Legislators and industry professionals across the United States are recognizing the need for alternatives to traditional workers' compensation systems. This is particularly true in higher-cost states that are failing in their obligation to deliver optimal medical outcomes for injured workers, at a fair cost to employers.
Why pursue this now? State workers' compensation systems engage in endless "reform" efforts aimed at micro-managing and refining bureaucratic molasses in the name of employee protections and reducing employer costs. But most of these efforts produce very limited results.
In the meantime, we have witnessed the success of Texas nonsubscription in driving lower workers' compensation costs (both inside and outside of the system) through free-market competition, generating billions of dollars in savings (as reflected in actuarially credible data).
The State of Oklahoma has also shown that politicians can come together to implement workers' compensation alternatives. (The only reason this "Oklahoma Option" is now under attack at the Oklahoma Supreme Court is because non-stakeholder interests -- such as workers' compensation lawyers -- are fighting to protect their wallets.)
Mark Walls, in his insightful Risk & Insurance®
column titled Has the Pendulum Swung Too Far?, notes that, "Employers are frustrated with the perceived inequity within the workers' comp system and the high costs associated with it. Because of this, the concept of opting out of workers' comp is getting a lot of attention. Employers that opt-out of workers' comp in Texas have claims costs that are a fraction of those in the traditional system." (Even with Texas now one of the lowest-cost workers' comp systems in the United States.)
Walls notes that the complexity of workers' comp systems is "out of control," with "mountains and mountains of paperwork" that does nothing to enhance the benefit delivery process, and may lead "more employers in more states pushing for the elimination of workers' comp."
Another respected workers' compensation thought-leader and Risk & Insurance®
columnist, Peter Rousmaniere, published an important study earlier this year with his colleague, Jack Roberts, titled, Workers' Compensation Opt-Out: Can Privatization Work? They note that, "In a matter of months, employers that elect such an option enjoy improvements that state legislatures debate for decades." In an era of rapidly increasing global competition, and as the Affordable Care Act creates heightened legislative interest in free-market solutions, how can such a proven opportunity be further ignored?
Who will organize for change and how? Rousmaniere and Roberts rightly note that advocates of privatization of workers' compensation can best achieve their goals by creating a "mirror coalition" that will fight for the private provision of injury benefits coverage and challenge those who argue that injured workers' can only be cared for through an antiquated andheavily regulated public system.
For example, the Texas Alliance of Nonsubscribers has been instrumental over the past eight years in maintaining and effectively self-regulating the right of employers to nonsubscribe from the Texas workers' compensation system. The Oklahoma Injury Benefit Coalition similarly required just two years to gain passage of the "Oklahoma Option."
These legislative successes will never be driven by the few health care providers who abuse workers' compensation systems, the many plaintiff or defense lawyers who thrive on manufacturing workers' compensation claim disputes, or certain insurance companies, third party administrators, and their legions of vendors who lament the systemic problems, but fight tooth and nail against changes that impact their bottom line.
Instead, as seen in both Texas and Oklahoma, workers' compensation alternatives will be pursued by employers who recognize employees as their best asset and strive to be recognized as a "Best place to work." Employers who do not think this way are unable to credibly organize and promote a legislatively viable alternative. They focus away from effective employee care and accountability strategies, and set their eyes only on short-term "reform" gains, such as deep cuts in benefit entitlements. Effective pursuit of a workers' compensation alternative requires that the most employee-centric employers formally organize, together with industry professionals who share their desire to be on the right side of history.
Key public-policy issues can now be raised and quickly resolved through national coordination and support of state-based advocacy groups. Without such support, a stand-alone, state-based advocacy group may require years to fully understand and act upon fundamental legislative building blocks.
For example, we now have portable solutions to difficult issues, like:
* What is the relationship between the level of benefit mandates and the extent of employer liability exposure?
* What are available approaches to maintaining state-level control over a workers' compensation alternative program, while also supporting consistency in insurance, claims administration and medical management processes across state lines?
* How can we provide financial protections for employees in a free-market environment?
* How can we provide regulatory protections that do not depend upon massive numbers of government employees to oversee?
* What does the concept of "employee protections" require today versus 100 years ago?
The new methods by which we achieve employee protection must reflect these modern-day facts:
* Employer attitudes toward employees as their "most important asset" have changed, as have the types of injuries employees are incurring.
* Other state and federal laws (particularly those developed over the past 40 years, like the Americans with Disabilities Act, Family and Medical Leave Act and Employee Retirement Income Security Act) require substantial employee communications and protections against wrongful benefit denial, discrimination and employment termination.
* Opioids, various medical interests and other workers' compensation systemic influences have been shown to not advance better medical outcomes.
* Claims procedures that balance employee and employer interests can be largely self-executing, requiring minimal (if any) government involvement.
* Government committees and commissions staffed by non-physicians should not be making medical judgments, particularly on individual injury claims.
* Companies and individuals have new technological capabilities to access, gather and utilize large amounts of data, supporting process innovation (like evidenced-based medicine) and better outcomes faster than legislatures and bureaucracies can respond.
Existing and new state-based advocacy groups acting in coordination for workers' compensation alternatives will likely take shape sooner than later. The reasons for change, the ways to organize for change, and solutions to issues that another "workers' comp reform" can't resolve are now at hand.
BILL MINICK is president of PartnerSource, a risk management consulting firm specializing in workers' compensation alternatives.
He can be reached at email@example.com.
September 23, 2013
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