By Bill Kidd, Central Bureau Chief
Legislation that would make Oklahoma only the second state in the nation to allow employers to opt out of the workers’ compensation system has cleared both houses of the state Legislature, but the final language hasn’t been determined as lawmakers work out differences in two versions.
Both the House of Representatives and the Senate approved the â€œOklahoma Employee Injury Benefit Actâ€ but in separate measures.
Senate Bill 1378 by Senate President Pro Tempore Brian Bingman, R-Sapulpa, passed Wednesday by a 27 to 17 margin in the Senate and was moved to the House.
House Bill 2155 by Speaker of the House Kris Steele, R-Shawnee, passed on Tuesday with bipartisan support on a 70 to 22 vote in the House and was moved to the Senate.
Both bills began as identical measures but supporters of the bills say possible changes to them are being discussed by lawmakers. The bills were passed to meet a legislative deadline for considering measures.
Ultimately, one revised bill is expected to be drafted and sent to each chamber for a final vote.
The measures would allow qualifying employers to offer benefit plans regulated by the federal government under the Employee Retirement Income Security Act (ERISA) to provide medical and indemnity benefits to injured workers, as an alternative to workers’ compensation.
The bills state that the Legislature “finds that certain employers, by virtue of the number of employees employed by the employers or the nature and type of the work undertaken by their employees, are experiencing significant costs associated with claims for occupational injuries subject to the Workers’ Compensation Code.â€
“The Legislature has determined that the inability on the part of those employers to effectively and efficiently manage these claims has contributed to the increased costs associated with such claims and has resulted in reduced efficiency in the treatment of injured employees,” the bills say.
Both versions of the legislation would allow an employer to opt out of the state’s otherwise mandatory workers’ compensation system if certain conditions are met. In order to qualify, an employer must:
— Have employed at least 50 workers during the preceding calendar year.
— Have a workersâ€™ compensation experience modifier, as reported by the National Council ofÂ Compensation Insurance (NCCI), “greater than one (1.00) for the preceding Oklahoma workersâ€™ policy year.”
— Have total annual incurred claims, “as reflected in an NCCI experience modifier worksheet or their workersâ€™ compensation carrier loss runs,” greater than $50,000 in at least one of the three preceding Oklahoma workersâ€™ compensation insurance policy years.
Qualifying employers, who adopt alternative plans, would have the same exclusive remedy protection as employers under the workersâ€™ compensation law.Â
The Oklahoma Injury Benefit Coalition (OIBC) and the Oklahoma State Chamber, both employer groups, support the legislation. Insurers, however, are opposed.
Joe Woods, vice president and regional manager of Property Casualty Insurers Association of America (PCI) in Austin, said benefits under the opt-out plan for injured workers would be more limited than those provided through workers’ compensation.
What’s more, the legislation does not include an effective dispute resolution system, Woods said. “Everything would be done through arbitration,” and the arbitrator could be a company employee, he said.
Woods said PCI also worries that allowing some businesses to set up alternative plans would damage future efforts to reform the system.
Under HB 2155, Oklahoma’s larger employers could leave the system and lose their motivation for changing it — while the smaller employers left in the system might “lack the political juice” needed to force changes, Woods said.
Bill Minick, president of PartnerSource, a Dallas-based provider of services to Texas nonsubscribers, who has worked with OBIC on the legislation, said passage of the opt-out measure â€œwill be a game-changer for workersâ€™ compensation â€¦ not just in Oklahoma but nationally,â€ by encouraging other states to consider similar plans.
Asked by WorkCompCentral why the OIBC proposal has been limited to larger employers with high loss histories, Minick said the provisions were to â€œdeal with insurance carrier concernsâ€ over â€œprotecting their turf.â€
The opt-out plan also has come in for criticism by OklahomaWorks.org, which describes itself as “a coalition of stakeholders and interested parties committed to protecting and preserving the newly reformed Oklahoma state workers’ compensation laws.”
On its website, OklahomaWorks.org argues that the opt-out plan would weaken the workersâ€™ compensation system, pass costs on to taxpayers, and isnâ€™t necessary given last yearâ€™s workersâ€™ compensation reforms under Senate Bill 878.
â€œOklahoma businesses will see substantial reductions in workersâ€™ compensation premiums over the next few yearsâ€ due to the changes, the website reported. WorkCompCentral did not receive a response Wednesday from the organization regarding its membership.
