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Opt-out cannot become a viable alternative to problematic state systems until a reasonable balance is attained between the interests of injured workers and employers alike
By Jennifer C. Jordan, Esq., General Counsel, MEDVAL LLC
As opt-out discussions continue despite the recent Oklahoma agency ruling that a part of the Oklahoma Employee Injury Benefit Act violates the State Constitution, the 32nd WCRI Annual Issues & Research Conference in Boston offered not one, but two separate sessions covering the topic. Curiously, though, none of the presenters participated in a true substantive debate of the Vasquez and Torres decisions in Oklahoma, the constitutionality of the Oklahoma reforms and the likelihood of other states continuing their pursuit of opt-out legislation. While some new issues and perspectives were presented, the day produced little more than additional fodder about the concept of opt-out and unrelated comparisons to the Texas system.
The first session was essentially a repeat of the opt-out panel presented by Trey Gillespie of PCI and Bill Minnick of PartnerSource at the National Workers’ Compensation and Disability Conference in Las Vegas, November 2015. [A summary of that presentation can be read here.] Mr. Gillespie began by again presenting a point by point comparison of the difference between traditional workers’ compensation benefits and those provided under ERISA employee benefit plans. Because the Oklahoma Employee Injury Benefit Act does not actually require ERISA benefit plans be used, the presentation’s focus on ERISA was somewhat misleading, particularly to a crowd that may not be familiar with the fact that ERISA does not cover plans maintained solely to comply with workers’ compensation laws [see 29 U.S.C. § 1003(b)(4)]. ERISA is used not because it sanctions the reduced benefits in question, but because it brings with it the Federal Arbitration Act which serves as a substitution for exclusive remedy. Hiding behind ERISA permits employers to write whatever benefits they want for injured workers and still not risk a jury verdict. So what was not clearly expressed in the presentation was that the problem with opt out is not the Oklahoma statute or ERISA, it is the contents of the plans themselves.
One new point to Mr. Gillespie’s presentation was made in his conclusion and that was to acknowledge that PCI is not against a responsible alternative to workers’ compensation, however, the situation in Oklahoma is not a responsible alternative. Unfortunately it was then Mr. Minnick’s turn and he attempted to spin that into an endorsement by PCI of opt outs. One interesting deviation from Mr. Minnick’s Las Vegas presentation was that he dropped stories involving unrealistic examples of what is possible under opt-out programs. There were no tales of injured workers being flown around the country to find the best care or gaining access to prominent medical facilities that serve primarily the rich and famous. Instead he spun a tale of experimentation and evolution, even closing with strange graphics of something ugly entering the world and needing to be allowed to evolve into something beautiful. Clearly beauty is in the eyes of the beholder because much like the questionable beauty of the multicolored mutant animal projected, his idealistic views about opt-out must also be subject to interpretation.
Mr. Minnick approached opt-out from a public policy perspective. Good public policy is determined through experiments, transparency and challenging the preexisting order. Economies need to evolve and his message was that we need to be patient while it does that. He spent several slides drawing parallels between the traditional and option systems, noting how they are not all that different. He claimed that both systems have the same primary objective: to improve the lives of injured workers. He showed charts and graphics of the components of an injury benefit program and a comparison of insurance structures to demonstrate that they are essentially the same. Employees are still protected by OSHA, ADA, FMLA and ERISA. The state regulates opt-out employers with benefit mandates, liability exposures, financial security requirements, an employer qualification process and provides enforcement by state regulators for violation of state option laws. But of course the Oklahoma Department of Insurance did approve the Dillard’s plan at issue in the Vasquez case mentioned above.
Mr. Minnick again repeatedly focused on transparency. Plan benefits are said to be clearly outlined in employee handbooks presented upon hire, understandable to the average plan participant. It is apparently good communication that supports accountability, which, in turn, supports better medical outcomes. But just saying it over and over again doesn’t make it so. Although the Oklahoma system was set up where plans were originally sent to the state insurance department for review and became part of the public record, legislation was passed last fall that now protects the confidentiality of registered plans. Attendee Michelle Adams from Disney asked Mr. Minnick where plans could be obtained for review and even he was only able to point to the ProPublica website were a selection was uploaded as part of an investigative article it published last fall [https://projects.propublica.org/graphics/workcomp-company]. So if transparency is such a significant feature of opt-out, then why so much effort to hide the details of the actual plans, many of which were written by Mr. Minnick’s company, unless it is the plans themselves that are the problem?
