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.
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:
Employer Cost Savings
Fewer Employee Disputes
Better Benefits For Most Employees
This aggregate performance data is straightforward and impressive.
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.
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.
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.
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.
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.
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.
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).
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.”
Morantz expressed concern in her study because past studies have confirmed the existence of two moral hazard effects:
“Risk-bearing” moral hazard predicts employees will take more risks on the job as benefit levels increase; and
“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:
Exclusions (non-coverage) for permanent partial disabilities;
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),
Caps on total benefits; and
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.
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.
On Friday, February 26, 2016, the Oklahoma Workers’ Compensation Commission (WCC) offered one of the most bizarre decisions in the history of any such tribunal in the world. The agency, which sits within the executive branch of the state’s government, resorted to a tactic traditionally reserved for the judiciary by pronouncing portions of a state statute unconstitutional—a move that has sent shock waves throughout the workers’ compensation (WC) industry nationwide. This essay is provided to explain how and why such an unprecedented and unexpected event took place.
Although scheduling constraints required the publication of this piece before we at WorkersCompensationOptions.com could incorporate the feedback of Attorney Mark Blongewicz (of Hall-Estill), Mark’s insights are so valuable that we have inserted them in text boxes throughout this updated version of the essay (which first appeared in Insurance Thought Leadership, without such text boxes, on 2/29/16).
What Does a WCC Do?
The Oklahoma WCC was born in February, 2014. It employs dozens of people and performs numerous governmental agency tasks, but when its three commissioners hear appeals of occupational injury cases, they are referred to as sitting en banc. To our knowledge, all states, territories and the federal government have similar tribunals. Over the past two years, the Oklahoma commissioners sitting en banc have heard dozens of appeals. All of those cases—up until last week—were of the fact-based WC variety.[i] Prior to last Wednesday’s hearing,[ii] the WCC was never in the business of offering opinions on the constitutionality of any laws; it simply, methodically and impressively played an administrative (rather than an interpretive) role.
Vasquez v. Dillard’s: Background
In September of 2014, Jonnie Yvonne Vasquez claimed that she had injured her shoulder and neck while moving boxes as an employee in the Dillard’s shoe department in Shawnee, Oklahoma. Ultimately, Dillard’s denied the claim, pointing to evidence of a pre-existing medical condition. The commissioners en banc routinely review such disputes to determine whether a denial should be upheld or overturned.
Under traditional WC in Oklahoma, Vasquez’ appeal would have gone first to an administrative law judge (ALJ), next to the WCC en banc and finally, if necessary, to the Oklahoma Supreme Court.
However, because Dillard’s had, prior to the claimed occurrence, become a Qualified Employer per the Oklahoma Employee Injury Benefit Act (OEIBA—think Oklahoma option), the process for appealing this denial followed a different path. One of the hallmarks of opt-out is to avoid litigation,[i] and to that end Dillard’s provided Vasquez an appeals committee—which is similar to what happens across the country in disputes regarding ERISA-governed benefits (e.g., major medical, long-term disability, etc.). The denial of Vasquez’ claim was upheld through the appeals committee process.
Section 211 of the OEIBA stipulates that the next forums for appeal after the appeals committee are the WCC en banc followed by the Oklahoma Supreme Court (mirroring the second and third steps of the appeals process under WC).[ii]
Hence, Vasquez appealed to the commissioners en banc. Dillard’s, however, relying on an ERISA argument which has long been promulgated by Bill Minick of PartnerSource,[iii] attempted to remove the case to the federal level (as ERISA is a federal law). In September, 2015, Judge Stephen Friot of the U.S. District Court for the Western District of Oklahoma remanded the case back to the WCC in no uncertain terms:
The court concludes that the [OEIBA] is part of Oklahoma’s statutory scheme governing occupational injuries and workplace liability; in other words, the OEIBA is part of Oklahoma’s statutory scheme governing workmen’s compensation.[iv]
Since this was the second of two cases that the federal court system drop kicked back to the state level, it seemed to put the argument concerning ERISA’s governance of occupational accidents under the Oklahoma option on the back burner for the foreseeable future. So after this high-profile and unnecessary federal detour, the case came back to the Oklahoma state agency known as the WCC.
