Expert Commentary

Workers Compensation Options in Claims Management

Claims management and financing options around workers compensation insurance are evolving. While, for over 100 years now, handling employee injury claims in Texas has been possible (and even common) outside the state's workers compensation statute (if an employer is a qualified nonsubscriber), a variation of this "option" has emerged in Oklahoma (effective February 2014) and is currently being pursued in Tennessee. The development of these alternative approaches to claim management and financing encompass the mission and objectives of the newly minted Association for Responsible Alternatives to Workers' Compensation (ARAWC) organization. 


Claims Management
April 2015

ARAWC was established in early 2014 by a collaborative group of employers and their provider partners and quickly put key people in place to pursue option legislation in selected states, Tennessee being the first. These efforts are deployed on behalf of US employers to deliver workers compensation options in states where significant opportunities for enhancing employee injury claim systems exist.

Opting Out

Workers compensation is dictated by separate statutes in every state. Only Texas and Oklahoma offer the freedom to "opt out" of the statute, though municipal employees in Tennessee also currently have this option. In each case, the way the option system functions is distinct. In Texas, opting out is known as "nonsubscription" and has been in existence for more than 100 years. Most participant employers have achieved better outcomes and dramatic cost savings for many claims. Over time, nonsubscribers also often experience significant reductions in frequency and length of disability. These and other outcomes are what employers work hard to achieve within a traditional workers compensation system, but their efforts are often impeded by statutory requirements that can bring bureaucracy and controversy to what should otherwise be easily resolvable claims.

In 2013, the state of Oklahoma enacted new workers compensation legislation in SB 1062 (effective February 2014), which allows any employer to exit, or opt out of, the state's statutory system and offers employers the opportunity to manage employee injury claims in a way that is more consistent with its culture and priorities. While not exactly like "nonsubscription" in Texas, this new alternative for responding to and financing injury expenses and related benefits is a significant move forward for Oklahoma employers.

State-Specific Opportunities

In this free market alternative to statutory workers compensation insurance, the key focus is ensuring injured employees are treated respectfully and compensated fairly in the aftermath of an on-the-job injury. Just as there are significant differences between what Oklahoma has done and what has been in place in Texas for years, there are state-specific opportunities to improve the claims management and financing processes in many other states. And while this does not radically change the fundamentals or best practices of claims handling, it does improve the chances that they can be successfully implemented and executed.

Where Oklahoma's SB 1062 offers employers that choose to opt out of the statutory system the opportunity to substantially reduce work-injury costs (50 percent cost reductions are common in Texas) and avoid the system's extensive rules and regulations, ARAWC leaders are establishing similar goals for other states for the benefit of employers and employees. Two key statistics reflect a clear basis for why Oklahoma changed and improved its approach to employee injuries, even in the midst of simultaneous reform of its statute. These include:

  • Oklahoma employers cited that workers compensation cost was the number 1 reason they were either leaving the state or adding jobs at facilities located in other states such as Texas.

  • 2012 National Council on Compensation Insurance statistics showed Oklahoma loss costs to be 225 percent higher than neighboring states.

Currently, all but these two states effectively mandate workers compensation insurance or self-insurance (though still subject to statutory rules) as the sole options for employers to manage employee injuries. Option strategies expand the delivery of better medical outcomes to injured employees by expanding employer choices in other states.

Experience under an alternative employee injury benefit platform has proven to achieve higher employee satisfaction and enhanced state economic development opportunities. Over the past 2 decades, Texas nonsubscribers have achieved better medical outcomes for hundreds of thousands of injured employees and saved billions of dollars on occupational injury costs. While moves in other states are not necessarily mirroring the Texas or Oklahoma models, they are leveraging the 100-plus years of experience in Texas and what is emerging from Oklahoma's new option alternative to drive a strategy for process improvements and lower costs in employee injury systems where impactful changes are often long overdue.

Core Benefits

The key core benefits that are expected from having an opt-out alternative in other states include but won't necessarily be limited to:

  • delivering better medical outcomes and higher process satisfaction for injured employees without the cost and burden of traditional statutory workers compensation and

  • driving state economic development through the attraction of employer savings and a more efficient claims management process.

Providing employers more choice in how they handle and finance injuries can positively impact employees, employers, and other stakeholders. Experience shows that competition with traditional workers compensation insurance has reduced premium rates and improved claims management services. Enabling choice in program design and claim processes increases employer participation in employee recoveries and allows employers to hold all service providers more accountable for results and outcomes.

Other Benefits

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 and better medical outcomes. Option proponents 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 include:

  • improved workplace safety and training supporting injury prevention;
  • expanded access to more quality medical providers offering 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 care to enhance recovery;
  • early identification of potentially complicated medical conditions and securing appropriate medical treatment to aid recovery; and
  • improved communications with injured employees to address benefit questions, assist with early return to work, and more fully engage employees in their recovery.

States ripe for improvement in many of these areas around employee injury handling are under review by option proponents, and socialization of this approach is being pursued in several other states. On February 12, 2015, a bill was introduced in the Tennessee legislature by Senator 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 in 2015, the speed of change will have accelerated dramatically because it took approximately 3 to 4 years to move similar legislation in Oklahoma.

One key argument for the change in Tennessee is that the current average cost of workers compensation insurance is $1.30 per $1,000 of payroll compared to the $0.60 rate achieved over time by the Texas nonsubscription program—a major attraction to many existing and prospective employers in the state.

Several other states are continuing to be vetted for prioritized change efforts. The process for change includes drafting state-specific legislation, securing a highly respected bill sponsor, gaining the endorsement and support of major employer players in targeted states, and beginning the formal process of socializing and educating key stakeholders instrumental to passing new legislation in the targeted states.

Conclusion

Change of this type and magnitude is not easy. It upsets many apple carts and shifts the paradigms of many entrenched interests. However, current proponents for change have a thoroughly developed strategy for driving legislative change allowing for an option to statutory workers compensation one or two states at a time. While this change is a priority for an increasing number of employers, the nature of this beast is such that it will take some time to achieve. Many states will clearly benefit from giving employers a choice, and that choice can drive the type of results seen in Texas and hoped for in Oklahoma. If you want to learn more and get involved, please visit www.arawc.com.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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