Accountability was also a significant theme in Mr. Minnick’s presentation. He claims onerous report requirements are in the employees’ best interests because immediate accident reporting results in more immediate care, early determination of extent of injury, more effective medical management and better outcomes. Of course that also provides employers opportunity for timely investigation of the claims, drug and alcohol testing, and correction of unsafe conditions. He also spoke of medical provider accountability but it was unclear how they are any more accountable under opt-out, unless his point about them wanting “payment fast, fair and with minimum paperwork” infers that better medical outcomes can be purchased. Interestingly, employers’ accountability was not mentioned and they are the ones that opt-out gives options with regard to how accountable they want to be to their injured workers.
Mr. Minnick then presented Texas data to demonstrate better medical outcomes under opt-out. Texas non-subscribers have fewer disabled employees, with only 6.1% lost time claims of more than 7 days compared to 25% under Texas comp. 97% return to work within 6 months compared to only 83% under Texas workers’ comp. These facts are likely true, not because of better medical outcomes, but because those employees may have been fearful of losing their jobs had they not returned. Benefits under opt-out are tied to continued employment and an employee benefit plan may have an absentee policy that applies regardless of whether the work injury has resolved. If these employees did not return to work within that period, there may not have been any work to return to.
Among his last option premises, Mr. Minnick raised the issue of cost-shifting. He alleged that better medical outcomes and fewer disputes lead to less cost shifting, which would be true if his plans did not provide less coverage overall. Less covered injuries and more ways to terminate benefits prior to resolution actually leaves more injured workers seeking benefits from group health plans and public benefits such as Medicare and Medicaid. He later also correlated this to a lower taxpayer expense and listed it among other potential positive changes such as lower premiums, higher commissions, lower total employer costs and economic development. With employers, physicians, insurance agents and taxpayers all happier under opt-out, injured workers must be better off as well?
The second opt-out panel was not so much a panel discussion but rather four separate presentations given from each speaker’s perspective. First, Bruce Wood from the American Insurance Association reminded us that although workers’ compensation has its issues, no state system is in crisis or even close to it. Costs per $100 of payroll was $1.37 in 2013, which was up only $0.07 since 2009. Over that same period, benefits per $100 of covered wages declined in 39 jurisdictions and frequency continues to decline. Yes Oklahoma, with one of the last litigation-based systems in the country and top 10 status among states with the highest workers’ compensation rates nationwide, needed a change. But “opt-out lacks an organizing principle that reflects acceptable social policy.”
Mr. Wood compared traditional workers’ compensation to the North Star. Without its fundamental guiding principles, employers can lose sight of the many reasons the Grand Bargain was struck in the first place. Without uniform coverage, benefits become subject to competition. Less safe employers jettison high ex mods by opting out and can purposefully exchange safety for savings. Coverage and remedies vary from employer to employer, so no amount of transparency, communication and accountability is going to help workers truly understand what their rights really are. And there are no guarantees of plan solvency or benefit security. Workers’ compensation is an occurrence based coverage priced to accommodate long-tail exposures, with state guarantee funds to provide continued benefits in the face of insolvency. A state cannot enforce state law mandates to post security or guarantee funds on self-insureds with plans governed by ERISA because federal preemption will preclude it from enforcing the same. So basically opt-out uproots everything we know and understand about workers’ compensation and replaces it with uncertainty. Mr. Wood concluded by stating that “opt-out raises fundamental issue of public policy that policymakers have failed to consider…Opt-out is flawed and should not be enacted.”
