Oklahoma is joining Texas as the only states that allowemployers to opt-out of the workers' compensation system.

Under S.B. 1062, Oklahoma employers would have to offer injuredemployees alternative benefit systems that are governed by thefederal Employee Retirement Income Security Act (ERISA).

The legislation passed the Oklahoma state Senate Tuesday by avote of 35-12. Gov. Mary Fallin said she "looked forward" tosigning the bill.

While Fallin may "look forward" to signing the bill, the opt-outprovision has drawbacks, according to a report prepared byconsultants in Tennessee when that state was considering a similarprovision.

Tennessee ultimately decided against the opt-out provision.

According to the report, any state that mandates the ERISA-typesystem envisioned in Oklahoma would be federally pre-empted fromany enforcement authority on non-workers' compensation benefitplans.

"In such cases the state would lose practical enforcementcontrol over benefit amount, eligibility or delivery mechanism,"the Tennessee consultants' report said.

"Clearly, they cannot regulate as they can under workers'compensation," the report notes.

The American Insurance Association lobbied strongly inopposition to the provision.

Bruce Wood, AIA associate general counsel & director ofworkers compensation, says, "AIA is disappointed by the outcome ofworkers' compensation reform legislation in Oklahoma.

"Restructuring CompSource, a state-based insurance system,permitting employers to abandon the workers' compensation systemand changing existing benefits to the workers' compensation systemare all ill-considered and bad public policy measurers containedwithin this bill."

Wood adds, "We would have preferred to see a bill that betteraddressed the cost-driving measures of Oklahoma's workers'compensation system."

The Tennessee report says AIA pointed out to the authors theuncertainty in pricing risk on workers' compensation coverage, aswell as the inability to accurately balance experience if somecompanies out-out of the system.

"Additionally, there will be a loss of premium revenue," theTennessee report says. "However, disability income and otherliability insurers likely will see an increase in premium revenue.In any case, gains and losses from different insurers should notdrive public policy on this issue."

Dallas-based brokerage PartnerSource, a division of Arthur J.Gallagher Risk Management Services, Inc., lobbied for the bill, andsays other states are taking a long, hard look at the opt-outoption.

"We are talking with other states," said Bill Minick, presidentof PartnerSource, adding that workers' comp costs are significantin those states.

"Many people in the workers compensation area are recognizingthat this continued cycle of reforms is producing inconsistentresults at best," he said. "And it is time to take a hard look atdeveloping more of a free market, competitive approach to workerscompensation coverage."

Mike Seney, senior vice president, policy analysis and strategicplanning for the Chamber of Commerce of Oklahoma, drew distinctionsbetween the Oklahoma provision and the opt-out system in Texas. Hesays that unlike Texas, the Oklahoma program will only be availableto employers who had a specified financial strength and lossexperience.

The Oklahoma plan also requires the employer to provide somelevel of benefits for sickness, injury or death not due to anoccupational injury.

And, unlike Texas, it does not allow companies to go "naked,"that is, without any kind of workers' compensation coverage.

 He says, "We prefer to call the 'Oklahoma Option' whatit really is: Alternative Coverage rather thanopt-out."

Seney adds that, in Texas, an employer can opt out and "go bare"with no coverage for their workers. 

"The 'Oklahoma Option' requires that any employer choosing toremove themselves from the Oklahoma workers compensation systemmust still provide equivalent benefits to their workers," hesays.

The National Council on Compensation Insurance estimates thatthe sweeping reforms mandated by the legislation would save $125million in workers compensation claims costs annually.

AIA's Wood says most of the savings would come from cuttingdisability payments.

Under the bill, temporary total disability payments would beavailable for two years instead of three, for example, and would belimited to 70 percent of the state's average weekly wage—about $550a week—no matter how high a worker's original salary.

Wood and Democrats in the state legislature are criticizing thebill because the cuts would be endured by workers, but little wouldbe done to curb soaring medical costs.

Wood said one positive in the Oklahoma bill is that it embracesan administrative system for adjudicating disputes, jettisoning thecourt-based system.

He says, "We have long-urged Oklahoma to adopt an administrativesystem and are encouraged by this step forward."