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What Opt-Out Advocates Need to Do

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About mid-April, legislative prospects for opt-out in Tennessee fell apart. Oklahoma’s enactment of opt-out in 2013 in its second try shows that a winning coalition takes time to form.

Advocates on the national stage include the Association for Responsible Alternatives to Workers’ Compensation. It and others might reassess their strategy, particularly if they plan to target additional states in 2016. They should at least audit their value proposition.  Their public policy argument is weaker than it could be. Making it stronger, however, might cast a harsh light on the current opt-out system in the mother state, Texas.

It may be unfair to expect advocates to focus on a polished national pitch when the eccentricities of state house politics demand local tactics, cooking strange elements into the legislative sausage.

The bill that eventually passed in Oklahoma contained an almost impenetrable-to-logic provision intended to enable employers to opt out without creating an ERISA plan. When I asked a month ago, 33 employers had been approved for opt-out; 33 use ERISA plans.

The failed bill in Tennessee allowed for total cost of benefit caps for individual claims. This tainted the bill for small savings to employers and financial disaster for severely injured workers. The caps would have disturbed health insurers, who resist paying for treatment for work injuries.   

The basic concept, freed of legislative oddities, is attractive. After a long and, I believe, continuing trend toward lower work injury risk in the country, opt-out right-fits the benefit system to the risk. It cuts away bureaucracy. It more directly rewards the employer for work safety. For the large majority of injured workers, who recover fairly quickly, benefits are typically higher, thanks to no waiting period or indemnity caps in ERISA plans I know of. Employee absence benefits are easier to deliver. Federal law tends to induce employers to treat their absence-related benefits as a unity.

And opt-out delivers what workers’ comp experts say they want. Claims and corporate risk professionals I listened to last week are pretty united in how to control workers’ comp costs. At the top of their wish list are much easier return-to-work processes, chances to approve medical treatment, alternative dispute resolution and more aggressive accident prevention. These are inherent in opt-out. They scoff at the idea of a dollar cap on total claim payment.

There are several things wrong with how opt-out is being pitched to the nation.

First, workers are taken for granted. Looking closely at opt-out since 2012, I have yet to see a thoughtful analysis of how employees benefit. Better medical care and return-to-work rates are alleged without credible evidence. The impact on take-home benefits is never addressed.   

Second, Texas’ system is cited without qualification as a success story. The nonsubscription lobby appears to resist any legislation to enforce ethical and equitable behavior on the part of employers and improve compliance with the few laws on the books.

I asked Steve Weatherford, a Texas-based executive and co-chairman of the Texas Alliance of Non-Subscribers, why a nonsubscribing three-person roofing company should not be forced to have an ERISA policy. Weatherford, who had no problem with the firm being exempt from workers’ comp, told me that such an employer “doesn’t want to be told by the state what to do.” I asked him how the injury bills would be covered, noting that health insurers would refuse to pay. Weatherford said that the employer could buy a “fully insured non-sub” insurance policy.

The nonsubscriber system in Texas looks legitimate because respected national employers, such as Marriott, Costco and Safeway, participate. These employers can point to their high performance standards throughout the country. Safeway was instrumental in creating with United Food and Commercial Workers local unions a workers’ comp carve-out program in California for 20,000 workers. That’s credibility.

But another aspect is the absence of transparency, that disinfectant of abuse. Employers thumb their noses at laws. Some 100,000, or 90%, of nonsubscribing employers fail to file required reports. Since 2009, the state has issued only 290 warnings and levied less than $80,000 in fines.

Legislation was filed in Texas last week (HB 4118) to set benefit and insurance standards. It will likely go nowhere, as is the case with another bill (HB 2587) to collect information on medical care for workers injured by nonsubscribing employers who do not have formal work injury benefit plans.

Third, nobody is ready to admit that ERISA and arbitration provisions can go off the rails. One employer in Texas tells its employees “….your use of a non-approved physician or facility may result in a complete denial or termination of benefits under this Plan.” I think this means that if an injured employee seeks advice from her personal physician to understand the medical treatment she receives from the employer’s designated doctor, she can lose all her benefits.

This piece of worker intimidation strikes me as violating the Americans with Disabilities Act, which requires disabled employees and employers to engage in an “interactive process.”

It wasn’t Waco Weed Wackers Ltd. that thought this up. It’s in Walmart’s ERISA plan for Texas, dated Jan. 17, 2012. Other ERISA and arbitration plans may show other questionable provisions – were we able to access them.

Will we see a stronger justification for opt-out emerge? I want to be the first to report it. This is an important story in what my colleague David DePaolo refers to as "The Year of Awareness."

Sources of information about opt-out:

Association for Responsible Alternatives to Workers’ Compensation.

Bill Minick, Options to Workers’ Compensation: Public Policy Analysis. March 2015.

Division of Workers’ Compensation. Texas Dept of Insurance, Biennial Report to the 84th Legislature, December 2014.

The Texas Alliance of Non-Subscribers.

Peter Rousmaniere is a consultant for workers' compensation claims administrators and vendors and a veteran observer of workers' compensation industry trends.

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