Opt-Out Pros and Cons

At the 2016 WCRI Annual Issues & Research conference, a panel discussed the pros and cons of opt-out.  The speakers were Trey Gillespie with PCIAA and Bill Minick from PartnerSource.

It is important to distinguish between Texas and other opt-out models. In Texas, workers’ compensation is not mandatory for private employers. Employers can go completely bare with no coverage if they choose to do so. Most large employers in Texas use opt-out to replace workers’ compensation with an ERISA-style benefit plan. 95% of Texas workers are either covered by workers’ compensation or an alternative benefit plan with a small percentage having no coverage. Texas is unique and that model is not being considered in other states.

The Oklahoma model allows employers to have an option to workers’ compensation and the alternative plan must be approved by the state. The law requires that the level of benefits under alternative plans must be the same or greater than under workers’ compensation.

The bills pending in South Carolina and Tennessee are a hybrid of what is seen in Texas and Oklahoma. The variation has to do with the level of benefits required and whether exclusive remedy exists.

Key differences between workers’ compensation and ERISA-style plans include level of benefits, duration of benefits, terms of eligibility, and what conditions are covered. In workers’ compensation, all of these issues are defined by the workers’ compensation statutes, while in option plans, the employer determines the terms of the benefit plan.

Opponents of opt-out argue that the cost savings achieved by employers is due to a combination of reduced benefits and limited eligibility. They also argue that these costs are, ultimately, born by the injured worker and social welfare programs such as Medicare and Social Security. They also point out that there is a lack of oversight of these programs by regulators. Finally, they argue that there is a lack of data supporting the claims and that alternative plans can provide better benefits to workers at lower costs.

Opt-out proponents argue that, by controlling medical treatment, employers can ensure that injured workers receive the best-possible care. It prevents attorneys from referring workers to providers who increase disability and drive costs. They also point out that a significant amount of the savings is from elimination of the bureaucracy that increases workers’ compensation costs. In addition, proponents point out that the many of the same TPAs and carriers in workers’ compensation are also handing claims under alternative plans.