workers, could benefit more than 90,000 U.S. corporate-owned restaurant employees. The announcement does not affect employees at more than 3,100 franchised U.S. McDonald's stores.
Sources say a higher minimum wage likely would generate an increase in workers comp-related costs for employers, based on increasing payrolls and higher indemnity benefits that are based on the average weekly wage of injured workers.
“Anytime you increase payroll, there's a slight uptick or a slight modification in workers compensation, whether it's benefits or premiums,” the AIA's Mr. Schneider said.
Willis' Mr. Picone said it's likely that raising the minimum wage also would drive up salaries for hourly workers who now make slightly more than that amount.
He believes workers comp insurers will watch minimum wage discussions closely, since indemnity benefits represent about 40% of workers comp claim costs. Since most states base workers comp benefits on two-thirds of a worker's average weekly wage, higher minimum wages would likely increase benefits paid by insurers and self-insured employers, Mr. Picone said.
“You're going to think it's a 7% to 8% increase in claim costs for them, particularly on guaranteed-cost programs,” Mr. Picone said.
Eric Silverstein, Dallas-based senior vice president and risk management practice leader at Lockton Cos. L.L.C., said minimum wage changes would most likely affect employers with guaranteed cost workers comp programs. Insurers would not be affected as much because they would collect additional premiums to cover increased payroll, he said.
While higher workers comp costs could present challenges for employers, Mr. Picone said higher hourly wages could be an incentive for some injured workers to return to their jobs if they've been out of work for a long time.
“If you were injured four or five years ago when the minimum wage was $7, and you can come back today and make $15, you might decide to come back to work,” Mr. Picone said.
If efforts to increased minimum wage rates are successful, the changes also could prompt some employers to eliminate jobs in order to keep their workers comp and payroll costs down, Mr. Silverstein and Mr. Picone said.