The WCC Hearing
When the commissioners took on the Vasquez case, they presumably had no predisposition to offer rulings on the constitutionality of the OEIBA, since their duties do not ordinarily require them to tackle such issues.[i]
Additionally, Vasquez’ counsel stated that ERISA (a federal law) had no applicability to Vasquez’ claim under the Oklahoma option (attempting to appear consistent with the two federal judges who had declined to exercise jurisdiction over such matters). The Vasquez camp did not even believe the WCC had the authority to rule on the constitutionality of the OEIBA (a reasonable position on its face).[ii]
Dillard’s disagreed on both counts, arguing not only that ERISA governed the Vasquez claim, but that the WCC was transformed—for the purposes of this OEIBA case—into the state court of competent jurisdiction under ERISA (29 U.S.C. §1132(d)(1)) with the power to deem statutes constitutional or unconstitutional.
This argument may well have caught the commissioners off guard, as it was completely unprecedented for the WCC. I attended the hearing and estimate that over 90% of the time was spent on esoteric legal concepts mostly unrelated to the matter of whether Ms. Vasquez really did have a pre-existing medical condition that justified the denial of her claim. This was all new territory for this state agency.
As described in more detail below, the WCC granted Dillard’s a hard-fought victory when it ruled, astonishingly, that ERISA applied to Vasquez’ claim. “By golly,” Minick can finally gloat, “we now clearly have case law demonstrating that ERISA applies to the occupational accident aspects of the Oklahoma option!”
But I doubt that Dillard’s bargained for what happened next.
A Pyrrhic Victory
The commissioners accepted the powers Dillard’s argued they had and then used them to rule the OEIBA unconstitutional, simultaneously remanding the Vasquez case to an ALJ to hear within a traditional WC framework and stripping Dillard’s of the perceived advantages of leaving traditional WC to begin with.
The commissioners accomplished this with an unexpected interpretation of Section 211 of the OEIBA. That section spells out the role of the commissioners en banc when hearing appeals. This point is extremely nuanced, so please bear with me as I provide some historical context.
In 2012, the Oklahoma legislature did notpass HB 2155—a bill co-authored by Minick and clearly drafted with the intent to have ERISA as a guiding force. In fact, HB 2155 was littered with the “ERISA” acronym, creating easy fodder for opponents, who used epithets such as “Obamacomp” to strike fear into a very Republican electorate. A year later, the attitude on the Oklahoma option had consolidated: no ERISA. SB 1062 passed with flying colors without one usage of the acronym for the federal law. That cake (SB 1062) baked by the legislature in 2013 was free of any ERISA ingredients—save for one sprinkle on top. The sole remaining vestige[i] that directly points to ERISA is found in Section 211.B.5.:
If any part of an adverse benefit determination is upheld by the committee, the claimant may then file a petition for review with the Commission sitting en banc within one (1) year after the date the claimant receives notice that the adverse benefit determination, or part thereof, was upheld. The Commission en banc shall act as the court of competent jurisdiction under29 U.S.C.A. Section 1132(e)(1), and shall possess adjudicative authority to render decisions in individual proceedings by claimants to recover benefits due to the claimant under the terms of the claimant’s plan, to enforce the claimant’s rights under the terms of the plan, or to clarify the claimant’s rights to future benefits under the terms of the plan. [Emphasis added.]
ERISA includes 29 U.S.C.A. Section 1132.
Even so, the instructions of this subsection might appear to restrict the commissioners to focus merely on the facts of such cases and not on the constitutionality of the statutes governing the cases.
