This is the second of four articles on the Oklahoma Option, an alternative to the state's workers' comp act, which is under consideration by the 2013 Oklahoma Legislature.
Many large employers have "nonsubscribed" from the Texas workers' compensation system over the past decade. The membership of Texas nonsubscription and "Oklahoma Option" advocacy groups is also predominantly made up of large employers. As a result, some say that only large employers are capable of responsibly operating an occupational injury benefits program outside of a traditional workers' comp system. Although it's true that large employers typically have higher occupational injury claim costs and stand to gain the most from an alternative system, there is no reason to believe that small employers cannot responsibly operate an alternative program and reap the same advantages for themselves and their workforces.
Which Industries will Elect the Oklahoma Option?
Companies that are most likely to nonsubscribe from Texas workers' comp or elect the Oklahoma Option have a higher frequency of employee injuries. Such companies commonly come from the retail, health care, food service, transportation, distribution and manufacturing sectors. Companies in other industries with significant injury frequency (like banking call centers) and even businesses with high severity exposures (like oil and gas companies) may also gravitate toward an alternative to workers' comp in order to achieve more employee accountability, higher employee satisfaction and claim cost savings. On the other hand, companies primarily made up of office workers or that otherwise experience few on-the-job injuries do not need and will not pursue an alternative to workers' comp.
What is Required to Elect the Option?
A minority of employers will be willing to invest the time, effort and expense required to:
- * Establish a new occupational injury benefit plan
- * Rollout special employee communications
- * Comply with new state and federal reporting and disclosure requirements
- * Establish a new injury claims administration process
- * Buy special insurance coverage for this unique risk
This fact is proven in the Texas nonsubscriber environment where (unlike the Oklahoma Option) there are no mandatory injury benefit requirements; but still, only 33 percent of Texas employers have opted out. Employers that do not have significant frequency and recurring, substantial expense of Oklahoma occupational injury claims can more easily purchase Oklahoma workers' comp insurance (typically, on a guaranteed cost or low deductible basis). They will continue to have a workers' comp insurance company provide turnkey management of the rare injury claims that occur. They will not elect the Option, preferring instead to simplify their lives to focus on other business priorities.
Fairness and Whose Interests are Being Protected?
Neither the State of Oklahoma nor the federal government place significant legislative hurdles in front of people that want to start a small business. There is no requirement for a start-up business to prove their ability to pay wages, invest in equipment, implement a retirement plan, etc. So, how is it fair to mandate that employers must purchase workers' comp insurance and not allow small employers to have the same right to an alternative approach that is available to larger employers? Is there a need to protect small business owners from themselves or are we trying to protect workers' comp insurance carriers from competition and potential loss of premium revenue?
Resources and Requirements that Support Small Business
Concerned that small employers are too unsophisticated to manage an Oklahoma Option program? Consider these facts:
* Mandatory Insurance Coverage. The Oklahoma Option mandates that every employer carry at least $2 million of insurance coverage per occurrence, post a surety bond or satisfy other financial security requirements. Strict bonding and security underwriting requirements cannot be satisfied by most small businesses, so almost all small employers will need to fully insure the mandatory Oklahoma Option benefit entitlements.
* Small Employer Engagement. Large employers may have a group of personnel focused solely on delivering healthcare and disability benefits to their employees. Small employers do not have this same depth of office staff, but the owners and management typically know each of their employees better and feel a more personal sense of commitment to the workforce. Workers' comp systems preclude most employer involvement, which is 180 degrees from how most small business owners handle every other aspect of their lives. On the other hand, Oklahoma Option insurance companies will be more directly accountable to their employer policyholders.
* Program Standardization. The mandatory insurance requirement will prevent small employers from "going it on their own". Oklahoma Option insurance companies will ensure employer accountability by requiring adoption of standardized or pre-approved injury benefit plan documents, employee communications and claim procedures that (A) satisfy or exceed statutory minimum benefit levels, and (B) provide consistency and predictability in claims administration. Small employers will not be allowed to administer their own claims due to insurance carrier motivation to protect their bottom line and reputation, avoid legal compliance problems, and minimize benefit disputes. These insurance company controls are also necessary to support the actuarial credibility of the insurance company's premium rates.
* ERISA Controls. The Employee Retirement Income Security Act ("ERISA") is a federal law that will apply to all private employer Option programs. ERISA includes numerous employee protections that apply to employers of all sizes (in particular, disclosure requirements, fiduciary requirements, claim procedures, and civil and criminal enforcement rules).
* Association Programs. The Oklahoma Option legislation authorizes employers to pool risk into an association program or other insurance purchasing group. Allowing association plans will further support stability in program implementation and administration among smaller employers. Insurance agents and carriers may also build programs that deliver separate, but identical, policies and benefit plans to each employer within specific industries. These are common insurance market approaches to help further ensure the sophistication of small employer programs and to leverage their purchasing power.
As discussed in the first article in this series, the Oklahoma Option will allow insurance carriers to lower workers' comp premium rates, particularly for small employers that experience few injury claims. The Oklahoma Option also includes many protections that eliminate the need to legislatively discriminate against small business. To deny small employers an alternative to workers' comp would ignore the support mechanisms mandated by statute and available in a competitive marketplace.
Bill Minick is president of PartnerSource, an employee benefits and risk management consulting firm. In the coming weeks, parts 3 and 4 of this series will further address how the Option compares to Texas nonsubscription, and why Option employers should be entitled to exclusive remedy protection. Click here for more information on the Oklahoma Option.
March 4, 2013
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