More States to Offer Work Comp 'Opt-Out'?

As we are all too familiar, the handling of workers' compensation is dictated by statutes in all states. Only Texas and Oklahoma offer the freedom to “opt out” of the statute, and their approaches are quite different. In Texas, “non-subscription” has been around for more than 100 years. Practitioners have achieved dramatic costs savings and better outcomes for many claims. Over time, non-subscribers 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 many claims. In February 2013, the state of Oklahoma enacted workers’ compensation legislation, SB 1062, which allows any employer to exit, or opt-out of, the state’s statutory workers’ compensation system. While not exactly like  “non-subscription” 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. A key focus is on ensuring injured employees are treated respectfully and compensated fairly. 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 in many other states. Enter the Association for Responsible Alternatives to Workers' Compensation, or ARAWC (pronounced “A-Rock”). This national coalition of employers and workers' compensation system providers has formed after many realized the benefits achieved in Texas and those anticipated in Oklahoma. Where 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 show why Oklahoma changed:

• Oklahoma employers said that workers' compensation costs were the #1 reason they were either leaving the state or adding jobs at facilities located in other states, such as Texas.
• National Council on Compensation Insurance (NCCI) statistics for 2012 showed Oklahoma loss costs to be 225% higher than those in neighboring states.

ARAWC is now developing strategies and plans that will identify the states where statutory change can bring the most benefit to both employers and employees through a more effective, efficient mechanism. The founders expect that their efforts will enable the delivery of better medical outcomes to injured workers and give employers more choice on how employee injuries will be managed. The organization will be announcing its first target state at the first of the year. Currently, all but Oklahoma and Texas effectively mandate workers’ compensation insurance as the sole option for employers to cover employee injuries. The Texas and Oklahoma options are not currently available elsewhere. 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 non-subscribers 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 more than 100 years of having options in Texas and from 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. It is important to remember that ARAWC views an option as a positive, competitive complement to workers' comp, not necessarily a replacement to the current system. Some of the core benefits that ARAWC will be seeking include:

• 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.

This newly minted organization was established and is governed by a founding board that includes many Sedgwick clients that, in some cases, have tens of thousands of employees throughout the U.S. and have an intense interest in seeing those employees helped by a better-designed and -managed system. 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 gaps in many current systems. Some of the other expected benefits of ARAWC’s strategy for employees 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.

Nationwide, the experience under alternative employee injury platforms will provide employers the option of alternative mechanisms, which can result in:

• A more competitive insurance marketplace -- experience shows significant rate reductions when choice is introduced.
• Improved incentive for existing workers’ compensation providers to improve services and pricing, knowing the employer has an option to be more engaged in helping injured workers recover and return to work more quickly and efficiently.
• Incentives for medical providers to act in the best interests of the employee and improve levels of service
• Expanding employee access to medical providers who do not accept workers’ compensation patients because of low fee schedules and paperwork.
• An injury benefit plan that can more efficiently deliver care to and achieve better medical outcomes for injured workers.

ARAWC shows what an often inefficient system can motivate: change that can benefit all participants while reducing bureaucracy and many other negative elements. As the conversations that ITL is driving are focused on disrupting the status quo, what better place to start than with choice in workers' compensation?