Opt Outs to Workers’ Compensation: The Real Disconnect in What Is Being Said and What Is Being Implemented

By Jennifer C. Jordan, Esq., General Counsel, MEDVAL, LLC

The National Workers’ Compensation and Disability Conference generally serves as a pretty good barometer of what the industry focus will be in the upcoming year and it is evident that 2016 will be all about opt-out. Given that it was mentioned, even if only in passing, in many sessions during the conference, it is clear that the concept of opt-out has gained momentum throughout the nation and could become a reality in more and more states very soon. And while utopian pictures are being painted by proponents of the movement, the realities of what was accomplished in Oklahoma are coming to light and those outcomes have not been ideal for injured workers.

For those unfamiliar, several states have been exploring legislation that would permit employers to opt out of the traditional workers’ compensation system in a manner very similar to non-subscription in Texas. Oklahoma passed the first law in 2013 and Tennessee and South Carolina are both very close to passing similar legislation in 2016. States such as Arizona, Indiana, Georgia, Arkansas, Wisconsin and West Virginia were all mentioned in passing throughout the conference as potentially considering similar legislation. Because it is apparent that the movement has taken hold, it is important to understand what pursuing this option would mean to all parties involved.

Painting a Mirage for Employers

In the session titled “Opt-out Alternatives to Workers’ Comp--Two Views on Texas, Oklahoma and Beyond”, Bill Minick, President of PartnerSource and the man often considered the architect of the opt-out movement, spun a tale of transparency, controls, lower costs and better outcomes. He spoke of an ideal world in which employers could take control of their injured workers’ treatment and get them back to work sooner and less costly. He claimed there would be system transparency, stating that because workers are made aware of the plan upon hire rather than after an injury has occurred, that they are aware of their benefits and expectations are set. He explained how wage replacements are made through the regular payroll program rather than by some unknown third party, therefore maintaining continued ties to the employer and easy retention of group health and other benefits paid through payroll deductions. Although taxable, plan benefits are typically higher and paid immediately rather than injured workers waiting several days for benefits to begin. And most importantly, injured workers would have access to the absolute best medical care possible from doctors that do not accept workers’ compensation, referencing a particular facility in Dallas that serves primarily athletes, celebrities and the wealthy.

Mr. Minick then told a heartwarming success story of a diabetic woman whose workers’ comp doctor proposed treatment of her work injury that would have resulted in the loss of her feet. Because it was not constrained by the traditional workers’ compensation limitations, the employer instead flew her and a family member several times to a specialist to obtain the best available treatment until she reached a point that her local doctor could assume her care and in doing so, totally avoided the loss of her feet. And Mr. Minick essentially inferred that such travel and accommodations would be the norm and only achievable outside the traditional workers’ compensation system. Basically under an opt-out program, we can do so much more to get injured workers better treatment and back to work faster and cheaper and everyone will be happier.

Reality Bites

As lovely as that all sounded, many attendees seemed to remain skeptical. What was never mentioned was what stops an employer in any traditional state program from providing better medical care or higher wage replacement than the baseline benefits established by the state laws. Unfortunately the industry has come to accept that baseline as the standard level of care and few want to pay for anything more than that absolutely required by the state law. As to claimants fully understanding their rights, yes, they are provided a copy of the 40+ page plan submitted to the state, but it is highly unlikely that they understand it as many attorneys have found them difficult to read. And really, how many self-insured employer are handling their claims personally and not using some TPA looking to prove its worth by saving the employer’s money? Why would anyone believe that an employer who could suddenly completely control their program would voluntarily elect to pay more for better treatment when the election to opt-out is made primarily to lower costs? There is a real disconnect in what is being said and what has been implemented in Oklahoma.

Not really discussed in this presentation but discussed in others throughout the conference was the story of Rachel Jenkins. Ms. Jenkins injured her shoulder and neck trying to break up a fight between two patients in a disability facility owned by ResCare, an Oklahoma employer with a registered opt-out plan. Ms. Jenkins sought emergency care later that night and the next day was instructed to see the company doctor, an ear, nose and throat specialist, who prescribed medication and physical therapy and took her off work. Unfortunately, due to all of that activity, Ms. Jenkins failed to properly report her claim until 27 hours after it had occurred and was subsequently denied all benefits. Although the event was witnessed by her supervisor, the ResCare plan required that the injury be reported to a toll-free number within 24 hours; therefore, she was entitled no benefits. And beyond this indiscretion on Ms. Jenkins’ part, there are other technicalities within its plan that ResCare could exploit if needed to deny her claim. The plan’s definition of accident would likely exclude the event that she was injured given that it was somewhat foreseeable and as such would not be compensable. An assault would only be compensable if protecting the property of the employer, which she was not. And the night of the accident, she sought treatment from an urgent care facility rather than an emergency room and therefore required preauthorization and any violation of the plan’s requirements is grounds for denial of all benefits. And on appeal, the only issue ripe for adjudication was whether she actually made the call within 24 hours.

As you can see, ResCare’s desire to establish an opt-out plan in Oklahoma is clearly not consistent with the picture Mr. Minick painted at the conference. But these provisions that allow for denial of benefits are reported to be quite common in the 60 or so plans submitted and approved by the State of Oklahoma to date. And of those plans, it is reported that the majority of them were written by PartnerSource. In fact, another presenter at the conference mentioned that there is language in the Oklahoma legislation which can be in found verbatim in many PartnerSource plans, evidence that the company was quite influential in the passing of the legislation. So it seemed troubling to many for Mr. Minick to stand before the attendees and not really discuss anything substantial with regard to the potential future of workers’ compensation.

