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

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

The legislation passed the Oklahoma state Senate Tuesday by a vote of 35-12. Gov. Mary Fallin said she "looked forward" to signing the bill.

While Fallin may "look forward" to signing the bill, the opt-out provision has drawbacks, according to a report prepared by consultants in Tennessee when that state was considering a similar provision.

Tennessee ultimately decided against the opt-out provision.

According to the report, any state that mandates the ERISA-type system envisioned in Oklahoma would be federally pre-empted from any enforcement authority on non-workers' compensation benefit plans.

"In such cases the state would lose practical enforcement control 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 in opposition to the provision.

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

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

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

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

"Additionally, there will be a loss of premium revenue," the Tennessee report says. "However, disability income and other liability insurers likely will see an increase in premium revenue. In any case, gains and losses from different insurers should not drive public policy on this issue."

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

"We are talking with other states," said Bill Minick, president of PartnerSource, adding that workers' comp costs are significant in those states.

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

Mike Seney, senior vice president, policy analysis and strategic planning for the Chamber of Commerce of Oklahoma, drew distinctions between the Oklahoma provision and the opt-out system in Texas. He says that unlike Texas, the Oklahoma program will only be available to employers who had a specified financial strength and loss experience.

The Oklahoma plan also requires the employer to provide some level of benefits for sickness, injury or death not due to an occupational 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' what it really is: Alternative Coverage rather than opt-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 to remove themselves from the Oklahoma workers compensation system must still provide equivalent benefits to their workers," he says.

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

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

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

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

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

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

Special Reports /

Oklahoma Passes Bill Allowing Employers to Opt Out of Workers' Comp System

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