Analyses and Reports on Workers’ Compensation Option Programs

The following analyses and reports have examined alternatives to workers’ compensation. The reports include overviews of existing laws and pending legislation. Specific Option legislative proposals differ from state to state, just as workers’ compensation systems differ from state to state. In general, however, benefits for injured workers and employers include:

  • Both injured workers and employers report higher levels of satisfaction with Option programs than with workers’ compensation programs.
  • Injured workers receive higher quality medical care and better medical outcomes under Option programs.
  • Disability durations are shorter under Option programs.
  • There is less attorney involvement under Option programs.
  • Workers’ compensation Option systems can remove or mitigate fraud and abuse.
  • State Legislatures can define benefit coverage and liability laws, then provide lean and effective oversight of an Option system.
  • Federal ERISA laws that require minimal taxpayer expense and have applied to group health plans for over 40 years help deliver more predictability, efficiency and employee responsibility for their own health behaviors.
  • Actuarially credible data reflects that Option programs have a positive impact on claim severities and deliver lower employer costs.

It’s time to get special interests out of workers’ comp – August 11, 2016

The Chicago Tribune uncovers two Illinois workers’ comp case studies which underline the not-so-unique problems with the traditional system.

  • The price of traditional workers’ compensation in Illinois is driving business out of the state.
  • Those who stay face the lowest pay in the Midwest and limited physician options after workplace injury.

An Illinois Worker’s Compensation System for the 21st Century – July 20, 2016

This report says the problem with worker’s comp is that it is not willing to become modernized, and expresses strong support for competitive Options that are more flexible and dynamic.

    • It concludes by saying, “Abolishing [the current “Grand Bargain”] or creating a simple opt-out could benefit many workers in Illinois…. Eliminating the legal barriers that stand in the way of innovation in the workplace not only will not harm workers, but also will create greater competition among employers to attract workers. The most effective way for government to protect workers is not by a restrictive one-size-fits-all system, but by creating broad rules of the game that give workers more freedom to contract with employers for a deal that is better suited to their own situation.”
    • The Illinois report is validation by an independent third-party advocate of ARAWC’s timely recommendations and the growing need for innovation in the field of workers’ compensation.

Stanford Institute for Economic Policy Research – “Recycling the Grand Bargain:  What Happens When Large Companies Opt Out of Workers’ Compensation

      – March 18, 2016

The 2016 Stanford Study Reflects Positive Outcomes for Workers and Employers:  Professor Alison D. Morantz of Stanford University issued her second report focused on Texas “nonsubscriber” Option injury benefit programs.  Major findings include:

  • Option programs pay better wage replacement benefits.
  • Frequency of severe, traumatic employee injury claims is cut in half.
  • Percentage of employees disabled drops by a third.
  • Employer costs are cut in half.
  • Coverage exclusions have minimal impact on cost savings.
  • Negligence liability exposure incentivizes Option employers to invest in safety.
  • As large Texas employers elected the Option, workers’ compensation costs dropped.

Risk and Insurance Management Society – “Alternatives to Traditional Workers’ Compensation Systems” – 2015, RIMS Executive Report:

  • Provides a general overview of Option systems, compares and contrasts enacted and introduced legislation in different states and provides basic considerations employers should use when determining whether to elect an Option to workers’ compensation.
  • The report concludes that when employers decide on whether to elect an Option to a state’s workers compensation system, the employer should take into consideration its relationship with its employee, the well-being of those employees and other factors including the reputation risks.

Creating Alternatives to Workers’ Comp One State at a Time – Insurance Journal Podcast

Texas Department of Insurance: “Employer Participation in the Texas Workers’ Compensation System: 2014 Estimates”.  Key findings from this latest, biennial survey include:

  • One-third of all Texas employers do not participate in the Texas workers’ compensation system.
  • Approximately 1.43 million workers are covered by injury benefit plans. This figured increased by 200,000 workers between 2012 and 2014.
  • Even with an elective workers’ compensation system and injury benefits provided on a purely voluntary basis, 95% of all Texas workers’ are covered by workers’ compensation or an injury benefit plan (Option legislation in other states mandates benefit coverage for all employers).
  • Satisfaction among employers who elect the Texas Option is higher than among employers who provide workers’ compensation insurance.  Satisfaction is higher (i) with the adequacy and equity of benefits paid to injured workers, (ii) with the degree to which those benefits are a good value for the company, (iii) with the ability to effectively manage medical and wage replacement costs, and (iv) overall.
  • The primary reason why employers do not participate in the state system (one of the nation’s most admired) is that they believe the company can do a better job than the workers’ compensation system at ensuring employees injured on the job receive appropriate benefits.

New Street Group: “What Employers Need to Know about the New Oklahoma Law” – 2013, by Peter Rousmaniere and Jack Roberts:

  • The authors note that interest in the Oklahoma Option has spread nationwide, along with disenchantment with prospects of deep and lasting legislative reforms to the statutory state systems.
  • “The authors comment that the Oklahoma law creates both a legislative model and real-life laboratory for opt-out system ideas and significant reforms of workers’ compensation. Thus, it is a more useful model than Texas for adoption by other states.”

