Tag Archives: Bill Minick

Oklahoma Option: What Happens Now?

The Oklahoma Supreme Court’s split decision to strike down the Oklahoma Option to workers’ compensation in Vasquez v. Dillard’s is based entirely on Oklahoma’s unique constitution. The court chose not to consider the facts of Ms. Vasquez’ claim. For more information on that claim, see this letter from an experienced Oklahoma workers’ compensation attorney.

See also: What Happened on the Oklahoma Option?  

The Association for Responsible Alternatives to Workers’ Compensation (ARAWC) issued “Oklahoma Option Performance Report,” showing that, despite the new court ruling, the Oklahoma Option has achieved all of its original objectives:

  • Competition
  • Employer Cost Savings
  • Fewer Employee Disputes
  • Better Benefits For Most Employees

This aggregate performance data is straightforward and impressive.

Path Forward

The court provided some guidance for a possible legislative fix to the Oklahoma Option. If employers and legislators in Oklahoma and other states find ARAWC’s Option performance report compelling, the pursuit of new Option laws will continue. The results of this two-year experiment in Oklahoma appear to be concrete confirmation that the meaningful successes achieved through the Texas alternative to workers’ compensation can be exported to other states.

Top 5 Things PCI Got Wrong on Work Comp

In June, the Property Casualty Insurers Association of America (PCI) published a report titled “Cost Shifting from Workers’ Comp Opt-Out Systems: Lessons from Texas and Oklahoma.” It claims to show how employers in those states are avoiding costs that should be covered by workers’ comp and that are instead paid by workers, their families, private payers and taxpayers. The report is part of a year-long, anti-competitive campaign that has been orchestrated with claimant attorneys who profit under workers’ comp and resist any move away from the traditional approach. The report shows little regard for the facts, applicable law or actual data on performance of alternatives to traditional workers’ compensation.

Here are five of the most significant bits of misinformation and misrepresentation:

1. No relevant data. The PCI cost shifting report boasts of using “verifiable and relevant data” and speaks to “the behavior of opt-out employers.” But the report fails to actually include any Texas or Oklahoma Option claims data, and the truth is that there is no evidence that PCI has even attempted to obtain such claims data.

2. No apples-to-apples comparison. PCI fails to consider the benefit plan payments, supplemental plan payments and negligence liability settlements and awards under Texas Option programs that are not available under workers’ compensation.

See also: 2016 Outlook for Property-Casualty

3. No mention that the majority of Texas workers are covered. PCI fails to acknowledge that the Texas Department of Insurance has determined that more than 95% of Texas’ workers are covered by either workers’ compensation or an injury benefit plan.

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Instead of criticizing responsible Texas and Oklahoma employers who provide injury benefit coverage for their workers, PCI should instead focus on the approximately 14 million — and growing — American workers across all states who have no work injury protection whatsoever.

4. No mention that proposed programs in other states have mandated benefits. PCI extrapolates from Texas to posit a false model for Tennessee and South Carolina. Option programs proposed in those states — unlike Texas — have mandated benefits. No bill has been introduced in either of those states to allow employers to “go bare.”

5. No acknowledgement of option program compliance with Medicare reporting and MSA requirements. Option programs normally pay full benefits before Medicare pays anything. The programs comply with Medicare quarterly, electronic reporting rules on open medical claims and liability settlements. The programs protect Medicare’s primary interest before settling claims with Medicare beneficiaries by setting aside a portion of the settlement funds to pay for future treatment.

Instead of using option programs as a scapegoat and pursuing the fatalistic view that savings by employers equate to cost shifting, perhaps the PCI should expend more energy on how to achieve better medical outcomes for injured workers through communication, employee advocacy, accountability and competition.

Option Program Success in Delivering Better Outcomes Is the Real Story

We will continue to advocate for a more positive discussion on how to achieve better medical outcomes. That should include a sincere discussion of the PCI board’s criteria for an acceptable alternative to workers’ compensation, which was approved in July 2015 and publicly introduced eight months later at the 2016 annual conference of the Workers’ Compensation Research Institute.

See also: Healthcare Reform’s Effects on Workers’ Compensation  

Workers’ comp options in Texas and Oklahoma have disrupted the industry with much-needed innovation and positive change. This has understandably created some dissonance and has rightly generated calls for proof. We welcome a review of real option program data, which amply demonstrates how highly respected industry players and employers are improving the lives of injured workers and reducing costs.

Who could be against that?

What Happens When Big Firms Opt Out?

A 74-page study released on March 18, 2016, covers 15 large, multi-state employers that provided their Texas employees with customized occupational injury benefits in lieu of workers’ compensation coverage between 1998 and 2010. This is Professor Morantz’s second research study on Texas “nonsubscription” (also known as the Texas “option” to workers’ compensation).