Tulsa attorney Steve Edwards, who has represented OIBC in its legislative efforts, told WorkCompCentral that the â€œfinal languageâ€ for the opt-out bills hasnâ€™t been completed. Edwards didnâ€™t specify what the possible changes might be, but Minick said â€œa lot of peopleâ€ have been asking that the criteria for participating in the program be expanded to more employers.
Other provisions of HB 2155 include requiring that qualifying employers obtain a minimum of $300,000 coverage, in the form of a bond or insurance policy (from an insurer with an A.M. Best rating of A- or better) to be filed with the Oklahoma commissioner of insurance.
The $300,000 insurance is intended to cover an employeeâ€™s medical expenses for least 156 weeks, 80% of an employeeâ€™s pre-injury pay for at least 156 weeks and $100,000 for accidental death and dismemberment.
Qualifying employers would notify the insurance commissioner of their decision to opt out of workersâ€™ compensation, and pay a $2,500 annual fee to the Insurance Department. The commissioner would monitor and collect information on the employersâ€™ compliance.
Meanwhile, employers in Texas — so far the only state where subscription to the workers’ compensation system is optional — are keeping a close eye on their neighbor to the north. Bernie Hauder, a Dallas attorney who defends nonsubscribing employers in workplace injury suits, said some of his clients are worried that pressure to repeal Texas’ voluntary system will build if Oklahoma’s experiment fails.
Hauder, a shareholder in the Adkerson, Hauder & Bezney law firm, said Wednesday he thinks those worries are overblown because Oklahoma’s proposed ERISA-based alternative system is fundamentally different than Texas’. For one thing, Texas employers who choose not to participate in the workers’ compensation system are not required to provide an ERISA benefits plan. For another, Texas employers who don’t subscribe but do offer an ERISA benefits plan are not protected against negligence suits. Oklahoma’s plan, in contrast, would require employers to offer an ERISA plan if they choose not to participate in the workers’ compensation system.
Hauder said he’s studied the Oklahoma legislation and at first blush it appears to offer more protection, at least long-term, to self-insured employers than insured employers. He said self-insured employers that opt out of workers’ comp will likely include provisions in their ERISA benefit plans that give the claims administrator “discretionary control” over claims management.
Case law in the U.S. 10th Circuit Court, which includes Oklahoma, has established that if discretionary control is given, federal judges can overturn decisions by ERISA plan administrators only if their actions are arbitrary and capricious. A federal judge may disagree that a claims administrator made the right decision, but cannot overturn a decision that is reasonable.
If a provision for discretionary control is not provided in a benefit plan, then federal judges will review the plan administrator’s decision “de novo,” which means the judge can overturn the decision even if it is reasonable if the judge believes a better course of action is warranted.
Hauder said insurance companies will likely adopt ERISA benefit plans that give the plan administrator discretionary control, but there’s a chance such plans could later be overturned by state legislation or the Oklahoma insurance commissioner.
ERISA generally prevents state legislatures or regulators from tinkering with the makeup of employee benefit plans, Hauder said. However, the federal courts have generally held that state regulators can exercise control over insurance regulation, which creates a chance that alternative comp plans sold by insurance companies won’t include discretionary control.
Hauder said nothing in current law or policy would stop insurers from putting discretionary control in their alternative comp plans and most likely will include a provision to do so. However, he said it is possible that at some point the future of the Oklahoma Legislature could pass a low or the state insurance commissioner could adopt a regulation to prohibit discretionary control in alternative comp plans. The state would not, however, be allowed under the ERISA law itself to tinker with the structure of alternative comp plans set up by self-insured employers because no insurance regulation is involved.
Hauder said that concern is relatively minor compared to the benefits that an alternative workers’ compensation coverage plan would provide to Oklahoma employers. However, he has one more concern with the bill as now drafted. The Oklahoma legislation would allow only insurers with an experience modification greater than 100% to opt out of workers’ compensation, Hauder noted.
Hauder said he imagines that provision was added to the bill because lawmakers intend to allow nonsubscription as an alternative for employers who have been priced out of the workers’ compensation system because of their poor safety records.
But Hauder said allowing only employers with poor experience modifications to nonsubscribe creates an odd incentive for employers who don’t qualify because of their good safety records.
“If you like this (alternative ERISA plan) and you’re sitting there with a .95 experience modifier, what are you going to do? Do you go out and hurt someone?”
Hauder said he doesn’t believe any employer would actually choose to cause or allow a workplace accident in an effort to nonsubscribe, but he still is concerned that the bill creates a misguided incentive for lax safety.