Workers' Compensation Opt-Out: Little Interest by Contractors
When it comes to opting out of state-run workers’ compensation systems, construction isn’t joining the party.
Lawmakers have introduced bills permitting an opt-out alternative to state workers' compensation programs in Tennessee and South Carolina. If approved, those states would take their place alongside Texas and Oklahoma as the only ones that give employers an out.
And while companies such as Costco and Tysons Foods are much more likely to opt out, hoping to limit workers compensation premiums that mostly head higher with climbing health care costs, opt-out so far has shown little appeal among construction employers.
Contractor associations in Texas and Oklahoma seem to lean toward mandatory participation in the state workers' compensation system.
Insurance professionals sometimes argue that opting out is burdensome to smaller employers because the alternative to a state workers' compensation system would be self-insuring.
In Oklahoma, a law taking effect February 2014 allows employers to apply for qualification to opt out of the state's workers' compensation system.
But just a few construction-related companies have opted out, out of the almost 60 companies across all industries which have done so since the law passed.
The Association of Oklahoma General Contractors also runs its own contractor workers' compensation program.
Differences Among States
Workers’ compensation programs are established by state law and modified by court decisions. No two states are exactly alike, so coverage, benefits, medical care, claims and dispute resolution vary.
In addition, state law dictates whether workers’ compensation insurance is provided by state-run agencies and private insurers or by a state program.
Fast-increasing medical costs that drive premiums higher have been a big worry for employers and insurers.
Usually, employers that opt out of state-run plans create a workers' compensation plan that suits their needs. Supporters argue that saves the employer money and allows them to create competitive plans to attract employees. Critics say that the benefit plans that substitute state plans have burdensome injury exceptions and reporting and accountability requirements.
A joint investigation by reporters at ProPublica and National Public Radio published in mid-October brought public scrutiny to workers' compensation opt-out. The reporters' sources suggested that opt-out in Texas and Oklahoma has reduced the quality of care for injured workers, even as the alternative plans save employers money. The plan has gained significant support among major employers across many industries, but not construction.
Glass Supplier’s Successful Opt-Out
Supplier TriStar Glass, Catoosa, Okla., is one company that has opted out and is pleased with the result.
Karen Kelly, controller of TriStar Glass, says the company had many problems with the state workers’ compensation system, particularly in terms of accountability for the employees who made claims and climbing premiums.
The transition to an alternative plan has been positive, she says.
TriStar Glass became a qualified employer to unsubscribe from the workers' compensation system in August 2014. The company has plants in Texas that already opted out, covered by a benefit plan from OneBeacon Insurance Group. When the Oklahoma side of the company opted out, the same provider walked them through the process and extended coverage under the ERISA-based plan to the Oklahoma employees.
“They handle our claims much better than a traditional workmen's comp insurance plan...claims are followed much closer, they're getting guys in, they're getting them treated, and they're getting them back to work. [Claims] are not dragging out for three or four weeks where they're on restricted duties or can't work at all.”
“Claims are probably a quarter of what they were under the traditional workmen's comp plan,” she adds.
She says that employees were receptive to the idea of opting out of workers' compensation insurance, as long as there was a benefit plan in place for injured workers.
The OneBeacon plan used by TriStar Glass does require a shorter reporting period for injuries, a test for drugs and alcohol after an injury, and mandatory safety equipment must have been worn in order for treatment to be covered. Some opt-out plans require that a representative of the employer accompany injured workers to some doctors' appointments, but TriStar Glass's plan does not.
As suppliers, Kelly says the Texas and Oklahoma plants do not face the challenge of losing the ability to bid on state contracts. They still supply materials to public contracts, but are not required to carry workers' compensation insurance.
The Texas Experience
Opt-out is not a new concept in Texas, where workers' compensation opt-out consultant PartnerSource claims one-third of employers are not subscribers in the state's workers' compensation system. Texas non-subscribers can create an alternative benefit plan under the Employee Retirement Income Security Act.
Public works are another story in Texas, where contractors and subcontractors on government projects must submit proof of workers' compensation insurance for every employee working on the project. That tends to keep contractors in the state system.
The Central Texas Chapter of the Association of General Contractors requires its members to carry workers' compensation insurance. The chapter president and CEO, K. Paul Holt, wrote in an emailed statement, “Our portion of the commercial contacting industry is in favor of mandatory workers comp. We also recognize that our workers comp systems have plenty of room for improvement. This should be easier to accomplish with mandatory comp.”
Construction employers are among the least likely employers in Texas to reject subscription to the state-run workers’ compensation program, just 37%. Only 11% of construction employees in the state work for businesses that opted out.