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This is the first of four articles on the Oklahoma Option, an alternative to the state's workers' compensation act, which will be considered in the 2013 Oklahoma Legislature.

Workers' compensation laws in each state prescribe a uniform set of injury benefit coverages and claim procedures. Each workers' compensation insurance carrier writing business in a particular state offers the exact same benefits coverage and must follow the same claim procedures that are prescribed (in excruciating detail), by that state's law. They then compete almost solely on price.

Price competition is good, but the Oklahoma legislature can also create broader, free-market competition based upon the level of injury benefit coverage (subject to statutory minimum levels of benefits), the quality of claims service and better medical outcomes. It can do this by taking the best parts of the Arkansas workers' compensation laws and the best parts of the Texas "nonsubscriber" system.

The Oklahoma Injury Benefit Coalition, a group of local and national companies supporting Oklahoma workers' comp reform, has worked with the legislature over the past two years to develop and refine the "Oklahoma Option." This will be a free-market option to a highly-regulated workers' compensation system. To ensure benefit adequacy, employers electing the Option can be required to pay the same forms of benefit and the same dollar, percentage and duration limits that are specified under the new workers' compensation act. However, the Oklahoma Option will leave some employer and insurance company discretion to customize the injury benefit commitment, employee communications and claim procedures. As seen in Texas, insurance companies offering workers' compensation insurance coverage and insurance companies offering alternative coverage then compete against each other for market share to see who can deliver the best package of benefits coverage (as noted, subject to statutory minimums), claims service, medical outcomes and price.

Faster Implementation of Workers' Comp Reforms: This two-pronged strategy (of pursuing workers' compensation reform, plus the Oklahoma Option) will speed up cost reductions for all employers inside and outside the workers' compensation system. Implementation of a new workers' compensation act will be more manageable, handling fewer injury claims that are overseen by a new administrative agency team. It will also require workers' compensation insurance companies to move more quickly to gain the economic advantages of the reforms as they compete harder for business.

Lower Premiums for Employers: Substantial reforms were made to Texas workers' compensation over the past decade. During this same timeframe, many large Texas employers moved from workers' compensation into the Texas nonsubscriber environment. What was the result of combining workers' compensation reform with large employer nonsubscription? Workers' compensation insurance companies had to compete harder, implement workers' compensation reforms faster and Texas workers' compensation premium rates have been cut in half. The nonsubscribing companies have also saved over $1 billion while achieving better medical outcomes and higher injured employee satisfaction. That's the win-win result of a truly competitive marketplace.

This same type of free market competition will be created by the Oklahoma Option. It will allow insurance carriers to lower workers' compensation premium rates, particularly for small employers that experience few injury claims. These employers will not want to take the time and effort required to implement an Option program, which will require adoption of a new benefit plan document, special employee communications, new state and federal compliance requirements, etc. Why go to this trouble if few of your employees ever get hurt on the job? Basic insurance principles demonstrate that if some employers that experience higher injury frequency and higher claim costs decide to opt out of the workers' compensation system, this cannot raise workers' compensation costs for the employers who remain in a workers' compensation premium rating pool that experiences lower claim costs.

Impact on Oklahoma Economy: The nonsubscriber option to Texas workers' compensation has helped Texas lead the nation in job creation. The Oklahoma Option can produce similar results for Oklahoma while including more state regulatory oversight, and mandatory, minimum benefit levels (two features not seen in Texas nonsubscription). Even after considering the potential for more benefit disputes from an active Oklahoma trial bar, the Oklahoma Option will likely cut current Oklahoma workers' compensation claim costs by at least 50 percent. In a system that generates close to $1 billion in workers' compensation costs (over 80 percent of which go to claim payments), if only one-quarter of Oklahoma injury claims are moved into the Option environment, Oklahoma employers will save over $100 million. That's a lot of new jobs and other economic development opportunity.

Impact on Oklahoma Workers: Option insurance will be mandatory for all but the largest, most financially secure companies electing the Option. As noted above, those insurance policies will (by law) need to pay the same forms of benefit and the same dollar, percentage and duration limits that are specified under the new workers' compensation act. So, Oklahoma Option insurance companies will compete for market share by offering benefits coverage that will be comparable to, and frequently greater than, workers' compensation benefits. The Option insurance companies will also ensure employer accountability by requiring adoption of standardized or pre-approved injury benefit plan documents, employee communications, and claim procedures that satisfy or exceed statutory minimum benefit levels, and provide consistency and predictability in claims administration. These insurance company controls protect the interests of injured employees and are necessary to support the actuarial credibility of the insurance company's premium rates. Medical providers will also work harder to be designated as approved providers for Option programs, distinguishing themselves through attention to best medical management practices and delivering better medical outcomes for injured workers.

The Oklahoma Legislature should require insurance companies and other interested parties to truly compete. Competition means faster implementation of meaningful workers' compensation reform, better medical outcomes for injured workers, higher employee satisfaction and employers retaining money for Oklahoma economic development. What's good for Oklahoma employers and employees will be better for everyone.

Bill Minick is president of PartnerSource, an employee benefits and risk management consulting firm. In the coming weeks, parts 2-4 of this series will further address how the Option will work for both large and small employers, how the Option compares to Texas nonsubscription, and why Option employers should be entitled to exclusive remedy protection. Click here to check out his new book on the Oklahoma option.

February 19, 2013

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