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Legislative battles: efforts to allow employers to opt out of workers' compensation systems encounter short-term bumps, but proponents say the idea is far from dead.

State legislative attempts in Tennessee and South Carolina to allow employers to opt out of their workers' compensation systems appear to have stalled for 2016, but supporters and opponents--including insurance industry groups--agree that such efforts will be renewed.

The opt-out bills in Tennessee and South Carolina are partly the product of efforts by the Association for Responsible Alternatives to Workers' Compensation to save employers money and--although opponents question it--provide more benefits to injured workers. The plan is based on the Oklahoma opt-out plan that is under legal challenge. Currently, two states allow the opt-out option--Texas and Oklahoma.

The South Carolina Legislature is in the midst of its annual session that runs through early June. The Tennessee Legislature is in the second year of its 2015-2016 session.

In Tennessee, SB 721 stalled last year in a Senate subcommittee after passing through the Commerce and Labor Committee. Ron Jackson, vice president, state affairs, Southeast Region, at the American Insurance Association, said a hearing on HB 997 in the House Consumer Affairs Committee had been canceled. Plans were to hold the hearing, then have a vote in a subcommittee, Jackson said.

However, the bill's sponsors later decided to pull the bill, according to Insurors of Tennessee, a member of the Independent Insurance Agents & Brokers of America. Insurors' Chief Executive Officer Chuck Bidek declared the bill's withdrawal a victory for his group. "This current legislation is bad for business, bad for workers and bad for Tennessee," he said. "We know we may face another version of the bill in future sessions, but this is a step in the right direction."

In South Carolina, H 4197 was left awaiting action in the House Commerce, Labor and Industry Committee, but the National Association of Mutual Insurance Companies said in an email that more-pressing issues will put the bill too low on the priority list to be addressed this session.

But Bill Minick, president of Dallas-based PartnerSource, a consulting firm that has written opt-out policies in Oklahoma and Texas, said in an email that workers' compensation opt-out as an idea is far from vanquished. "It is true that we are encountering bumps in the road in Tennessee and South Carolina," he said.

"That's not unexpected whenever a long-established business model is disrupted by new, innovative processes. We're prepared to make and defend our argument that all parties--except perhaps the entrenched special interests--benefit from choice and innovation," said Minick.

ARAWC, a group partially consisting of large national businesses, has been pressing for the opt-out legislation with much of the Southeast as target states.

A.J. Donelson, a spokesperson for ARAWC, however, had expected legislation to be offered in only Tennessee and South Carolina in 2016.

Donelson said the opt-out gives employers the option of staying within existing workers' compensation systems or choosing the occupational injury benefits provided under the option.

"We do not support employers being able to opt out of state-supervised

occupational injury protections altogether," he said.

"Employers must maintain an occupational injury benefit system," he said.

Donelson said the legislation to have been offered in Tennessee and South Carolina would have required that benefits under the opt-out must be equal to or better than what the current workers' compensation system offers. Donelson said ARAWC seeks a workers' compensation program that communicates better with employees about preventing workplace injuries.

"If they are injured, let's make sure they have a good understanding of what they should do and what's available to them," he said.

Pros and Cons

Critics have attacked the opt-out plan's prompt notice requirement in which employees have 24 hours to notify employers of an injury. But Donelson said this would result in faster medical care for employees while employers benefit from having workers return to the job faster. Donelson said the opt-out plans would cut employer costs and litigation while getting workers back to work faster.

"We think it's a win-win for employers and employees," he said.

But AIA remains skeptical about opt-out backers' claims that their plans could cost less and provide more benefits, or even that the benefits would be equivalent to those of the workers' compensation system.

In some opt-out plans, the AIA claims injured employees face delayed medical care and recovery, cannot visit quality medical providers in a timely fashion and are caught in bureaucratic technicalities.

Steve Schneider, vice president for state affairs for AIA's Midwest Region, said AIA opposes the opt-out system because it doesn't solve workers' compensation problems, isolates both employees and employers and leaves workers with the prospect of suing just to obtain medical care. He said workers are faced with having nothing if they judge the employers' coverage offer to be inadequate. "It's the injured employee who will suffer most under opt-out," he said.

Minick attacked the idea that refusal of option coverage results in no coverage, calling it a myth. He said some injury plans do include a "final compromise and settlement" provision because it was included in some related insurance policies and is part of the Oklahoma Employee Injury Benefit Act.

"But I'm not aware of any case where it has been implemented," he said. "We are recommending that this unused provision be removed from all injury benefit plans." Keeping intact the details of the opt-out programs in legislation has proven to be difficult, said Joe DiGiovanni, AIA senior vice president, state affairs. He said the Tennessee and South Carolina bills changed depending upon the issues the opposition raised. Instead, he said lawmakers should look at cost drivers and address them.

