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Workers compensation opt-out measure debated in Oklahoma

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Workers compensation opt-out measure debated in Oklahoma

OKLAHOMA CITY—A debate in Oklahoma over legislation that would let employers leave the state's workers compensation system could spill over to other states that are striving to contain insurance costs, sources say.

The issue is being led by large, multistate employers that have seen cost savings under Texas' nonsubscriber system for workers comp, and hope to achieve the same benefits in Oklahoma, said Bill Minick, president of PartnerSource, a Dallas division of Arthur J. Gallagher Risk Management Services Inc. that supports the Oklahoma bill.

“You've got many national employers who are saying this is working so well in Texas, with tremendous cost savings coupled with higher injured-employee satisfaction,” said Mr. Minick, whose company implements benefit plans for employers opting out of Texas' comp system. “So why shouldn't we do this in other states?”

While insurers generally oppose the legislation, it seems to have a “real chance” of being approved, said Joe Woods, Austin, Texas-based vp of state government relations for the Property Casualty Insurers Assn. of America. “I suspect that if this passes in Oklahoma, there will be businesses pushing it in lots of other states.”

Oklahoma H.B. 2155 and S.B. 1378 would establish an alternative workers comp system that would allow certain employers to exempt themselves from the state system. The plan would require employers opting out to establish a substitute plan—including medical, disability and death benefits for injured workers—that meets Employee Retirement Income Security Act requirements.

Only “qualified employers” with 50 or more employees that have exceeded certain thresholds for workers comp losses would be exempted. Those include an experience modification greater than 1 or total annual incurred claims above $50,000 in one of three preceding insurance policy years.

The legislation, if passed, would not affect workers comp advisory rates in the state, said Lori Lovgren, division executive-state relations for Boca Raton, Fla.-based NCCI Holdings Inc.

If adopted, Oklahoma would be only the second state to allow companies to exempt themselves from the state workers comp system. Texas has allowed opt-outs, or “nonsubscription,” since its comp system was established in 1913.

The plan is supported by companies such as Oklahoma City-based Hobby Lobby Stores Inc., Seattle-based Nordstrom Inc. and Mooresville, N.C.-based Lowe's Cos. Inc., according to the Oklahoma Injury Benefit Coalition, a group that backs the opt-out plan.

Becky Robinson, assistant vp, risk management, said Hobby Lobby backs the legislation because of results it has seen from the Texas nonsubscriber system. The retailer, which operates in 40 states, ranks Oklahoma in the top four costliest states for the company's workers comp costs, while Texas is in the bottom five.

Ms. Robinson said the Texas nonsubscriber system has made the Texas workers comp market more competitive, and hopes similar results can be achieved in Oklahoma.

“It would certainly put (Oklahoma) on the map and give us an economic advantage over many of the other states,” she said.

Sources say Oklahoma has a costly dispute resolution and litigation process that is driving the current debate. It was No. 4 in the nation for workers comp premium rates, according to a 2010 Oregon Department of Consumer and Business Services study.

Mr. Minick of PartnerSource estimates the plan would save exempt employers 50% on their comp costs.

Although Oklahoma adopted workers comp reforms last year, Mr. Minick said many employers are unwilling to wait and see whether the changes will lower insurance costs.

“They want it now, and there's a proven model right across the Red River to deliver it,” he said.

Insurer groups contend that the Oklahoma plan could limit benefits for injured workers and be less financially secure than traditional workers compensation insurance or self-insurance.

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Mr. Woods of PCI said if large employers leave the state system under the alternative comp plan, the state would lose motivation to reform the current workers comp program.

Additionally, he argues that Oklahoma would be less competitive for insurers, because the market would be split between traditional comp business, the opt-out plan and CompSource Oklahoma, the state workers comp fund.

“It's not a very inviting scenario for a company to say, "I'm going to set up the infrastructure to run a workers compensation program in Oklahoma' when the market has become so small,” Mr. Woods said.

Though there are parallels between Oklahoma's plan and the Texas nonsubscriber system, experts say there are key differences.

For instance, Texas does not require nonsubscribers to adopt an alternative benefit plan, and does not have an exclusive remedy provision for companies that opt out of workers comp. However, Oklahoma's bills would make ERISA-compliant plans the exclusive remedy for companies that leave the state program, preventing workers from suing their employers in state court.

That detail ultimately could push workplace injury lawsuits into federal courts under ERISA regulations, said Bruce Wood, Washington-based associate general counsel and director of workers compensation for the American Insurance Assn.

“All of this will translate into a level of uncertainty, and uncertainty breeds dispute,” Mr. Wood said. “Uncertainty breeds litigation.”

Advocates and opponents are watching the Oklahoma legislation closely as it advances. The state House and Senate passed their respective bills this month, and have exchanged them for further consideration.

Experts on both sides of the issue say they expect one of the bills to be approved during the current legislative session. The proposed effective date is Nov. 1.

Employers are hoping the bills will bring fast relief for their workers comp cost woes, Mr. Minick said.

“They're looking for saving opportunities after a multiyear recession, and see this as a win-win...for the company and for their employees,” he said.