New Street Group: “Workers’ Compensation Opt-Out: Can Privatization Work?” – 2012, by Peter Rousmaniere and Jack Roberts. Key findings include:

  • Nationwide, employers perceive that persistent problems afflict the statutory workers’ compensation system, resulting in excessive claim costs and abetting fraud and abuse. Workers’ compensation Option systems can remove or mitigate these problems.
  • Decades of employer experience with ERISA for medical, accident and disability benefits and ERISA regulation by the Employee Benefits Security Administration within the Department of Labor have brought about a high level of predictability with compliance requirements and the dispute resolution process. This certainty enables employers to plan for the efficient deployment of an Option program. It also enables insurers to design insurance products and underwrite with confidence.
  • ERISA plans demand more aggressively than statutory systems that injured workers be responsible for their own health behaviors.
  • State oversight of an Option system can be lean and effective.

Work Loss Data Institute: “State Report Cards for Workers’ Compensation 2012,” a WLDI Special Study Based on data from 2000-2009 BLS OSHA Form 200/300 – December 2011:

  • This report compares outcomes among different states using comparable measures, putting each state on a level playing field.
  • WLDI compared the outcomes from all Texas employers (using Bureau of Labor Statistics data that comes from OSHA logs and therefore covers all employers) with outcomes from all cases reported within the Texas workers’ compensation system.
  • Like other studies reflecting better medical outcomes under Texas injury benefit plans, this WLDI study demonstrates that the Texas nonsubscriber Option is achieving dramatically shorter disability durations and fewer claims with delayed recovery than Texas workers’ compensation.
  • Another key finding:  Option employers use other effective claims management procedures, such as the direction of medical care and use of treatment guidelines.

Stanford Law School: “Opting Out of Workers’ Compensation in Texas: A Survey of Large, Multistate Nonsubscribers” – 2010, by Alison Morantz, professor of law at Stanford Law School, Regulation vs. Litigation – Perspectives from Economics and Law, National Bureau of Economic Research, 2010. This research was supported by National Science Foundation Grant. Key findings include:

  • Virtually all survey respondents (94 percent) said they deemed the program a success.
  • Virtually all respondents (98 percent) cited cost savings as a benefit of the Texas nonsubscriber Option, and most (86 percent) cited the magnitude of cost savings as a positive surprise. The average reported cost savings for all groups exceeded 50 percent.
  • A substantial majority of respondents cited higher quality medical care for injured employees as an advantage.

Texas Public Policy Foundation: “Workers’ Compensation: Making It Work for Texans” – 2005, this study of the Texas workers’ compensation system found that:

  • The total cost of occupational injury benefit programs under the Texas nonsubscriber Option is 25-to-50 percent less than in the state system.
  • Medical care outside the system is more likely to result in better outcomes for injured workers than inside the system.
  • Group health providers in Texas provide care at one-sixth the cost per worker of state workers’ compensation care, cost savings that reflect price discounts that the private sector can negotiate. Medical costs are also reduced by employer direction of care.
  • The private sector has proven far superior to government agencies and regulations in establishing cost-effective, high-quality health care services for injured workers.
  • The state system installs government as the intermediary between employer, employee, health provider and insurer. It eliminates economic, medical and social incentives for the system to serve the best interests of injured workers and responsible employers. The consequences are unjustifiably high utilization, uncontrolled costs, and poor medical care outcomes.
  • Market incentives and choice work better than government mandates and regulation.

Texas A&M University: “A Study of Nonsubscription to the Texas Workers’ Compensation System: The Employee Perspective” – 1994, prepared by The Public Policy Research Institute at Texas A&M University for the Texas Workers’ Compensation Research Center (document 106).  Soon after Texas employers began to widely elect the nonsubscriber Option (and prior to development of industry best practices), this study directly surveyed employees of subscriber and nonsubscriber companies to ask about their perspectives on and experiences with the benefits available in the event of occupational injury or illness. Key findings from 700 completed interviews of employees and a series of case studies include:

  • Looking at experience with medical care, 87 percent of both employees of subscribers and employees of nonsubscribers reported having had all the medical costs for their on-the-job injuries paid.
  • Of those who received lost-wage benefits, 40 percent of employees of subscribers and 42 percent of employees of nonsubscribers reported receiving 100 percent of their lost wages, and 88 percent of employees of subscribers and 94 percent of employees of nonsubscribers reported that the coverage for wage replacement extended for the entire period away from work.
  • In all but one case, injured employees received adequate medical treatment and necessary physical therapy.
  • There were examples of employees of both subscribers and nonsubscribers who had satisfactory and unsatisfactory experiences with the support provided to them.
  • Among injured employees who reported receiving occupational benefits, 44 percent of those working for subscribers and 41 percent of those working for nonsubscribers reported being “very satisfied” with the benefits received.
  • Whether they thought they had occupational benefits or not, 25 percent of employees of subscribers reported fearing a loss of job or occupational benefits and 10 percent of employees of nonsubscribers reported fearing such a loss.

A follow up study by the Texas Department of Insurance “Research and Oversight Council on Workers’ Compensation” reported in March 1997 that employers electing the nonsubscriber Option are paying medical and indemnity costs related to on-the-job injuries and that attorney involvement (as well as the propensity to file lawsuits) was relatively low among injured workers employed by nonsubscribers. As stated again by the Texas Research and Oversight Council on Workers’ Compensation in a February 2002 report, past studies “suggest that satisfaction levels for injured workers employed by nonsubscribers are fairly high.”