Options in Work Comp Making Progress

Working with ARAWC, Tennessee has introduced a bill to increase "opt-out" options in work comp -- and more states may soon follow.

Last year, I highlighted the mission and objectives of the newly minted Association for Responsible Alternatives to Workers’ Compensation (ARAWC) organization that was established by a collaborative group of employers and their provider partners. With Sedgwick as a founding member of this organization, I can report that we moved quickly to stand up the association, hiring experienced staff, lobbyists and others with expertise in passing legislation. We are putting in so much effort on behalf of U.S. employers to ensure this organization stays focused and delivers on its mission. Before I give you the really good news, here is a recap of the central issue on options in work comp. Workers' compensation is dictated by separate statutes in every state. Only Texas and Oklahoma offer the freedom to “opt out” of the statute, and, in each case, the way this is practiced is quite different. In the case of Texas, opting out is known as “nonsubscription” and has been around for more than 100 years. Practitioners have achieved dramatic costs savings and better outcomes for many claims. Over time, nonsubscribers also often experience significant reductions in frequency and length of disability. All of these outcomes are what we work hard to help our clients achieve, but we are often frustrated by the statutory requirements of many states that bring bureaucracy and controversy to the resolution of many claims. Back in 2013, Oklahoma enacted new workers’ compensation legislation in SB 1062, which allows any employer to exit, or opt out of, the state’s statutory workers’ compensation system. While not exactly like  “nonsubscription” in Texas, this new statute is a significant move forward in giving employers more options in how they respond to and finance employee injuries and related benefits. Regardless of the mechanical operations in the free market alternatives to WC, the key focus is ensuring injured employees are treated respectfully and compensated fairly in the aftermath of on-the-job injury. Just as there are significant differences between what Oklahoma has done and what has been in place in Texas for more than 100 years, there are state-specific opportunities to improve the financing for and response to employee injuries in many other states. Where Oklahoma’s SB 1062 offers Oklahoma employers that choose to opt out of the state system the opportunity to substantially reduce work-injury costs and avoid both the statutory system’s extensive regulation and litigation risk, similar goals for other states are being established by the leaders of ARAWC for the benefit of both employers and employees. Two key statistics reflect a clear basis for why Oklahoma changed and improved their approach to employee injuries:
  • Oklahoma employers cited that WC cost was the # 1 reason they were either leaving the state or adding jobs at facilities located in other states such as Texas
  • 2012 NCCI statistic’s showed Oklahoma loss costs to be 225% higher neighboring states.
Currently, all but these two states effectively mandate workers’ compensation insurance as the sole option for employers to cover employee injuries. ARAWC’s mission is to expand the delivery of better medical outcomes to injured workers by expanding employer choice in other states. Experience under these alternative employee injury benefit platforms has proven to dramatically reduce employee injury costs, while achieving higher employee satisfaction and substantial economic development. Over the past two decades Texas nonsubscribers have achieved better medical outcomes for hundreds of thousands of injured workers, and saved billions of dollars on occupational injury costs. While ARAWC is not necessarily taking the Texas model forward into other states, it will leverage the learnings from over 100 years of having options in Texas and what emerges from the changes from Oklahoma’s new statute, to drive a strategy for process improvements and lower costs in selected states where change is overdue. The key core benefits that ARAWC is seeking in these states include but won’t necessarily be limited to:
  • Delivering better medical outcomes and higher process satisfaction for injured workers without the cost and burden of traditional workers’ compensation.
  • Driving state economic development through the attraction of employer savings.
Providing employers more choice in financing and responding to employee injuries can positively impact employees, employers and health care providers. Experience supports that competition to traditional workers’ compensation insurance can reduce premium rates and improve services. Enabling choice of program design increases employers participation into the process which allows them to hold all service providers accountable for results and outcomes. It also enables employees to access medical providers that do not accept workers’ compensation clients because of low fee schedules and paperwork required. In the absence of statutory mandates, responsible employers create high quality benefit plans for occupational injuries, enabling improved access to better medical talent leading to higher employee satisfaction, better medical outcomes, and lower cost claims. The member companies of ARAWC aspire to refocus state-based mandates in response to growing gaps in quality medical care, efficient risk financing, effective return-to-work and other areas in many current systems. Some of the other expected benefits of ARAWC’s strategy are expected to be:
  • Improved workplace safety and training supporting injury prevention
  • Expanded access to quality medical providers providing exceptional care
  • Opportunity for expanded benefits through custom designed plans
  • Opportunity for reduced waiting periods for wage replacement with greater benefits
  • More expedient medical treatment and more immediate referral to specialized medical treatment to enhance recovery
  • Early identification of potentially complicating medical conditions and securing appropriate medical treatment to aid recovery
  • Improved communications with injured workers to address benefit questions and assist early return-to-work
I am happy to bring further news that the strategic plan is moving along nicely, including the identification of the first two target states for option legislation. In fact, on Feb. 12, a bill was introduced in the Tennessee legislature by Sen. Mark Green that will bring a version of the option to Tennessee employers soon, if passed by the legislature and signed by the governor. If achieved this year, the speed of change will have accelerated dramatically because it took approximately four years to move similar legislation in Oklahoma. Several other states are continuing to be vetted for prioritized change efforts. Even better, we have assisted in drafting legislation in the first state, secured a highly respected bill sponsor, gained the endorsing support of major employers in the state and begun the formal process of socializing and educating key stakeholders instrumental to passing legislation in the state. While this state’s legislative session is relatively short, things are moving quickly enough to believe that there is a good chance of getting some form of this bill passed this year. This would be an amazing result. As you can see, ARAWC is already fulfilling its mission funded by its current members. Active membership recruitment remains a priority as the nature of this beast is that it will take some time to achieve WC legislative change in the many states that will clearly benefit from giving employers an option that can hope to achieve the type of results seen in Texas and hoped for in Oklahoma. More to come soon.

Christopher Mandel

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Christopher Mandel

Christopher E. Mandel is senior vice president of strategic solutions for Sedgwick and director of the Sedgwick Institute. He pioneered the development of integrated risk management at USAA.


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