However, the commissioners—feeling their oats as a temporarily recognized court of competent jurisdiction—reasoned that Vasquez’ claims for benefits were “inextricably intertwined” with constitutional challenges, and, hence, that they must address those issues in order to determine Vasquez’ rights.
Effectively, the commissioners accepted the ERISA arguments advanced by Dillard’s, analyzed them, and then stuffed them into a missile so that they could fire a very loud—even if potentially feckless—shot across the bow of opt-out proponents.
I do not interpret this shot as being fired from a group innately opposed to opt-out. I interpret it as a warning: “Get your $*!# together!”
For at least three reasons, I’m grateful to the WCC for the timing and meaning of this challenge to the Oklahoma option. First and foremost, as someone who doesn’t belong to the Oklahoma option-ERISA camp, I appreciate the implication that if opt-out proponents continue to rely on ERISA in Oklahoma, they will set themselves back several years by destroying the only viable alternative to WC in the country aside from Texas nonsubscription.[i] Second, the Dillard’s legal team now has time to step back, take a deep breath, and reconsider its strategy before making its case to the Oklahoma Supreme Court. Third, if the in-session legislature so chooses, the law itself can easily be improved upon. The option works, and it is not a sign of weakness but of adaptability to acknowledge that modifications are necessary (as the WCC’s order clearly indicates).
[i] Of course, ERISA is key in Texas nonsubscription. My goal is to craft the best alternatives to traditional WC programs legally possible. More and more, PartnerSource appears to share that goal only if ERISA is involved.
Although Dillard’s appealed this decision on March 17th, we hazard no guess as to what trajectory that appeal will take. As a reminder, I am not an attorney and nothing in this essay—including the remarks of Mark Blongewicz, who has generously agreed to share his expertise for educational (rather than legal) purposes—should be mistaken for legal advice. I should also mention that I do not speak for any associations or lobbyists.
Finally, I am compelled to point out once more that when WC was initially being enacted a century ago, our society was riddled with equal protection, special law and due process concerns. I suspect the Oklahoma option will take less time than WC did in maturing and adequately addressing these issues—if that is what the people of Oklahoma want.
 As an example of a fact-based claim, consider the case of a truck driver who lives in one state, is employed by a company with facilities (including payroll) in another and is injured in yet a third while driving on a route. All three states have different WC systems, and an argument could be made for the claim to be handled in any of the three venues. A tribunal such as the Oklahoma WCC would simply focus on the facts of the case to establish some basis to determine which is the correct and best venue.
 On Wednesday, Feb. 24, 2016, the WCC en banc was scheduled to hear two appeals: Vasquez v. Dillard’s at 1:30pm, and Pilkington v. Dillard’s at 2pm. The fact that all parties agreed (just six minutes into the session) to combine both cases into a single protracted hearing was only one of many head-scratching developments. All told, the event took about one hour and 45 minutes.
 This hallmark is also the call to arms for attorneys, judges and support staff of all stripes who are stakeholders in traditional WC.
 We suspect that Dillard’s used a plan from PartnerSource that calls for an employer-designated appeals committee followed by an external appeals committee. Such a two-tiered approach might be well and good in Texas nonsubscription, but it is unproven in Oklahoma. Further, we assert that reliance on any employer-designated appeals committee is unwise based on the opinions of at least two Oklahoma Supreme Court Justices (Coates v. Fallin). I am scheduled to obtain details from the WCC on Feb. 29, 2016, and confirm the exact procedures of the Dillard’s plan.
 There was some ambiguity between the original law (SB 1062) and the original rules set forth by the WCC regarding the post-appeals committee process. That process clearly and statutorily changed for all occurrences after Nov. 1, 2015, thanks to the passage of SB 767—last year’s “clean up” bill. Currently, the next steps for appeal—post-appeals committee—are ALJ, followed by the commissioners en banc and, if necessary, concluded with the Oklahoma Supreme Court (mirroring all three steps from traditional WC). While this complication is relegated to footnote status in this essay, SB 767’s due process improvements are noteworthy on a going-forward basis and a reminder of the legislature’s power to improve/modify the law where appropriate.
