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Oklahoma joins Texas in passing workers comp opt-out legislation

Oklahoma joins Texas in passing workers comp opt-out legislation

Oklahoma's plan to let employers opt out of the state's workers compensation system is likely to face legal challenges, but it also could be a model for other states to restructure their workers comp programs.

After being approved by the Oklahoma Legislature late last month, the bill is expected to be signed into law by Oklahoma Gov. Mary Fallin.

It would allow employers to opt out of the state system by establishing an alternative plan that pays benefits similar to workers comp, regardless of whether an employee, employer or third party causes an occupational injury.

The bill also would establish an administrative dispute resolution system, which backers said is expected to be more efficient and less costly than Oklahoma's current court-based system.

Oklahoma would be only the second state after Texas to allow employers to leave the traditional state workers comp insurance system.

But other states could follow suit, said Bill Minick, president of Dallas-based PartnerSource, a consultant on alternative workers comp plans and a unit of Arthur J. Gallagher Risk Management Services Inc.

“Industry players that embrace it will be part of the future, and carriers and industry players that continue to reject it and hunker down will find themselves on the wrong side of public policy over time,” Mr. Minick said of opt-out provisions for workers comp.

However, legal challenges of S.B. 1062 are likely and could determine whether workers comp opt-out provisions gain steam outside of Oklahoma, said Trey Gillespie, senior workers comp director in Austin, Texas, at the Property Casualty Insurers Association of America, which opposed the Oklahoma measure.


“Some states may wait and see exactly what the Oklahoma Supreme Court does with regards to the Oklahoma opt-out system and then decide how to proceed from there,” Mr. Gillespie said.

Bruce Wood, Washington-based associate general counsel and director of workers compensation, said the American Insurance Association supports Oklahoma's new administrative dispute resolution process. But he said that provision is overshadowed by the bill's opt-out option, which he also expects will face legal challenges.

Legislators elsewhere “might want to tread carefully to see how all of this unfolds in Oklahoma before heading down a path of expensive litigation and constitutional challenges,” Mr. Wood said.

S.B. 1062 is expected to reduce Oklahoma workers comp system costs by $125 million annually, or 12.5%, according to an April NCCI Holdings Inc. report. The savings would come from decreased permanent and temporary total disability benefits and shortened benefit durations, the Boca Raton, Fla.-based ratings and research agency said.

While Roy Wood, St. Louis-based state relations executive, said NCCI can't quantify the immediate effect of Oklahoma's changes, NCCI's report said long-term savings could reach $48 million.

Mr. Minick said the opt-out system could save employers up to 50% on comp claim costs in Oklahoma.

“I'm confident that for most employers with a significant frequency of claims, the alternative coverage will generate savings through more efficient claims administration ... more direct communication between employers and employees, and more employee accountability,” Mr. Minick said.

Oklahoma City-based retailer Hobby Lobby Stores Inc. was one of several employers that backed the Oklahoma legislation. An administrative dispute resolution system in Oklahoma would allow the retailer to have the same control over comp claims that it has under Texas' nonsubscription system, said Becky Robinson, assistant vice president of risk management.


“By expediting the referral process, you have better medical outcomes and a higher satisfaction rate among your employees,” Ms. Robinson said.

PCI's Mr. Gillespie said employers that leave Oklahoma's state workers comp system could create a challenging comp market for companies that buy traditional coverage. He also questioned whether employers would establish stricter qualifications for injured workers to obtain benefits under alternative plans.

“Very large employers in Oklahoma are likely to choose the opt-out option, and in so doing will potentially be taking their ... positive experience ratings and lower loss costs with them,” which could raise costs for those left in the system, he said.

Mike Seney, senior vice president of policy analysis and strategic planning for the State Chamber of Oklahoma, said the bill requires employers to provide benefits that are equal to or greater than state workers comp benefits. If employers fail to do so, employees could seek recourse from a new Oklahoma workers comp commission that the law would establish.

Several provisions of the legislation would not take effect until Feb. 1, 2014, and Mr. Seney said it could take some time for employers to structure alternative plans.