The “opt-out” as a viable alternative to workers’ compensation is a key point of contention in many states, especially as Oklahoma recently adopted their own “Option.” In the following commentary, defense attorney Nathan Schrantz, of Daniel Coker Horton & Bell, who practices in both Mississippi and Louisiana, offers his perspective on the legal issues inherent in an “Option” and presents the potential implications for Louisiana. Read on for Schrantz’s take on this hot button issue.
Schrantz: The most apparent potential legal change for Louisiana’s workers’ compensation system in this regard is whether employers would completely forgo tort immunity in return for an opt-out. There are now different examples of “Option” programs to look to, with one maintaining a requirement for a statute-equivalent level of employee benefits and a corresponding employer tort immunity (as in Oklahoma’s new law.) If employers completely forgo tort immunity, there would theoretically be some increased damages exposure for employers. Of course, this all depends upon how the particular state’s law provides for the tort liability of an employer, so that is the most prominent issue should Louisiana adopt a similar reform effort in the future.
In an opt-out system where the employer closely controls and institutes alternative benefits, there is a concern over whether the employee is being given a meaningful choice of care. If the employer retains complete control over health care decisions, then the employee could be said to be restricted from making such meaningful decisions about his or her health care – this would certainly raise objections from the plaintiffs’ bar.
An interesting fact found in research surveys of Texas employers conducted by the Texas Division of Workers’ Compensation is that employers who opt-out (also known as “non-subscribers”) are more satisfied with their programs than subscribers. One of the main reasons for this is the ability of the employer to manage medical and wage replacement costs more effectively than is possible within the workers’ compensation system. Obviously, the primary driver for opt-outs is – as with most such business decisions – cost savings. According to the same body of employer surveys through the Texas DWC, subscription in Texas tends to increase when rates for workers’ comp insurance decrease, this is especially true for small employers.
In my opinion, much of the losses in the workers’ compensation market are due to poor claim management. Generally speaking, from what I have seen in my years of practice, the large employers with workers’ compensation accounts managed by larger national carriers and third party administrators ultimately tend to have much more unnecessary bureaucracy and claim loss, due largely to the sheer volume and decentralized claim process. By contrast, smaller self-insured funds and closely managed risk models tend to have lower costs because of a more efficient claims management model. In view of this, the opt-out is probably an easier financial step for large institutional employers, whereas smaller employers may lack the resources to handle the added benefit replacement which may be required with an opt-out.
Editor’s Note: The Texas Workers’ Compensation Research and Evaluation Group performs the surveys Schrantz mentions in his commentary (Employer Participation.) All REG studies are available from the TDI website here. The most recent biennial Employer Participation report (2014) is available here; the researchers estimate that employer non-subscription in Texas is at a steady 33 percent for 2014, see the graph above for context.
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