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Opting out of comp a boon for employers, but benefit less clear for employees

Opting out of comp a boon for employers, but benefit less clear for employees

While opting out of traditional workers compensation in Texas can reduce costs for employers, more study is needed on how the nonsubscription system affects the welfare of injured workers, sources say.

A study released last week by Alison D. Morantz, a James and Nancy Kelso Professor of Law at Stanford Law School, found that the overall cost per claim is about 49% lower in the nonsubscription environment, due largely to declines in medical and wage replacement costs.

Despite seeing no significant decline in the frequency of claims, the study found that more serious claims involving replacement of lost wages are about 33% less common among nonsubscription employers.

Texas has allowed employers to opt out of the state's workers comp system for more than 100 years, but large nonsubscribers typically set up benefit programs to cover their injured workers.

Unlike Oklahoma, which has allowed employers to opt out just since February 2014 and still be protected from civil litigation, alternative benefit programs in Texas are not subject to exclusive remedy provisions. That allows injured workers to bring tort litigation outside the comp system.

For the study, published on the Social Science Research Network, Ms. Morantz recruited 15 large multistate companies that operate homogenous facilities nationwide, and compared outcomes in traditional comp versus opt-out comp for each company from 1998 to 2010.

While the study does not name the employers, it does say nine are retail chains, three are manufacturers and three are service firms.

Though only 15 companies were studied, “their datasets — at least when analyzed at the claim and transaction level — are massive,” Ms. Morantz said. “Getting a handle on just one of these databases can take months. Getting a handle on 15 of them took years.”

The study found that the frequency of nontraumatic injuries declined about 47% with nonsubscription comp coverage.

“It could be that nonsubscribers are better at screening out nontraumatic claims under one of the many exclusions that private plans typically contain,” Ms. Morantz said, noting that carpal tunnel syndrome and asbestosis are rarely covered by alternative benefit plans.

Meanwhile, a nontraumatic injury that is covered might be denied if it's not reported by the end of an employee's shift or within 24 hours, she said. But 13 of the 15 employers have “good cause” provisions that allow a claims administrator to determine if there was a good reason the injury claim was made late.

In addition, injuries that are not work-related may be more quickly identified by the more intensive screening process used by alternative comp plans, Ms. Morantz said. “So the lower frequency of nontraumatic claims could be due to either of these factors, or some combination of both.”

“The biggest unanswered question is how these plans affect the welfare of workers,” said Ms Morantz, who said her research did not address that issue.

Though this study validates “a lot of what has been said about Texas on the positive side, … more study is needed to make sure we really understand how this is affecting the employees that are subject to these plans,” Christopher Mandel, senior vice president of strategic solutions at Sedgwick Claims Management Services Inc. in Nashville, Tennessee, said during this week's Business Insurance Risk Management Summit in New York.

It's difficult to compare companies that opt out with companies that don't “because you can easily end up comparing apples to oranges,” Ms. Morantz said, adding, “If I found an opportunity to carry out a really rigorous study on that question, I would probably go for it.”

Gloria Gonzalez contributed to this report.

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