Oklahoma firms consider private coverage in wake of landmark workers comp lawReprints
At least seven Oklahoma employers have opted out of the state's workers compensation system in the six months since a new law went into effect, and “dozens” more companies are considering the move to private coverage allowed under the landmark legislation.
The law that took effect Feb. 1 permits employers with at least 100 workers and $1 million in net assets, among other conditions and with certain exceptions, to apply to become a “qualified employer” that either self-insures or buys private workers compensation insurance.
The law also established the Oklahoma Workers' Compensation Commission and moved the state from a court-based adjudication system to an administrative process.
Despite comparisons with the Texas nonsubscription system, Oklahoma's new system more closely resembles traditional workers comp, as employers retain their exclusive remedy legal protections.
To date, the Oklahoma Department of Insurance has approved seven businesses as qualified employers to provide alternative comp coverage, under what's called the “Oklahoma option.”
Catoosa, Oklahoma-based TriStar Glass Inc., which has a branch in Texas, became a qualified employer in Oklahoma on Aug. 1, the same day it became a nonsubscriber in Texas, said TriStar Treasurer Karen Kelley.
“Prior to this, the workmens comp system has seemed very broken,” Ms. Kelley said. “We've seen our premiums double within the last three or four years. What drew me to (the Oklahoma option) was not only is it lower premiums — significantly lower — but our ability to be involved and help determine how claims are going to be processed and how our employees are going to be taken care of. We were suffering from not getting good care for employees.”
Ms. Kelley said the company has partnered with a clinic that that is “focused on working with us to get our guys back to work as soon as possible.”
But sources say most employers aren't rushing to opt out.
“It's been a little bit of a slow go,” said Denise Engle, Oklahoma's workers compensation commissioner based in Oklahoma City.
Several things had to happen on the insurer side, including getting approval to develop alternative comp products and finding clients, before employers could become “qualified” under the new law, Ms. Engle said.
“Considering all those things have actually been accomplished in six months is amazing,” Ms. Engle said.
“We're seeing our clients wanting to get educated on the topic, but not seeing a lot jumping at this and saying, 'We're going to absolutely do this,' ” said Christopher Flatt, managing director and leader of Marsh L.L.C.'s Workers' Compensation Center of Excellence in New York. “One client wants to wait and see what another one does and how effective it's going to be before they move in that direction.”
Experts said the wait-and-see attitude was expected, even though several large employers, such as Oklahoma City-based retailer Hobby Lobby Stores Inc., openly supported the Oklahoma comp plan before it was signed into law in May 2013.
Hobby Lobby declined comment on whether it will pursue alternative comp coverage.
In addition, significant decreases in workers comp loss costs likely are causing some employers to hit the pause button, said Bruce Wood, workers compensation director at the American Insurance Association in Washington.
After the reform legislation was approved last year, the Oklahoma Insurance Department approved a 14.6% decrease in comp rates suggested by the Boca Raton, Florida-based National Council on Compensation Insurance Inc.
“If I'm an employer in Oklahoma, I'm not going to be wanting to rush into a completely new and untested and likely litigated program,” Mr. Wood said.
The fear of litigation is another reason some employers are apprehensive, he said.
The Oklahoma Supreme Court in December upheld the constitutionality of the opt-out workers comp law when it was initially challenged by two Oklahoma lawmakers and a state firefighters union, but sources say more litigation is inevitable.
As for what constitutes the appropriate type of alternative comp insurance, should such coverage “be claims-made policies vs. incurred policies? … There are a whole bunch of issues like this that that no one has raised — no one has answers,” Mr. Wood said. “And the only way that they will be (raised) will be in the course of time.”
For some employers, the ability to have greater control over directing medical care will be enough of a draw to alternative comp coverage, Mr. Flatt said.
Insurers, including St. Louis-based Safety National Casualty Corp. and Cincinnati-based Great American Insurance Group, began designing policies as soon as the program guidelines were finalized, said Bill Minick, president of Dallas-based PartnerSource, a consultant unit of Arthur J. Gallagher Risk Management Services Inc.
“The first option quotes were issued late spring, and the first programs became effective the middle of June,” Mr. Minick said. “Dozens and dozens of employers have received and are viewing option insurance quotes.”
As for how long it will take to realize the potential of Oklahoma's comp reforms, Mr. Wood said that is not known “because Oklahoma is charting a new path here in opting out. Normally with benefits delivery system changes, it can take anywhere from three to five years to phase in.”
Creating a more business-friendly state by driving costs out of the workers comp system would be a success for Oklahoma, Mr. Flatt said.
“Will this law actually allow for the business climate to improve in the state? Will it draw more employers into the state? … We don't know yet, but it's something to keep an eye on,” he said.