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Opt-out bills put on hold in two states

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Once touted as a top workers compensation issue to watch in 2016, opt-out legislation appears to be all but dead following critical media reports, an impending investigation and a sex scandal.

Introduced in 2015, the South Carolina Employee Injury Benefit Plan Alternative, or H.B. 4197, and the Tennessee Employee Injury Benefit Alternative, or H.B. 0997 and S.B. 721, would allow employers to opt out of the states' workers comp systems and provide alternative coverage for injured em­ployees.

The South Carolina bill, sponsored by state Rep. Bill Sandifer, R-Oconee, hasn't been revisited this year, but sources said eventual amendments are anticipated.

Likewise, the Tennessee bills are at a standstill barely one month into the state's legislative season.

S.B. 721 hasn't been formally withdrawn, but Republican Sen. Mark Green's office said not to expect movement until 2017.

Meanwhile, H.B. 997 was taken off notice by its sponsor, Rep. Jeremy Durham, R-Franklin, who is taking an approved leave of absence in the wake of reported allegations that he sent inappropriate text messages to three women and had an affair with another state representative.

The holdup in Tennessee and South Carolina is a sign that, “if (opt-out legislation) isn't dead, it's perhaps slowly dying on the vine,” said Albert B. Randall Jr., Baltimore-based principal at law firm Franklin & Prokopik P.C.

It's unlikely that such legislation will pop up in other states before there's movement in Tennessee or South Carolina, Mr. Randall said. Even then, it would be a hard sell outside “more conservative, employer- or business-friendly climates,” he said.

Recent reports critical of opt out, including a widely circulated report by National Public Radio and investigative journalism organization ProPublica Inc., may have contributed to the opt-out legislation slowdown by shaping legislative and public opinion, sources said.

“It certainly has resulted in some folks taking pause and asking questions,” said Ronald Jackson, southeast region vice president of the American Insurance Association in Atlanta.

The NPR and ProPublica report late last year posed concerns such as shifting costs and limiting medical coverage for injured workers. It also led to the National Conference of Insurance Legislators November decision to investigate the costs and benefits of opt-out approaches and “weigh in as needed on calls for federal intervention.”

Paul Penna, the Manasquan, New Jersey-based organization's executive director, said the topic will be discussed further at a Feb. 27 meeting.

“I wouldn't be overly surprised if people wanted to wait to see what NCOIL does” before moving forward with opt-out legislation, Mr. Randall said.

The Association for Responsible Alternatives to Workers' Compensation welcomes NCOIL's investigation and media reports, according to a spokesman for the national group of employers seeking to opt out of traditional workers comp systems. “We think some of the criticism that one sees in the media misses the mark, (but) other stories raise legitimate questions that deserve answers,” he said.

Opt-out bills in Tennessee and South Carolina are based on Texas' 100-year-old nonsubscription system and the Oklahoma Employee Injury Benefit Act that went into effect in 2014. About 60 Oklahoma employers, many of which are also nonsubscribers in Texas, have opted out of the state's workers comp system to date.

Backers such as Jerry Murphy, Dallas-based executive vice president at AmWINS Brokerage of Texas, a unit of AmWINS Group Inc., say an opt-out plan allows for better care for injured workers than traditional workers comp by keeping employers engaged in the process and facilitating open communication with employees.

While using an alternative benefit plan can lead to savings, “at the end of the day, (opt-out is) not about economics,” Mr. Murphy said. “It's (about) knowing that, as a small business owner, I'm not going to pay for something that I felt was not an on-the-job injury.”

Tennessee delay 'a win'

But it shouldn't be assumed that an opt-out system would work in other states just because it's an option in Oklahoma and Texas, said Jack Spann, owner and general counsel at Spann Insurance Inc. in Nashville, Tennessee.

Mr. Spann said the apparent standstill regarding opt-out legislation in Tennessee is “a win for the business community” because it gives employers a chance to benefit from workers comp reforms that took effect in 2014, which stiffened requirements for work-related injuries to be compensable and moved the state from a court-based adjudication system to an administrative process, among other things.

“There's no need to try and fix something that's working,” Mr. Spann said. “Insurance carriers are anxious to write workers comp in Tennessee. I remember a number of years ago where our only market to write workers comp was the assigned risk pool.”

The AIA's Mr. Jackson said it's unlikely that opt-out legislation is entirely dead, noting there was talk of similar legislation being introduced in Georgia this year, but the bill sponsor has decided not to move forward so far.

A spokesman for the Association for Responsible Alternatives to Workers' Compensation agreed the delays are temporary. “We absolutely expect to continue (pushing opt out) in both Tennessee and South Carolina,” he said. “I think we'll see interest in other states develop.”

However, many argue that even workers comp benefit levels in some states are insufficient and “should be increased — not eliminated,” Mr. Randall said.

Sources said that, to really gain traction in other states, opt-out plans need to increase benefit levels and extend the duration of benefits, among other things.

“Then again, once you start (doing that), it stops looking like an opt-out program and starts looking more like a replacement workers compensation scheme,” Mr. Randall said. At that point, “states would be more likely just to try to revamp and otherwise reform their existing comp laws.”