 This is not to diminish the fact that Bob Burke, counsel for Vasquez, “raised several constitutional issues” and during the hearing spent well over 20 minutes ranting about the unconstitutionality of the OEIBA as a matter of habit. The irony of this outcome is accentuated by Burke’s remark when asked if he thought the WCC could rule on the constitutionality of the OEIBA: “No, I don’t think you can. But I wish you could, because I’ve got a number of constitutionality cases in front of the Supreme Court, and I wish I could bring them to you to decide.” To be clear, it was the Dillard’s defense team that insisted the commissioners had such powers.
 In its order, the commissioners substantiated those powers with the case of Dow Jones & Co v. State ex rel Okla. Tax Commission.
 Some may argue that “plans” and “appeals committees” are inextricably linked to each other and to ERISA. In fact, to read some of Minick’s prose on plans, one would think that any plan ever written is governed by ERISA. University of Oklahoma football coach Bob Stoops, when writing down his game “plan” against Texas next season might consider calling PartnerSource for advice on ERISA compliance. Even industry insiders are often shocked to learn that ERISA never explicitly addresses appeals committees. The reality is that ERISA incorporates several good ideas. The still-maturing OEIBA has demonstrated that it is not at all reluctant to revise, improve upon or incorporate older ideas.
 Of course, ERISA is key in Texas nonsubscription. My goal is to craft the best alternatives to traditional WC programs legally possible. More and more, PartnerSource appears to share that goal only if ERISA is involved.
 We at WokersCompensationOptions.com apologize if, in releasing this essay the first business day after the WCC’s unexpected ruling, we haven’t quite lived up to the research and editorial standards our readers have come to expect from us. We look forward to posting a better, more thoroughly vetted and substantiated version of this piece as soon as we possibly can.
“Transparency” demonstrates whether a product or service has real value to society. It also promotes collaboration and process improvement. So, what does transparency mean, and how can the same standards be applied, in the context of workers’ compensation and the Texas and Oklahoma “options” to workers’ compensation? There are lessons all can learn on a path of progress.
Transparency in Workers’ Compensation
Transparency within the workers’ compensation industry has dramatically improved over the past 20 years, but some aspects remain translucent, at best.
From an insurance agent and employer perspective, workers’ compensation is too often viewed as a complex government mandate to be complied with in the easiest manner possible. Most employers do not have the wherewithal to affect significant claims, dissect an experience modifier or otherwise engage with workers’ compensation systems beyond the review of insurance quotes, the payment of premium and the initial filing of a claim. Who can blame them with so little information readily at hand?
For both employers and injured workers, most states provide little clear information on system rights and responsibilities. When was the last time you got on the Internet and reviewed all of an unfamiliar state’s workers’ compensation laws? Or attempted to find or build your own summary of benefits or claim procedures for an unfamiliar state workers’ compensation system? We go to the “For Employers” or “For Injured Workers” tab on the state system website but see only a high-level review of system benefit requirements and information on how to file a claim. But how is each form of benefit computed? When do they start and stop? What are the other exclusions and limitations on benefits? It is no wonder that employers and injured workers with concerns about their rights and responsibilities on a particular claim often engage legal counsel to navigate.
At a workers’ compensation regulatory level, a few states excel at providing meaningful information that is readily accessible. For example, the Texas Department of Insurance has a research and evaluation group that continually generates good information on system performance. But most states provide little (if any) data on actual workers’ compensation system performance. There is no universal standard or consistency in what scant workers’ compensation information on regulatory costs, injury claim costs, employee satisfaction or other outcomes is available from government agencies at no charge to the general public.
Many nongovernmental organizations (NGOs) do great work to fill this information void. The U.S. Chamber of Commerce, National Academy of Social Insurance (NASI), Workers’ Compensation Research Institute (WCRI) and other high-quality organizations provide helpful summaries of legal differences between state systems, as well as insightful claim data analyses. This information can be very useful to legislators, regulators and large employers, as well as insurance company executives and claim adjusters. It is rarely accessed by small business to affect their cost of workers’ compensation or by injured workers to advance their claim.
