By JON CAMPISI, who has been a writer and editor for a number of media outlets in the Philadelphia area.
The argument for privatization in workers' compensation just got a boost.
Employers who chose to privatize have seen lower costs, eradication of worries over fraud and abuse, and quicker resolution of disputes because workers' legal rights are restricted, according to a study by the New Street Group. Privatization even seems to help curb opioid abuse.
The report, Workers' Compensation Opt-Out: Can Privatization Work?, addresses the model of workers' comp in Texas, in which employers are not legally required to be a part of the traditional, state-regulated workers' comp system. That system allows workers to receive medical care and wage replacement benefits if they are injured on the job, regardless of whether or not the worker or employer is at fault for the injury.
"For more than a century, the work-injury compensation system, mandated and regulated by individual states, has been the reality in the United States," the report stated. "For all this time, the fundamental system has remained about the same."
Texas, however, offers employers an alternative, a "legally authorized privatization of the workers' compensation system," said the report.
In the Lone Star state, employers are given three choices: to join the traditional workers' compensation system overseen by the Texas Department of Insurance; to opt out of the statutory system and create their own "non-subscription" work-injury compensation program; or opt out and offer no workers' compensation benefits protection at all and risk what the report's authors termed "catastrophic legal liability."
The study was completed by Peter Rousmaniere (who also serves as a Risk & Insurance®columnist), and was overseen by New Street Group creator Jack Roberts (former editor-in-chief of Risk & Insurance®).
The report focused specifically on what it calls "modern" versions of the state's opting out employers, formally referred to as "non-subscribers." Employers who non-subscribe are afforded the chance to customize their work injury benefits to match the needs of their workforce and location, something that is not possible under the traditional statutory system.
The report identifies six problems that seem to be controlled or eliminated through Texas non-subscription workers' comp plans:
* A lack of control over medical provider selection, meaning non-subscribers can enjoy complete discretion over the selection of providers, something that can drastically reduce medical costs and speed the recovery of injured workers.
* The ability to better manage excessive opioid use, since opioid problems are "virtually non-existent" under this Texas model.
* Weak enforcement of evidence-based medicine practices, since non-subscribers can strictly refuse to approve any treatment not consistent with such best practices, thereby avoiding questionable treatment.
* Complexities in terminating temporary disability, since non-subscribers can terminate temporary disability benefits when recovery is satisfactory or the injured worker hasn't complied with benefit guidelines.
* Pervasive permanent partial disability awards, given that employers under the non-subscriber model do not have to offer these types of benefits, thereby eliminating what the report calls a "controversial and expensive element" in the statutory system.
*Avoiding cumbersome and expensive dispute resolutions, because non-subscribers use simplified ways to resolve benefit disputes, such as Employee Retirement Income Security Act appeals protocols.
In Texas, while many non-subscribing employers don't structure their work-injury benefit program as an ERISA plan, its use has become standard best practice because it offers a variety of advantages compared with the only other practical options, which are to develop a plan without any state or federal statutory guidance -- or to have no plan at all.
"The pertinence of ERISA for a workers' compensation opt-out system should not be a surprise," the report stated. "ERISA has served for close to 40 years as the American employer's accepted approach to delivering privatized employee fringe benefits, including long-term disability benefits."
As for the concept of managing negligence risk, the report stated, when workers' comp professionals consider the opt-out model, they generally immediately focus on the loss of the exclusive remedy protections against negligence liability lawsuits.
"Employers believe the financial consequences on such risk exposure can be huge," the report stated.
In Texas' model, non-subscribers don't enjoy exclusive remedy protection, but many non-subscribers have learned how to minimize negligence risk through more exacting work safety programs, aggressive claims management and the use of mandatory arbitrations.
As for recommendations, the authors of the study suggested advocates of an opt-out option for their own state should "carefully design their strategy to sell the concept to others."
Citing advice from privatization advocates, the authors listed five suggestions helpful in achieving such goals.
* Establish the government as the guarantor of services, but not the direct provider.
* Divert demand into the private sector by offering recipients more rather than less, and choice rather than command.
* Detach key elements of the doubters, possibly through side payments.
* Create a "mirror coalition" that would fight for private provision to offset those who argue for public provisions.
* Move incrementally to learn from early mistakes and avoid making large ones. That will also help to soothe those both in and out of the worker' comp system, since many find change worrisome.
January 14, 2013
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