Workers Comp Alternative
Oklahoma is the first state to require employers of all sizes and configurations to choose to either provide their workers specified benefits and procedural protocols found within the workers comp statute or to introduce a state-approved defined benefit plan that automatically responds following an on-the-job injury. The state’s Qualified Employer Election Option (“employer option”) requires both types of plans carry equal benefits.
The law came about after employers told Gov. Mary Fallin the state faced no employment growth if it failed to fix its workers comp system. They said cost was a decisive reason they were not growing operations in the state or were considering leaving. The employer-option idea originated from the efforts of a small state association of employers providing their state legislators with information about a Texas benefit plan.
In 1911, Texas legislators passed a law saying employers were not mandated to carry workers compensation and could instead face legal liability for employee injuries. Few Texas employers and retail brokers knew workers comp was not mandatory until around 1989 when the state experienced a severe market capacity problem after several years of poor underwriting results. Assigned risk became the primary option for many employers in Texas at much higher rates.
This was the beginning of my 25-year specialization with the alternative to workers compensation. At the time, Lloyd’s of London provided the insurance protection employers required to comfortably leave the traditional plan and move to a “non-subscription” option. Today, a third of Texas employees rely on the non-subscription system, even though Texas is now a growth state for many workers compensation carriers.
A recent Oregon study ranked Texas at 36th nationwide in workers comp premium costs. Carrier involvement today includes many admitted markets. Responsible employers provide medical, wage replacement, and AD&D benefits through a defined benefit plan, but this is still not mandated.
On the heels of success in Oklahoma, a national association called the Association for Responsible Alternative to Workers Compensation (ARAWC) was formed to help other state-based groups bring employer-option-style legislation to their state. ARAWC, pronounced A-rock, exists to give state legislators an understanding of the benefits an employer-option platform provides when the employer is part of the process instead of just the payer. The size of the data this group provides can no longer be considered an aberration.
One national brokerage has geared up to use the Oklahoma employer option to show current and prospective clients how their firm stays on top of market innovations. What employer does not want to hear about options when speaking of labor costs? Nationally, brokers should learn more, either to continue to be that trusted advisor, bringing options to their clients’ attention, or to defensively prevent a competitor from being the new trusted advisor. Competition will also come from a whole new group: the benefits brokerage. With a benefit plan as the platform to disburse specified benefits, this group is already knowledgeable in benefit plan development and claim management.
Is a form of 24-hour coverage in the foreseeable future? If the employer provides a “health plan,” short- and long-term disability, and an occupational injury benefit plan, where is the need for the property and casualty broker?
Naysayers of granting employers an option rely on the premise that the legacy workers compensation system exists to protect the employee from employer abuse. This was true 100 years ago because there was no OSHA, Department of Labor, or other regulatory groups. But with numerous state and federal rules, laws and commercial business constraints employers must adhere to daily, being forced to work within a platform that specifically excludes the employer is offensive.
I have seen employer-option clients incur thousands of injuries, several of which were life-altering (or ending). Each has been managed by a group of claims professionals focused on assuring the employee is provided the best care while also holding those providing the services to a higher standard of care and response. Through this process, certain medical providers fall outside the approved provider list. No matter what the added cost is to work around this issue (added transportation expense, overnight lodging expense, and so on), it is nominal compared to accepting subpar performance or an indifference to the well-being of the patient.
One bonus is physician groups that would not accept workers comp due to its strict fee schedules or cumbersome reporting criteria openly accept a benefit plan patient.
Recent stories on hospital price variance for the same procedure are not limited to the healthcare segment. Option adjustors are trained to manage claims under the benefit plan structure, and they are able negotiate prompt-pay discounts and other avenues to hold down costs.
ARAWC members are in varying industries with differing employee population sizes, yet by operating under a defined benefit plan, all have experienced improved employee outcomes and shorter claim life through removal of procedural barriers—and at a lower cost. One national company that moved to the non-subscription option in Texas has posted $5 million in annual savings. What was a consistent $5.5 million to $6 million charge for Texas employee injuries shrank to $750,000 after just 12 months on the new plan. Ultimately, claims totalled less than $860,000 for the fiscal year.
An important element of these alternative benefit plans is the rights of the employee. Employee protections found within the Oklahoma law and other benefit plans regulated by the Department of Labor are built into the benefit plan document. Any adverse benefit decision is subject to a clearly specified appeals process.
More states need an employer option to workers comp to provide free market competition and choice to employers. Check out the employer-option plan idea and the work of ARAWC. You might find something you like.