Watch Out for Opt Out! – A Trend in Workers Compensation Reform?

I don’t often write about the big workers compensation issues in current news but Opt Out issues just won’t go away! As a matter of fact, state modification through reform of workers compensation laws allowing employer Opt Out may be growing in interest! Let’s talk about this news worthy issue.

What is Opt Out? Individual state governments control workers compensation legislation within their specific states. In other words, workers compensation statutes are state specific. Laws from one state may be similar to other states, in some ways, but should never be confused as being the same. Opt Out is a trend we are seeing throughout workers compensation reform efforts where state legislators modify their individual states workers compensation statutes to allow employers to become exempt from statutory workers compensation requirements. That’s where the term Opt Out comes from. An employer, in one of the states who have adopted an Opt Out provision to their work comp statute, will have the choice of coming under the statute or not.  

Texas was the only Opt Out state for many years. Texas employers could choose to come under the state workers comp laws or not. A surprisingly large number of Texas employers chose not to be subject to the law. In other words, they decided to forgo protection under the law, and save the cost of buying and servicing a workers compensation policy, and take their chances of being sued by an injured employee. Of course there are other alternative programs available for these employers such as Occupational Accident policies. While these Occupational Accident policies will provide medical coverage for on the job injured workers they are not a workers compensation policy nor do they provide the scope of coverage and protection the workers compensation policy does.  But for employers in Texas they at least had a choice.

Then around 2012 Oklahoma decided to pass sweeping reform to their workers compensation act which included an Opt Out provision similar to Texas. Oklahoma passage of SB 1062 reworked the Oklahoma workers compensation act and allows Oklahoma employers to Opt Out of the workers compensation system. Februrary 1, 2014 the previous court based system transitioned to a administrative system where a commission consisting of three appointed commissioners were given the responsibility of setting up the rules and procedures that would guide the new reforms.  Don’t be confused and think that this Opt Out provision is for all employers! As a matter of fact opting out of the workers compensation system requires the employer to establish an ERISA type benefit plan for payment of benefits to injured workers. Oklahoma employers who choose to Opt Out will be scrutinized as to their financial ability to pay and process injured worker claims properly. In other words, it’s not a free ride!

And the new Opt Out player is….South Carolina! It’s not quite in place as of yet, as a matter of fact the proposed legislation House Bill H 4197 has been referred to committee and, you know how politics work…or don’t! Evidently we’ll just have to keep an eye out for changes and the possible passage of this bill in the future. It’s called the “South Carolina Employee Injury Benefit Plan Alternative.” And if authorized will provide for new forms of insurance and exemption from South Carolina workers compensation laws. 

So what’s the point? Why are  legislators modifying existing workers compensation laws? Why make these changes? Well the answers will certainly depend your perspective, to whom you’re speaking and to whom you’re listening. From an employers stand point workers compensation insurance is expensive! By providing an alternative method of meeting their obligation under the law employers may find these changes help them reduce their cost of doing business, create more profit and, if you believe employer backed lobyists, provide more jobs. From an insurance company perspective broader reforms that often go along with statutory reform including these Opt Out arrangements may lead to greater profits by creating an environment of lower claim costs. NCCI has estimated the entire Oklahoma statute reform, not just the Opt Out mechanism, may reduce claim costs around $130,000,000! That’s a lot of money! Unfortunately these savings often come at the cost of lower benefits for injured employers. And finally, if you ask legislators you may find they believe these types of reform will help regain control over out of an otherwise percieved out of control benefit industry! 

That all sounds great, unless you’re a seriously injured employee facing a life changing work related injury…sorry about that, off topic a little bit. I just can’t help but sometimes feel that sweeping “reforms” in the workers compensation system fall right on the shoulders of those employees suffering from catastrophic work related injuries. Cut the benefits, increase the profits. Is that what workers compensation is really susposed to do?

Hope this helps you out and thanks for reading!