The largest workers’ compensation NGO is the National Council on Compensation Insurance. NCCI privatizes the collection and analysis of claims and other statistical data for nearly 40 states and hundreds of insurance companies. NCCI tackles the enormous challenge of making sense of data flowing in disparate fields across different technology platforms, with a talented staff of more than 900 employees. In 2014, NCCI generated $152 million in net sales, with assets of $151 million and total equity of $42 million, for its insurance company members.
Most NCCI data is proprietary and only available at significant expense to member insurance companies and certain state regulators. Only high-level summaries are provided to the general public, and most of that information is macro-focused on premium rate setting and insurance company profitability.
State regulators use NCCI loss-cost projections to help set insurance premium rates. Projected loss-cost reductions are commonly viewed as a direct monetization of recent workers’ compensation law reforms. However, insurance companies are allowed to substantially deviate from those expectations when setting premiums for individual employer policies. Some insurance companies may reduce actual premium rates just enough to maintain credibility in view of recent reforms but maintain premium rates at the highest possible level for the benefit of their shareholders. Workers’ compensation is a highly risky business to underwrite, and shareholders reasonably expect profits. But we should understand that NCCI’s projected loss-cost reductions and premium rate projections may or may not translate to the lower costs employers have been told to expect from reforms.
Transparency in Options to Workers’ Compensation
In comparison to workers’ compensation systems, the option industry is relatively new and does not have a similar, robust infrastructure of NGOs to fill the information voids. But interest in and movement toward option programs is growing daily, and option proponents are committed to transparency.
The states of Texas and Oklahoma begin the process by maintaining employer coverage lists. Texas maintains a searchable database of employers that carry workers’ compensation insurance and a list of employers that do not. Coverage is entirely voluntary in Texas, and employers on this latter list have self-reported (and most likely sponsor) an injury benefit plan. The Texas Department of Insurance indicates that 95% of all Texas workers have either workers’ compensation or injury benefit coverage. Employers on neither Texas list are out of compliance with current legal reporting requirements and may have no workers’ compensation or injury benefit coverage for employees. Those are the companies that truly fit the derisive term “opt-out,” which is unique to Texas. The Oklahoma model and what other states are considering is a more highly regulated “option” to workers’ compensation. For the state of Oklahoma, every employer must have workers’ compensation or be approved as a “qualified employer” (https://www.ok.gov/oid/workerscompreform.html) that sponsors a legally compliant injury benefit plan and satisfies financial security requirements.
From an insurance agent or employer perspective, insurance companies writing option policies have long insisted on a higher level of engagement than is common in workers’ compensation. Such agent and employer engagement requires transparency and understanding. Transparency is emphasized through simple requirements for active, pre- and post-injury communication between employers and employees, particularly on the need for immediate injury reporting, use of approved medical providers and following doctor’s orders. Safety program integrity is also commonly verified, particularly in the Texas Option environment, where both injury benefit and simple negligence liability exposures are insured.
Option injury benefit plan documents and claim procedures have been widely available in the public domain since the early 1990s. These benefit plans are the functional equivalent of a state workers’ compensation statute, describing the plan’s funding, benefit payment and administration processes.
Insurance companies have brought transparency to, exercise substantial control over and bring consistency across a large number of option programs by requiring most employers to use standardized injury benefit plan documents. In Texas and Oklahoma, option insurance companies freely distribute to independent agents their template plan documents and policy forms that vary because of competition on the breadth of coverage. Insurance agents then review these documents (often on a checklist), along with claim procedures and safety requirements with employers interested in implementing or renewing an option program. Employer implementation of the standardized program, including communication to all covered workers, is a condition of the insurance coverage. All injury claims must then be managed by the insurance company’s owned or contracted claims unit. Only large employers are allowed more flexibility to unbundle claims administration and make pre-approved customizations to their benefit plan.