The new report is found here.

Major findings:

1. Option programs paid better wage replacement benefits than workers’ comp programs did.
2. The frequency of severe, traumatic employee injury claims was cut in half.
3. The percentage of employees disabled dropped by a third.
4. Employer costs were cut in half.
5. Coverage exclusions had minimal impact on cost savings.
6. Negligence liability exposure gave incentives to option employers to invest in safety.
7. As large Texas employers elected the option, workers’ compensation costs dropped.

In the study, Morantz stated all the study participants “offered employees private plans whose benefits roughly resembled (yet also differed from) those available through workers’ compensation.” She said, “Some ubiquitous features of private plans—such as first-day coverage of lost earnings  and wage replacement rates that are not capped by the state’s average weekly wage—are more favorable to injured workers than workers’ compensation.”

See Also: Texas Work Comp: Rising Above Critics

Morantz expressed concern in her study because past studies have confirmed the existence of two moral hazard effects:

  1. “Risk-bearing” moral hazard predicts employees will take more risks on the job as benefit levels increase; and
  2. “Claims-reporting” moral hazard refers to the expectation that a worker will be more likely to file an injury claim (including for a feigned or off-the-job injury) as benefit levels increase.

The study says: “Consistent with the existence of both moral hazard, nearly all studies have found that increasing benefits or shortening waiting periods increases the frequency, cost and duration of claims.”

Fewer Traumatic Claims and Lower Costs

In spite of this historic research on injury benefit improvements, Morantz found:

  • Frequency of severe, traumatic injury claims declines by about 47% under the Texas option;
  • Serious claims involving replacement of lost wages are about 33% less common in the option environment;
  • Employer costs per claim fell by 49% under the option;
  • Employer costs per worker hour fell by about 44%; and
  • Although the fall in wage-replacement costs is larger in percentage terms, the decline in medical costs was equally consequential.

Coverage Exclusions Have Minimal Impact.

The option injury benefit plans studied all contain:

  1. Exclusions (non-coverage) for permanent partial disabilities;
  2. Exclusions for certain diseases (such as any caused by mold, fungi, pollen or asbestos) and some non-traumatic injuries (such as non-inguinal hernias, cumulative trauma if the employee has worked less than 180 days, carpal tunnel syndrome, chronic fatigue syndrome and fibromyalgia),
  3. Caps on total benefits; and
  4. An exclusion for chiropractic care.

Morantz found these exclusions from benefit coverage account for little of the estimated cost savings, writing, “Even when all four factors are accounted for, [the Texas option] is still predicted to lower total cost per worker hour by more than 35%.”

Benefit Enhancements and Liability Exposure Lead to Safety Improvements

Morantz mentioned a prior research finding that a rise in benefits can spur employers to invest more heavily in safety. Also, the study says the significantly lower frequency of severe, traumatic accident claims “provides strong evidence for a real safety effect, which is precisely what economic theory would lead one to expect. [Texas option employers] are, at least in theory, internalizing all of the costs associated with workplace accidents (including tort liability), which should induce them to invest more in safety-enhancing technologies.” The negligence liability exposure for employers that elect the Texas option “may prove costly in exceptional cases” and “may strengthen their incentives to implement costly safety improvements” which, in turn, offsets the above moral hazard effects.

Grounds for Denying or Terminating Benefits

Morantz found the majority of private plans include more grounds for denying claims or terminating benefits in particular cases than are commonly found in workers’ compensation. These provisions focus on employee accountability just before or after the injury takes place and on the nature of the injury. (Those provisions are commonly subject to a “good cause” exception that must be administered by a fiduciary under ERISA in the best interests of the injured worker.)

Impact of Employment Status

Contrary to option critics’ claims that all injury benefits cease upon any termination of employment, Morantz found that medical benefits continue unless the employee is fired for gross misconduct. She also found that option plans commonly do not terminate wage-replacement benefits if an employee is laid off, but such benefits do cease if the employee voluntarily quits or is fired for other reasons. Only one study participant’s plan reserved the right to terminate wage-replacement benefits if the employee was fired for any reason at all.

See Also: What Schrodinger Says on Opt-Out

Retaliatory Discharge Claims 

Morantz noted that the Texas’ Workers’ Compensation Act protects employees who file workers’ compensation claims from retaliatory discharge but that employees covered by option programs enjoy no similar protection under state law. However, she also noted the anti-discrimination/anti-retaliation claim available to workers under Section 510 of ERISA.