Paving the Road to Federalization of Workers’ Comp

Presenting with Mr. Minick was Trey Gillespie, Senior Director of Workers’ Compensation for the Property Casualty Insurers Association of America. Mr. Gillespie took a less biased approach in his presentation and attempted to present a point by point comparison of traditional workers’ compensation and ERISA benefit plans to ultimately show why Oklahoma is different than both because its plan specifically does not require use of an ERISA benefit plan. In the traditional system, injured workers are entitled to statutory benefits for all work related injuries whereas ERISA provides neither a statutory nor contractual entitlement and is not required to cover all injuries. As opposed to there generally not being a loss of entitlement to medical benefits in workers’ comp, Mr. Gillespie stated that there are over 40 conditions and limitations on eligibility that would allow for premature termination of medical benefits in an ERISA plan. Whereas claimants bear no liability for medical expenses in workers’ comp, there are certain circumstances in which an employee would be liable for payment under an ERISA plan. And claimants bear the costs of their own dispute resolution, so representation may prove difficult to obtain.

In workers’ comp, benefits are determined by date of injury whereas ERISA depends on employment status at the time of the benefit. This becomes particularly important when working in conjunction with an employer’s absentee policy. If the injured worker is unable to return to work within the unrelated general absentee policy period, commonly the twelve weeks provided under the Family Medical Leave Act (FMLA), and is terminated, the employer would owe no further benefits related to the work injury irrespective of the claimant’s medical status. Coincidentally the Supreme Court of Texas on December 4, 2015, upheld a similar termination as nonretaliatory when based solely upon exceeding the employer’s absentee policy in Kingsaire v. Melendez [2015 Tex. LEXIS 1083]. In Kingsaire, a workers’ comp claimant challenged his discharge under the Texas Labor Code that prohibits discharge or discriminatory behavior against an employee for filing a comp claim. The Court found that the employer uniformly enforced its absentee policy and essentially that nothing else mattered. But the major difference between Kingsaire’s and an ERISA opt-out plan is that the claimant’s comp benefits continue regardless of his employment status whereas the termination would end all ERISA plan benefits.

Another event that terminates benefit eligibility is the refusal to settle. Under an ERISA plan, the injured worker is given the choice to accept a settlement offer based upon a claim’s administrator’s evaluation of the value of his claim or have his benefit eligibility terminated. Choice is probably the wrong word to use there given that the prospect appears to be take it or get nothing. In the traditional system, workers’ compensation benefits are generally for life, settlement is voluntary and usually subject to state approval that the settlement is in the claimant’s best interest. There is no statutory provision to force a claimant out of the system simply because the claims administrator has unilaterally decided the claim is finished.

But what was particularly interesting in this part of the presentation was Mr. Gillespie’s observation that there would be no requirement to protect Medicare or Medicaid in this scenario. Technically he is correct in that if there is no underlying legal obligation to provide medical benefits, there is no secondary payer situation and Medicare becomes primary. If there is no continued obligation to pay for medical benefits, there would be no need to consider a Medicare Set-Aside (MSA). CMS has demonstrated over the past fifteen years that it does not intend to allow the workers’ compensation industry to dump its injured workers onto Medicare, but we are not exactly talking about workers’ compensation claims here. Can the federal government preempt a state law that permits an employer from not participating in the state workers’ compensation program without a federal law that requires mandatory lifetime future medicals?

There is no doubt that an opt-out plan, whether ERISA based or not, would be considered a primary plan for purposes of the MSP. Under the Medicare Modernization Act of 2003, Congress redefined primary plans for purposes of broadening its previous definition of self-insured. Even if an opt-out plan is not technically considered workers’ compensation [“‘Workers’ compensation plan of the United States’ includes the workers' compensation plans of the 50 States, the District of Columbia, American Samoa, Guam, Puerto Rico, and the Virgin Islands, as well as the systems provided under the Federal Employees' Compensation Act and the Longshoremen's and Harbor Workers' Compensation Act.”, 42 CFR 411.40(a)], it would definitely fall within the “or otherwise” component of the self-insured definition [“An entity that engages in a business, trade, or profession shall be deemed to have a self-insured plan if it carries its own risk (whether by a failure to obtain insurance, or otherwise) in whole or in part.” 42 U.S.C. 1395y(b)(2)(A)(ii)]. From a reimbursement standpoint, opt-out plans would have an absolute duty to pay for any related treatment received by injured workers paid by Medicare. But MSAs are a completely different legal obligation inferred from the typical lifetime obligation under traditional workers’ compensation. Primary payers fund MSAs at settlement because they are commuting that lifetime benefit into a lump sum so that claimants have the funds to pay for future medical treatment to prevent Medicare from doing so. But if there is no legal obligation to provide benefits for life, then there would be no MSA needed. Interestingly, Mr. Minick stated during the presentation that MSAs would still be funded even though the authors of opt-out plans have gone to great lengths to build in legal methods for terminating benefits completely should employers so elect.

Be Careful What You Wish For

Because the concept of opt-out is far more extensive than anything that could have been delivered in the NWCDC presentation, we could go on for pages about other things not said. Instead, let us end with a reminder that workers’ compensation currently remains a state law issue and state legislatures are currently within complete control over the protections afforded their citizens when injured on the job. If the state legislators want to create business friendly environments to the detriment of their injured workers, that is their call. Unfortunately, allowing the pendulum to swing too far in favor of employers could be what makes the already escalating national discussion about the federalization of workers’ compensation become a reality. If the federal government elects to occupy the field, that would mean game over for the desired employer controls. And just think about how efficiently federal programs, like Medicare for example, run. Makes one wonder if the opt-out movement is truly worth it.

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Mark your calendars: 25th Annual National Workers' Compensation and Disability Conference, New Orleans Ernest N. Morial Convention Center, Nov. 30-Dec. 2, 2016