Filed Under:Claims, Litigation

Calling the 'Option': Exploring alternatives to workers' comp

The workers’ compensation system in place today has not dramatically changed since it was created over 100 years ago. State legislatures spend inordinate amounts of time each year chipping away at one edge of a program while patching up another. In the end, one interest group wins and another loses, but the injured worker gains little benefit.

Everyone can agree that employees need protection and assistance for workplace injuries, but there isn’t enough agreement about what role the true stakeholders—employees and employers—should play in an occupational injury benefit program and management of those injuries.

Approximately 25 years ago, Texas employers began moving away from traditional workers’ compensation insurance and “nonsubscribed” from the mandate. Employers choosing nonsubscription build and manage their own occupational-injury benefit programs with benefits and medical management processes that are clearly communicated to their employees. In Texas, one-third of all employers are covered by nonsubscription, or what we call the “Texas Option.”

Oklahoma watched as the Texas Option lowered costs, created better medical outcomes, and built a competitive business advantage. Oklahoma decided to pass its own Option in 2012. Although the two programs differ in some ways, they each contain three components required to protect all stakeholders: employee accountability, medical management control and free-market competition. Oklahoma employers are now starting to elect the Option and build ERISA-compliant plans that will drive down costs and increase positive outcomes for injured workers.

On the heels of legislative success in Oklahoma, employers, Option brokers, TPAs, and other program service providers saw the opportunity to present this free-market alternative to workers’ compensation in other states. A core group formed the Association for Responsible Alternatives to Workers’ Compensation (ARAWC—pronounced “a-rock”) to advocate for the Option in other states. In less than one year, the organization has hired an experienced staff, completed due diligence research in nearly a dozen states, and selected the first two states in which to engage legislatively.

ARAWC plans to work with employers, legislators and others in these two states during the 2015 state legislative session to form state-specific Options. ARAWC has model legislation to provide a framework for what factors states should consider when crafting an Option, but its plan remains flexible and recognizes that each state might have different issues that need to be addressed.

ARAWC believes that an Option should include some key features, including good communication with employees, the process for the employer’s election to use an Option, the type of benefits covered by an Option, how disputes are addressed, other employee protections, and what kind of financial security requirements might apply. Oklahoma elected to vary from some of the features of the Texas Option.

Many employers in Texas see annual savings of more than 50% in their workers’ comp costs. The Option in Oklahoma has already begun reducing costs across the board. ARAWC believes that without excessive regulations, red tape and mandates, costs will come down and employees will see better medical outcomes.

One ARAWC member with multiple retail locations in Texas recently reminded us of its experience when switching from workers’ compensation to the Texas Option around 2004. In year one, the company saw a 60-65% drop in costs. The member surveyed employees during that time and found that the program did not feel any different to them, while providing better benefits. The member also mentioned that its Option allowed the company to locate the best doctors for its injured workers, not just the cheapest.

This is just one instance of the win-win scenario an Option can provide the actual stakeholders of workplace injuries. Of course, the Option faces opposition because it creates competition for an entrenched industry; however, with the Texas experience and Oklahoma’s recent bold changes, there is growing interest in other states to explore an Option.

ARAWC desires to see more states elect an Option, and realizes that our goal will require educating all interest groups and stakeholders. We are willing to make this investment for the sake of employers and employees across the country. Our members already know that an Option creates competition, which lowers costs to employers and results in better care for injured workers.

For more information about the Association for Responsible Alternatives to Workers’ Compensation, visit www.arawc.org.

Richard Evans is the executive director of ARAWC and is a governmental affairs consultant in Austin. He has nearly 20 years of experience with workers’ compensation issues and over 10 years with the Texas Option.

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