Drop in Texas Workers’ Compensation Rates as Large Employers Moved to the Option

Although very small firms (those with one to four employees) have always been disproportionately likely to forgo participation in Texas workers’ compensation, Morantz noted that substantial numbers of very large employers (those employing at least 500 workers) began doing so around the turn of the millennium. In 2001, Texas had among the highest reported cost-per-claim among the 14 states included in the annual Workers’ Compensation Research Institute (WCRI) cost benchmarking study. Since then, both medical costs and indemnity payments per claim under Texas workers’ compensation have plummeted.

Need for More Study

Morantz concluded there is an urgent need for further analysis of the economic and distributional effects of workers’ compensation systems co-existing with privately provided forms of occupational injury insurance. This includes the need to further (1) identify which specific characteristics of private plans are producing the majority of cost savings, (2) study potential cost-shifting to government programs or group health plans and (3) consider differences between option programs sponsored by small-, medium- and large-sized employers.

What Schrodinger Says on Opt-Out

I’ve said before regarding Opt Out—the alternative plan in Oklahoma that allows employers to escape the workers’ compensation system but maintain the benefits of exclusive remedy—that repeatedly using the word “transparency” will not make it so. Yet, when it comes to “the Oklahoma Option,” the word “transparency” is tossed around like cheap hash on a roadhouse griddle. Proponents continually use the word to describe the scheme. It is used so much that, if it were true, the entire concept would be completely invisible because it would be so incredibly, endlessly transparent.

And, of course, the Oklahoma Option is anything but.

Really smart people will know the story of Schrodinger’s cat from advanced science classes they took at some hoity-toity university or elementary school. The rest of us Neanderthals have learned about it from the weekly science lessons we get watching the hit television show “The Big Bang Theory.” For those of you who neither attended fancy schools nor are “Big Bang Theory” aficionados, Schrodinger’s cat is a thought experiment devised by Austrian physicist Erwin Schrodinger in 1935. It illustrates the problem of quantum mechanics applied to everyday objects. In the experiment, a cat, a flask of poison and a radioactive source are placed in a sealed box. If an internal monitor detects radioactivity, the flask is shattered, releasing the poison and killing the cat. The Copenhagen interpretation of quantum mechanics implies that, after a while, the cat is simultaneously thought of in two states. In other words, if the box remains unopened, the cat may be thought of as both alive and dead.

I think that experiment lends itself well to Opt Out transparency.

In the realm of Opt Out promotion, the word “transparency” is sprinkled around like holy water. It is used as if it intended to sanctify and purify the concept for the consuming public. It is employed to describe the communication that employers use to educate their workers about their rights and responsibilities. It is used in reference to the overall plans and approval process, and it is used to defend the existence of the plan. Problem is, Opt Out is not transparent in the way proponents would have you believe.

See Also: Texas Is NOT an Opt-Out State

For instance:

  • The application process to have an employer plan approved is now confidential. All documents and information submitted to the state to obtain approval to Opt Out is closed to public eyes. This is because of reforms specifically pushed by Oklahoma Opt Out proponents last year.
  • The plans themselves are not available through the state. They were initially, but they have been removed from public access since the previously referenced reforms took effect. At the recent WCRI conference in Boston, a workers’ compensation director for a very large and well-known company took up that issue, directly telling Option author Bill Minick that she was uncomfortable with Opt Out and that she wanted to know where she could actually see existing employer plans. (I wanted to rush up to this woman and hug her in front of all 400 attendees, but I did not know her personally and thought it probably would have appeared wildly inappropriate and would possibly lead to some sort of assault charges being filed). Minick assured her the plans were easily obtainable, mentioning that ProPublica published many. He also told her several courts have copies. He did not mention that courts only have those copies because they have been entered into evidence in multiple lawsuits, and I noted he did not tell her she could get them from the state. Someone on the panel suggested Minick could just send them all to her, and he agreed he could. I am not sure he agreed he would. In a recent article on InsuranceThoughtLeadership.com, Minick stated, “The idea of establishing a public database of SPDs (summary plan description) has also historically proven impractical.”

That statement, explaining why plans are not available to the public, was made in an article describing how transparent Opt Out is. I swear, I could not make this stuff up if I tried. Furthermore:

  • There is absolutely no audit function allowing the state to see how employers are managing their plans. They are under no obligation to report their activity to anyone.
  • Under many of these plans, an employee appealing a denial may not testify or submit evidence at that appeal. The people reviewing the appeal are selected by the employer.
  • Even the denial letters issued on behalf of some employers contain strict confidentiality language, instructing the injured worker not to share the information contained within the letter with “any unauthorized individuals.”

I could go on (and on and on and on), but you get the idea.