For injured workers, Option plans provide substantially greater transparency than workers’ compensation. Every employee covered by an option plan sponsored by a private employer must be provided a detailed summary plan description (SPD) in accordance with the Employee Retirement Income Security Act. In plain language, the SPD must explain how the plan works, what benefits are available, how those benefits are provided, any exclusions and limitations applying to those benefits and the employee’s rights and obligations under the plan. A highlights section is commonly included at the front of the SPD.
The SPD must be provided within 90 days of an employee becoming covered by an option plan but is routinely provided at the time of hire. Any material change to the plan must also be communicated. All of this information must be provided to each employee in a hard copy or electronically in a manner that satisfies regulatory standards. Another copy of the SPD is also available at any time upon request. Interpretive assistance is required for non-English reading employees.
This transparency fosters employee appreciation for the program, as well as compliance with the accountability requirements found in option benefit plans. Open communication from employers promotes faster accident reporting, earlier medical diagnosis and treatment, a reduction in the number of disputes and less dependence on regulators and lawyers for basic information and claims support.
Every covered employee and beneficiary also has access to the official injury benefit plan document and their claims information. Employers that fail to provide requested information face monetary penalties. Plan participants can include information in and otherwise affect their claim file, and have access to state and federal courts for benefit disputes.
Though available to plan participants, publication of option benefit plans for review by the general public is not required by law. Oklahoma Option benefit plans were publicly available until the 2015 Oklahoma legislature decided to provide broad confidentiality of qualified employer application files in an effort to mirror the application file confidentiality of self-insured employers under workers’ compensation. The idea of establishing a public database of SPDs has also historically proven impractical. For decades, the federal government required employers to file a copy of the SPD for every employee benefit plan. That filing requirement was eliminated in 1997 because the government could not efficiently store the documents, such documents were rarely requested by the public and the related employer and taxpayer expense was deemed wasteful. Perhaps this subject should be revisited in the electronic age.
At a system performance level, most option employers are small companies, with owners relying on their independent insurance agent for periodic updates on their own program performance. But there are also thousands of other workers’ compensation industry professionals who understand and support option programs. Many sophisticated, Fortune 500 risk managers, who are very aware of their brand value and most important asset manage option programs that cover billions of dollars in payroll. Many “A”-rated insurance companies support the option insurance marketplace and write approximately $150 million in annual premiums. Employers, insurance companies and many nationally recognized third party administrators and brokers successfully support resolution of tens of thousands of option injury claims every year. And several nationally respected actuarial firms have confirmed option program success for their clients.
Self-interested opponents of option programs like to theorize about bad things that might happen under an option program, and falsely proclaim that option program savings only occur at the expense of injured workers. But what option industry professionals know from actual experience is that savings come from fewer employees being taken off work, faster return to work for employees who have been disabled and fewer disputes. This all speaks to better outcomes for injured workers and less cost-shifting to state or federal government programs. Those are the facts that truly deserve more transparency and study by policymakers. These facts are already reflected in many studies and reports recently summarized and released as Part 2 of a “Resource Guide” from the Association for Responsible Alternatives to Workers’ Compensation.
Data on tens of thousands of Texas option claims is now in the hands of many insurance companies, third-party administrators and others. For example, PartnerSource prepares statistically credible claim analyses for many individual employers annually and conducts biennial benchmarking studies of Texas option claims across six different industries, covering billions of payroll and hundreds of thousands of workers. These benchmarking studies include sub-industry segmentation and data on the types of benefits, dollar/duration/percentage limits and other injury benefit plan terms most commonly used among option employers, as well as the insurance types, limits and retention levels.
