'Darker Possibility' For Workers When Employers Opt Out of Workers' Comp

Injured workers face "inherent conflict of interest," barriers to benefits, "unequal treatment," limited appeals and little to no independent oversight when employers opt out of state-regulated workers' compensation, according to a new study.

The report from the International Association of Industrial Accident Boards and Commissions is the first independent assessment of an emerging "opt out" alternative to workers' comp since NPR and ProPublica began reporting on the phenomenon last year.

The association focused on Oklahoma, which permits employers to dump state-mandated workers' comp benefits and regulation in favor of their own workplace injury plans. It also looked at proposed legislation in Tennessee and South Carolina.

Injured workers could and do benefit, the association said, when benevolent employers voluntarily provide generous payments and act in the "best interests" of employees.

But that's not always the case, it found. Little or no state or federal oversight, fewer state-mandated benefits and extensive employer control "[afford] the darker possibility of minimal statutory benefits, stringent claims determinations, and a dispute process that seems unfair to claimants."

The study comes amid growing debate among employers, insurers, service providers and worker advocates about the nation's century-old workers' comp system. NPR and ProPublica have documented what critics call a "race to the bottom" as more and more states reduce benefits, give employers more control over benefits decisions and make it more difficult for injured workers to qualify for medical care and payments for lost wages.

Opt-out provisions in state law, which took effect in Oklahoma in 2014, give employers the ability to write and administer their own plans without much, if any, state oversight. NPR and ProPublica analyzed almost all of Oklahoma's opt-out plans and found that most provide fewer benefits, give employers more control over medical treatment and place appeals in the hands of employers.

Ten Democratic members of the U.S. House and Senate asked the U.S. Labor Department to investigate the opt-out system, as well as other changes in state workers' comp laws. In an NPR interview, Labor Secretary Thomas Perez said his agency is investigating opt-out plans but declined to provide details.

Perez called opt out a "pathway to poverty" for injured workers. About 1.5 million workers in Texas and Oklahoma are covered by the plans.

The IAIABC report is especially skeptical of claims that opt-out plans cut costs, minimize litigation and bureaucratic delays, result in quicker and better medical treatment and serve injured workers better.

"There are few uncontested facts about the operation of the opt-out system," the study says. "Public policy of this gravity deserves independent research, transparent accountability of regulatory agencies, and reporting by the state on the performance of opt out," the study concludes.

Bill Minick of Dallas-based PartnerSource, who writes and administers opt-out plans and helped write the Oklahoma law, disputes some of the study's conclusions and says evaluations conducted by actuarial firms, insurance companies and others tell a different story. He pointed to a March study by Stanford University law professor Alison Morantz, which looked at a sampling of large Texas companies and found that bypassing the state workers' comp system reduced worker injury costs by 44 percent.

Morantz said her study did not measure whether workers were better off under the plans or whether the cost savings came at their expense. "Some employees clearly fare worse," Morantz wrote.

The IAIABC is a nonprofit group representing workers' comp regulators and agencies in the United States and abroad. IAIABC Executive Director Jennifer Wolf Horejsh says the study does not take a position "for or against opt out" but instead educates the group's members as lobbyists work to spread the concept to a dozen states.

IAIABC also plans to distribute the study to members of Congress and officials at the U.S. Department of Labor, who are under pressure to enforce a federal workplace benefits law that may apply to opt-out plans.

Minick and other opt-out promoters say the plans are governed by the federal Employee Retirement Income Security Act, or ERISA, which presumably pre-empts state law and regulation.

"Opt-out employers and their agents face fewer regulatory mandates compared to [state] workers' compensation," the study found. "Under ERISA, the plan owner has complete freedom to change the benefit plan details at will."

But as the IAIABC study notes, the Labor Department "has not publicly weighed in on the scope of its authority" to regulate opt-out plans under ERISA.

Without being specific, Minick says PartnerSource will recommend further clarification and expansion of opt-out benefits, including removal of "exclusions and limitations" that have triggered lawsuits, congressional concern and the Labor Department probe.

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