So, this is the paradox known as Schrodinger’s Opt Out. The Oklahoma Option has been placed, by legislative and regulatory fiat, in a sealed box and kept away from prying eyes. It is in that state that it may be simultaneously thought of as both transparent and not transparent. Only by opening the box and thrusting the concept under the unforgiving light of scrutiny do we learn the truth.

That, of course, is what is happening. The Oklahoma Option, recently found to be unconstitutional, has been subjected to tremendous review in a variety of formats and mediums. The claims of transparency do not hold up when exposed to that scrutiny; instead, opaqueness rules the day. The concept of transparency when related to the Oklahoma Option can only survive in a closed and impenetrable box, where the claims can be protected from prying eyes.

The cat is out of the bag, and the concept is out of Schrodinger’s box. The transparency variable cannot be easily applied in that situation. Just repeating the word many times will not change that reality.

And that, for my” Big Bang Theory” friends, is the big Bazinga.

Texas Is NOT an Opt-Out State

There were two sessions on “Opt Out” at the 32nd WCRI Annual Issues & Research Conference, but a single, critical point was generally omitted by all six speakers across both sessions; an omission that could cause confusion for those not well-versed in the vernacular of alternative workers’ compensation systems.

Texas is not an Opt Out state. It never has been. No one may “opt out” in Texas. Period.

Instead, Texas is, and always has been, an “Opt In” state. Workers’ compensation coverage is not required of employers there. They can choose to buy insurance, or not. They can choose to set up alternative plans, or not. Either way, they can “opt” for some sort of coverage or go completely bare; they don’t have to have a policy, a plan or a prayer.

Those that do not acquire coverage or self-insure under state auspices are called “non-subscribers,” on the surface, the distinction about Opt Out vs. Opt In may seem like a shallow and insignificant point. But the differences in the Texas and Oklahoma systems run deep, and the speakers should have pointed that out.

Instead, I believe some intentionally conflate the two for the benefit of their arguments.

Most notably, for employers in Texas who choose not to opt in for workers’ compensation coverage, open liability prominently remains. They can be sued for negligence. They can be found responsible for pain and suffering. They are wide open to all of the foibles and pitfalls generally absent for those who choose to participate in the grand bargain and the exclusive remedy it provides.

By comparison, employers in Oklahoma have managed to develop a system that gives them unparalleled secrecy and control while maintaining the benefits of exclusive remedy. They have liability protections that Texas employers can only dream about.

Common sense would tell us that any alternative plans in Texas are probably better than those found to their north in Oklahoma. The looming reality of open liability means that employers actually have to be responsible if they wish to avoid litigious challenges and expensive jury verdicts. Yet people continually speak of “Opt Out” as if it was one common theme in both states. Our session speakers are not the only ones to do that. Recent articles in ProPublica and NPR also failed to adequately define the difference between the two.

See Also: The Bizarre Decision on Oklahoma Option

Bill Minick, a Dallas attorney whose firm has written most of the Oklahoma Option plans, mentioned the more than “20 years of history” when talking about the “proven” success of Opt Out. He did not really mention that the 20 years he repeatedly referred to was all based in Texas. Oklahoma has only offered the Option for two years, and only 60 of the state’s 70,000 employers have gone that route. Similarly, presenter Elizabeth Bailey of Waffle House, spoke only of their experience in Texas as a non-subscriber. To her credit, she was the only speaker to deliver hard statistics about the experience in that area, but she made no mention of the Oklahoma Option except to note that they had elected not to Opt Out in Oklahoma. She did not say why.

And I really would’ve liked to know.

Really, none of the speakers made an effort to define the difference between these two systems. To the uninitiated, it would seem they are the same thing. They are not. Oklahoma-style Opt Out is what is being proposed in at least two other states, not Texas-style non-subscription. Future sessions on the subject should clarify that point, focus on actual Opt Out and call out presenters if they dilute or confuse the facts.

Additionally, only one speaker, Trey Gillespie of Property Casualty Insurers Association of America, really mentioned that the Oklahoma Option has been ruled unconstitutional in that state. From an overall panel perspective, that fact was almost a non-event, like it never even happened. But more on that later…

See Also: Five Workers’ Compensation Myths

The point is, the Texas non-subscriber system has been around for a long time. The Oklahoma Option, by Minick’s own admission, is an “experiment” (one commenter at the conference pointed out that Frankenstein’s monster was also an experiment). We should not confuse the two. Oklahoma Opt Out, along with proposed similar plans in Tennessee and South Carolina, are unique creatures that deserve to be fully judged on their own scant merits and significant flaws. We should stop providing them cover by supporting them with the alleged achievements of a dissimilar system.

After all, Texas has never been an Opt Out state, and we should stop talking about it like it is.