Better-established processes within private industry for aggregating claims data and collective insurance premium price setting seen in the workers’ compensation environment are simply not present today and have not been urgently needed in the option environment. For example, employers that sponsor option programs have focused on the results of their own individual programs. Option insurance companies individually set their own premium rates in a competitive environment, unsupported by the exemptions to antitrust laws and other protections enjoyed by the workers’ compensation insurance industry. Unlike in days of old, insurance companies and individual employers are able to collect and analyze a significant volume of data from their own experience, as well as other publicly available information, to chart their own destiny – something some option opponents fear most.
Undoubtedly, more option industry aggregate data would be instructive and helpful to employers, insurance companies, legislators, regulators and other policymakers. But there is nothing nefarious in the lack of publicly available option data today, and option programs should not be held to a standard higher than workers’ compensation. All of the above-named NGOs that generate workers’ compensation system data have had decades to organize, refine, obtain many millions of dollars in funding for and publish industry aggregate and state-specific information. Data collection and reporting efforts in the option environment are in an early stage of development but can be expected to steadily advance.
This process of gaining additional option industry transparency must be about more than satisfying voyeuristic curiosity. We must also distinguish between what is needed “for the public good” and the self-interest of certain option opponents. Even with approximately 50,000 injuries occurring outside of the Texas and Oklahoma workers’ compensation systems every year, we’ve seen no credible evidence to indicate that workers’ compensation systems generally perform better than option programs in any respect, and option opponents remain unable to muster more than a few anecdotes about option claims that have gone awry. Perhaps this will change as more option claims data becomes publicly available, but it will require independent verification through access to workers’ compensation system data that should also become more publicly available.
Lastly, this process of gaining more option industry transparency must be about more than collecting data at unnecessary taxpayer expense for the sake of saying it has been collected. Note that substantial reporting of option program information has been reported to the state of Texas (on Forms DWC-5 and DWC-7) and the federal government (on Form 5500) at significant employer and taxpayer expense for decades but has not been used for any purpose. So, it should come as no surprise when employers, insurance companies and service providers are unable to support new data reporting mandates without a clear articulation of both the need and value, including regulatory commitment and funding to collect, sort, analyze and report such data.
The Texas Alliance of Nonsubscribers took a neutral position on bills that would have added new option program claims reporting requirements in the 2015 Texas Legislative Session. The alliance is actively working with the Texas Division of Workers’ Compensation to improve employer compliance with and the usefulness of current reporting requirements and to extend workers’ compensation or injury benefit plan coverage to more Texas workers.
Accepting the Call for Option Program Improvements and More Transparency
Employers and industry supporters of options to workers’ compensation support more public disclosure of program terms, claims data and other information and are actively working to achieve it. For example, option program improvements will likely be seen in 2016 as both Texas and Oklahoma employers and insurance companies positively respond to the past year’s dialogue and claims experience by broadening injury benefits coverage for hundreds of thousands of injured workers. Option programs are able to respond to important needs much faster than hyper-regulated systems that only change after protracted legislative and rulemaking processes. New option legislation introduced in other states will also reflect significant enhancements over prior proposals.
Industry conferences are also responding to the need for more information on options to workers’ compensation. This topic has been featured at many professional and regulatory conferences in the past year, and more are scheduled in 2016. In view of widespread interest and the fact that option programs today cover more workers than 23 individual state workers’ compensation systems, these and other national workers’ compensation events should consider going beyond the one-hour session overview or debate. They can include an entire educational track that allows attendees to become truly knowledgeable about option program design, implementation, administration and regulatory requirements.
Investigations of options to workers ‘compensation by the National Conference of Insurance Legislators, International Association of Industrial Accident Boards and Commissions and the U.S. Department of Labor will also be welcomed.
More transparency and transformative change can result when option opponents and supporters simply sit down to work together. Whether discussing injury reporting requirements, compensability, medical expense coverage, financial security or other important public policy issues, civil dialogue matters. Those who are willing to have a reasoned discussion and information exchange will find ready partners on the current path of progress. Because sooner or later, all industries tend to change for the better, and we should be prepared to lead that change or adapt.