Elizabeth Bailey, VP of Workers’ Compensation & Safety at Waffle House, Inc., spoke next about her company’s experiences as a nonsubscriber in Texas. As the first to truly present hard data about operating outside the state workers’ compensation system, Ms. Bailey was able to demonstrate that reasonable employers can realize actual benefits of operating outside the state system. Waffle House was able to decrease claims occurrences and costs, recognize a decline in indemnity, improve medical outcomes and minimize litigation. Implementing the plan made them look closely at their safety program and implement changes that improved safety companywide, not just in Texas. Waffle House’s experience is consistent with a study soon to be published by Alison Morantz from Stanford School of Law. Ms. Morantz studied fifteen large, multistate employers who recognized considerable savings maintaining non-subscription plans in Texas between 1998 and 2010. However, the study discussed what Ms. Bailey did not and that was that categorical exclusions, plan terms and responsiveness of non-traumatic injuries to non-subscription accounted for a lot of the cost savings.
But ironically, Waffle House did not elect to opt-out in Oklahoma. Ms. Bailey provided no reason, only that they decided to wait. Obviously even Waffle House recognized that there is a distinct difference between the two states and that its successes in Texas would not necessarily correlate into the same in Oklahoma. Texas is an opt-in state where you can operate with no plan, implement a benefit plan or opt-in to the traditional state program. Non-subscribers face tort liability. The Oklahoma option is truly an opt-out but retains substantial ties to the state program that has resulted in the constitutionality of the law being challenged. So although it is helpful to hear how an opt-out plan might succeed in Oklahoma, the fact of the matter is that not all employers will behave reasonably and the Oklahoma laws provides a lot more freedom than Texas to provide less benefits because the same fear of tort liability is not present. Again, the concept of opt out is not the problem, the implementation is.
Next up was attorney Alan Pierce from the Workers’ Injury Law & Advocacy Group representing injured workers. No surprise that he was against opt-out, viewing workers’ compensation as a “right owned by and owed to workers.” But rather than an impassioned plea that injured workers deserve better, his presentation was very fact oriented, rational and accurate as he was the only presenter to correctly identify Texas as an opt-in rather than opt-out state. He pointed out that opt-out plans do exclude many injuries covered by the Oklahoma Injury Benefit Act and place many restrictions on medical treatment. Furthermore, opt-out legislation is inconsistent with constitutionally guaranteed access to courts and due process, eliminates state agency regulations of system performance and increases cost shifting. And he concluded with an Arthur Larson quote, noting that this shift onto society of the burden of injured workers is corporate welfare at its worst.
Finally, the session concluded with a few words from James Mills representing the Oklahoma Insurance Department. He provided a historical account of why reform was needed in Oklahoma and the legislative steps taken to get to the present situation. Oklahoma is one of the most expensive workers’ compensation states, with one billion written in premium in 2014, and with oil companies in crisis, the state needed to help. But the department’s focus on employers became blatant as he stated that they are consumer focused and committed to creating the most powerful system for employers. Disappointingly, there was no discussion as to his department’s procedure for reviewing the 60 plans approved under the opt-out law that required equal or better benefits, some of which have been proven in court to not do so. Even more disappointing was the lack of discussion about why these 60 employers were given a free pass in the wake of Vasquez and provided with an option to be treated as if they remained in the state workers’ compensation system all along. While it remains the contents of the various plans that are the problem with opt-out, this presentation made it clear that the state was complicit.
So unfortunately we will have to wait until the Oklahoma Supreme Court rules in Vasquez to see where we stand with opt-out in Oklahoma. Dillard’s filed its appeal on March 17th and the nation anxiously awaits a hearing date. Mr. Minnick did not seem at all concerned that the state would abandon the concept regardless of the outcome, nor did he seem phased that it would change plans in other states to pursue the similar legislation. But if nothing else, these panels at WCRI have demonstrated that there are a lot of unresolved issues surrounding the idea of states relinquishing control of workers’ compensation. Texas works because there has never been a mandatory system and with that, no preconceived entitlements and any benefits provide by a nonsubscriber are better than risks associated with working for an employer that elects to go bare. But in every other state, something will be taken away from injured workers, whether that be benefits or administrative safeguards, and that will be the hardest part to overcome constitutionally. Opt-out could very well become a viable alternative to problematic state systems, but not before a reasonable balance is attained between the interests of injured workers and employers alike.
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