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Union Carve-Outs: Labor-Management’s Alternative to Workers’ Compensation in Minnesota

May 28, 2013 (6 min read)
By John Stahl, Esq.
Collectively bargained workers’ compensation programs, which are commonly known as carve outs, are a cousin to “opt-out” programs in that both are alternatives to traditional workers’ compensation systems. The similarities extend to both programs avoiding many of the expensive and administratively burdensome elements that are associated with traditional workers’ compensation systems. Significant differences between carve-outs and opt-outs include:
  • Carve outs are limited to union employees and are incorporated into collective bargaining agreements
  • Employers and unions negotiate the specific terms of a carve-out agreement
  • Carve outs require providing employees the benefits to which a statutory workers’ compensation system entitles them
A May 23, 2013, webinar entitled “Understanding Collectively Bargained Workers’ Compensation Systems, or Carve Outs” that the Workers’ Compensation Research Institute presented provided a good primer on carve outs. Kevin Gregerson of Saint Paul, MN, made the presentation. His responsibilities as the Director of Negotiated Workers’ Compensation Programs for Wilson-McShane Corporation “include the development and administration of negotiated workers’ compensation programs for unions and their employers in Minnesota.”
Gregerson described carve outs “generally as a labor-management solution” to challenges such as high premiums and undue delays regarding return-to-work (RTW) efforts. He noted as well that carve outs were most common in the construction industry, which traditionally had a history of serious injuries and workers’ compensation premiums that reflected risks associated with that type of harm.
Genesis of Carve Outs
Like most reforms, employers and unions lobbied for carve outs in response to “skyrocketing [workers’ compensation] insurance premiums.” Another motive related to frustration regarding labor agreement provisions regarding on-the-job injuries that hindered RTW efforts by prolonging dispute resolution proceedings.
Unions particularly valued the streamlined dispute resolution system that eliminated the “starve out” elements of traditional workers’ compensation. That term referred to the pressure exerted on injured workers to not pursue claims that would create delay-related hardships regarding receiving medical and wage-loss benefits.
One recognized benefit of utilizing carve outs as a solution to the challenges described above and other flaws associated with traditional workers’ compensation systems was that the fact that unions were already administering their members’ pension, disability, and other benefits programs facilitated managing workers’ compensation in a synergistic fashion. Although Gregerson did not specifically address this point, the better coordination helped avoid disputes regarding whether workers’ compensation benefits were providing injured workers prohibited windfalls in the form of those benefits improperly overlapping with pensions or other forms of compensation.
The mission of Minnesota’s Union Construction Workers’ Compensation Program reflected the concerns and objectives described above. That document stated that the program was designed to:
  • “eliminate the adversarial culture of workers’ compensation; “
  • “Improve the delivery of wage-replacement benefits and the quality of medical care;”
  • “Return injured workers to their union job quickly;” and
  • Reduce insurance costs for union contractors thereby increasing their competiveness [regarding non-union employers.]”
The final clause related to the fact that workers’ compensation premiums directly related to payroll costs, and that union employers typically paid higher wages than their non-union counterparts. Consequently, reducing workers’ compensation costs reduced the cost-based edge that non-union employers enjoyed.
Gregerson also reported that Massachusetts was the first state to authorize carve-out agreements, and that that law became effective on January 1, 1990.
Components of a Carve Out System
The webinar’s discussion of the alternative dispute resolution (ADR) process under Minnesota’s carve-out program noted that that system was designed to settle conflicts within 18-to-24 weeks, compared to traditional workers’ compensation resolution processes often taking a year or more. Highlights included early stages of the carve-out ADR process not requiring attorney involvement and taking steps to only use time-consuming and costly arbitration as a last resort. The presentation emphasized as well that the carve-out ADR process did allow an employer or an injured worker to get an attorney involved in any stage of that process if desired.
Gregerson also noted that the court review for which the carve-out ADR system provided required that an arbitrator’s decision receive the same level of regard as a decision of an administrative hearing officer in a traditional workers’ compensation dispute-resolution process.
Identified benefits regarding Minnesota’s carve-out program requiring using an “exclusive medical provide organization” that related to providing injured workers the timely care that workers’ compensation law and related good practices required included:
  • Requiring that a physician see an injured workers within 24 hours of that person requesting treatment;
  • Providing every interested party a written diagnosis and relevant findings regarding work restrictions and other medical issues within 24 hours of providing treatment; and
  • A plan for getting any injured worker who is taking an opioid off that medication.
Reforms related to independent medical exams (IMEs) included:
  • Cutting off the benefits of an injured worker who refuses to submit to an IME;
  • Limiting IMEs to “only one opinion per [disputed] issue;”
  • Prohibiting attorney involvement in the IME process; and
  • Restricting an IME panel to medical-care providers who are experts regarding the type of harm related to the underlying dispute.
Gregerson reported a 70-percent success rate regarding immediate acceptance of the conclusions from an IME.
The simple objectives related to vocational rehabilitation under Minnesota’s carve-out program were a “focus on getting better and getting back to work.” That reflected the truism that any alternative work that most injured construction workers could find would not provide nearly the same wages and other benefits as construction work.
Comparisons Among States
Gregerson noted that only Massachusetts and four other states in addition to Minnesota had active carve-out programs; he stated that the Minnesota’s program was the broadest of the six, noting that “we take all comers.” He added that not every state provided for a state-wide carve-out program.
Relevant factors regarding the chances of a state providing for a carve-out program and that program succeeding related to the elements behind Minnesota’s success story.
  • Strong unions;
  • Adequately high workers’ compensation costs to motivate employers to support a change; and
  • Undue delays and other flaws relate to RTW programs.
Collective Wisdom and Caveats
Any system that both sides in a potentially adversarial relationship support and that improves flaws associated with a traditional model seems worth researching. However, as one commentator, David DePaolo, warns, “[S]ome programs are good, some are bad - the devil is in the details, or more particularly, how many good physicians will participate in the program….Carve-outs, of course, fail like traditional work comp when there is a dearth of participating physicians because failure to treat delays the claim which thus delays recovery begetting increased claim cost.” As explained in a LexisNexis commentary on carve outs, the concern is that management would be allowed to create a small list of handpicked treating doctors who would be the only doctors that could treat the injured worker. Additionally, critics of an expanded carve-out provision argue that a carve-out might limit an injured worker’s access to legal representation. Unlike Minnesota carve outs, California carve outs, for example, exclude lawyers from participation at the ombudsperson and mediation stage of the dispute process.
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