Evolution of Workers’ Compensation: Challenges and Alternatives

At the 2015 SIIA Annual Conference, Chris Mandel and Edward Canavan from Sedgwick discussed the evolution of workers’ compensation and challenges to exclusive remedy. They also talked about alternatives to workers’ compensation.

Workers’ compensation in the United States started just over 100 years ago. One of the events that helped push this forward was outrage over the Triangle Shirtwaist fire in New York. Over 150 people were killed in this event and the families of the workers killed received minimal compensation. Wisconsin and Massachusetts were among the first states to pass workers’ compensation laws. Many initial workers’ compensation laws were found to be unconstitutional because they limited access to the courts for injured workers in exchange for statutory benefits.

The grand bargain of workers’ compensation provided injured workers statutory medical treatment and wage loss benefits in a no-fault system. In exchange for this, employers received exclusive remedy protections so that injured workers could no longer sue their employer in civil courts.

Right now there are many significant challenges to exclusive remedy around the country. Courts in Florida have allowed multiple challenges on the grounds that the laws were no longer constitutional on their surface because the erosion of benefits through statutory reforms had undermined the grand bargain of workers compensation. Courts in Oklahoma have allowed a challenge based on statutory language. Some other states allow exceptions to exclusive remedy based on certain narrow exceptions. Courts have also allowed constitutional challenges to specific components of their workers’ compensation systems including challenges to utilization review in California, medical treatment guidelines in Louisiana, and permanent disability schedules in Pennsylvania.

The remainder of session was devoted to discussing why some employers are seeking an alternative to workers’ compensation in certain states. Texas has allowed employers to “opt out” of workers’ compensation since its inception in that state. Oklahoma now also allows employers to select an “option” to workers’ compensation. There are some employers who feel these alternative benefit plans allow them to provide better benefits to their injured workers in a timelier manner and with lower costs. An employer-based coalition called Association for Responsible Alternatives to Workers’ Compensation (ARAWC) is looking to bring alternatives to workers’ compensation to other states.

There are many reasons why those who are calling for alternatives feel it is a superior process. These include:

• Immediate injury reporting.
• Better medical management.
• Treatment by the best medical providers.
• Increased employee accountability to follow prescribed medical treatment plans.
• Fewer benefit claims disputes.
• Better communication between the employer and employee.
• Potential for indemnity benefits that are higher than workers’ comp including elimination of a waiting period.
• Improved safety environment for employers.

The decision to choose the option in Oklahoma flows as follows:

• Employer obtains workers’ compensation and option insurance quotes.
• Employer chooses the option and designs an injury benefit plan.
• Proposed plan and financial security are reviewed and approved by Department of Insurance.
• All employees receive full communication of benefits, rights, and responsibilities.

Among the keys to a successful alternative plan include good analysis of available data, accurate provider scoring to identify physicians producing the best outcomes, and investment in a superior safety and loss control program.

Right now, ARAWC is focusing on Tennessee and South Carolina with bills pending in both states. They are hopeful these will pass in 2016.