"What is a little difficult for us here [with opt-out legislation] is that we don't know what we're looking at," he said. "We've got a system that is, quite frankly, working well."

The National Association of Mutual Insurance Companies dislikes the opt-out concept and is urging state lawmakers to continue working on existing workers' compensation systems.

"Our main message to legislators is that we need to dig into these programs and understand the problems with them," said Joe Thesing,

NAMIC vice president, state affairs. He said NAMIC would rather focus on items that can be remedied within workers' compensation systems, such as medical cost containment, fraud reduction and changes to benefit design.

Tennessee passed reform legislation in 2013 that moved workers' compensation from a court-based system to an administrative one and the change is starting to pay dividends. However, the AIA's Jackson said the true benefits of that change will be unknown until all of the cases filed before the new system was put in place are addressed.

Jackson said opt-out provisions, such as requiring employees to promptly notify employers of injuries or risk losing their claims if they fail to do so, are where employers may show cost savings, but will leave employees searching for care.

He questioned the opt-out proponents' claims that their system would be good for the worker. "If it's such a good thing, why not talk about these policy provisions in revising the system today?"

A Question for the IRS

The question of whether the opt-out plans provide equal benefits may be determined by the Internal Revenue Service, which has been asked to produce a letter that could set its opinion on whether benefits under the opt-out plans would be taxable, unlike those under workers' compensation.

Ashley Gold, Insurer's general counsel, said this is an unsettled area of the Affordable Care Act. She said federal officials could consider the opt-out plans to be a benefit plan subject to taxation that must meet the law's requirements or have the group be subject to a $100-per-day fine for each individual covered.

"The feds have not fined anyone yet," she said. "But do you really want to be the first person they go after?"

Minick said the majority of Texas and Oklahoma workers covered by injury benefit plans are eligible for higher wage replacement than those under workers' compensation. But he said it appears that only wage replacement benefits appear to be taxable under injury benefit plans--not medical, death or dismemberment benefits. Any tax impact on wage replacement is more than offset for almost all injured workers, since they are not subject to the seven-day waiting period found in workers' compensation, are paid at a higher percentage of pay than those under workers' compensation and are subject to a higher or unlimited weekly maximum.

Insurance industry groups remain wary of the possibility that opt-out legislation will spread to other states in the Southeast and beyond.

Last fall, the Property Casualty Insurers Association of America said opt-out bills could be filed in Arkansas, West Virginia and Georgia. Schneider said it is possible that opt-out legislation could emerge in the Midwest as soon as 2017, maybe in Wisconsin and possibly in Indiana and Missouri as well.

Thesing said there were rumors about other states beyond Tennessee and South Carolina where similar opt-out legislation might be filed, but would not elaborate.

And the National Conference of Insurance Legislators has begun to consider the opt-out issue, having scheduled a pre-hearing discussion on the issue during its late-February Spring Meeting in Little Rock, Arkansas.

"Our most forceful message to states considering this, and to NCOIL, is to focus on reforming the workers' compensation system," Thesing said.

Beyond Opt-Out: Illinois

The Illinois General Assembly was left at a standstill in its attempts at workers' compensation reform last year after the Senate rejected House Bill 1287, a bill that included a prior-approval workers' compensation insurance system, and instead passed Senate Bill 162, a reform bill having the state Workers' Compensation Commission create an ombudsman program and fraud unit. The AIA opposed both bills and neither chamber acted on the other's bill.

Gov. Bruce Rauner renewed his call for workers' compensation reform during his 2016 State of the State speech in late January.

He said fixing workers' compensation would be among several items that could combat job losses in Illinois. "The cost of workers' comp is the biggest factor driving our job losses," he said.

Schneider said the standoff over the bill between Rauner and Democrat leadership continues over workers' compensation and many other issues. "It's a very toxic environment," he said.

AIA plans on talking to leaders in both political parties as well as Rauner's staff about drug and medical fee schedule reform, particularly setting a Medicare rate-based fee schedule that caps the amount of opioids that a patient can obtain during a certain time period.

Key Points

The Big Picture: Currently, Oklahoma and Texas are the only states allowing employers to opt out of their workers' comp systems.

What's Happened: The opt-out bills in Tennessee and South Carolina have stalled in their legislatures.

Down the Road: Similar legislation could be filed in Arkansas, West Virginia and Georgia and headed for Midwestern states as soon as 2017.

Thomas Harman is Washington, D.C. bureau manager. He can be reached at
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Title Annotation:Workers Comp: Opt-Out Option
Author:Harman, Thomas
Publication:Best's Review
Geographic Code:1U7OK
Date:Mar 1, 2016
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