For 72 years, Texas’ businesses have had enjoyed an option afforded to those of no other state: to forego covering employee injuries under their statutory workers’ compensation program.
Now that Oklahoma has allowed its companies a similar option and two other states are considering it, opt-out programs are now on the minds of workers’ compensation experts across the country, and it is possible that several states will adopt such programs in the near future.
Some major problems must first be sorted out before that can happen, however. But with just a little prodding, the issue is likely to become a major one in 2017 and may end up affecting Texas small businesses.
Texas’ Workers’ Comp Opt-Out Program
Workers’ compensation programs allow the costs of worker injuries to be spread to those who use a business’s products and services. They give employees a fast-track to obtaining medical reimbursement while allowing employers to more predictably account for workplace injuries.
The give-and-take of workers’ compensation, whereby employers offer limited guaranteed coverage in exchange for employees giving up their rights to other forms of recourse, is known as the “compensation bargain.”
Workers’ compensation programs saw pervasive adoption after a 1917 U.S. Supreme Court ruling opened the door for states to require employers to provide coverage. Texas kept its program voluntary.
In Texas, employers have the option of declining to provide workers’ compensation benefits. Those who opt out must give notice to their employees and the state. Well over 100,000 Texas employers, about a third of all businesses, have done so. But these “nonsubscribers” don’t participate in the state’s workers’ compensation insurance program, they must still meet certain requirements.
Today’s Texas businesses are given three options:
- Offer coverage through the state’s traditional workers’ compensation system.
- Create an internally run compensation system.
- Not offering workers’ compensation through the state or internally; becoming nonsubscribers.
Most nonsubscribers follow best practices to avoid increased liability, creating their own programs to address workplace safety and reimburse injuries. Still, roughly 470,000 or 5 percent of the state’s employees work at companies without a remuneration plan in place.
Opt-Out Programs in Other States
In Oklahoma, a recent law that shifted the state’s workers’ compensation program from a judicial system to an administrative entity allows employers to opt out as long as they provide comparable benefits through a third party. Since taking effect in 2014, about 60 employers have gone for the opt-out option.
Two years into the Oklahoma program, however, the state’s Workers’ Compensation Commission (which has the power to rule on constitutional questions) struck down the law, ruling that it denied injured workers equal protection and access to the legal system. The ruling has since been appealed to Oklahoma Supreme Court.
All eyes are on the Oklahoma State Supreme Court. Its decisions on whether workers’ compensation opt-out programs are constitutional will likely set the tone for other states in the future.
In South Carolina and Tennessee, bills that would allow private businesses to opt out while providing outside coverage are under consideration for upcoming legislative sessions.
Opting Out: An Issue About to Hit Critical Mass
The buzz around the opt-out issue is rising and drawing attention across America. Recently, U.S. Department of Labor Secretary Thomas Perez called opt-out programs “a pathway to poverty for people who get injured on the job,” raising the specter of a federal referendum that could even affect Texas’ long-standing system.
But several unanswered questions remain before that can happen. States looking at considering an opt-out program is a good idea eagerly await guidance from the courts and watch pensively as other legislatures tweak bills and send them through their chambers for approval.
Factors that could exacerbate the issue include:
- Should the state’s highest court reverse the Oklahoma decision to strike down its law, other states may feel more comfortable in enacting their own opt-out programs.
— Jon Rehm (@JonRehmEsq) April 20, 2016
- Whether states considering opt-out programs will draft their proposals in a way that will require employers to address workplace injuries through programs other than workers’ compensation.
- The 2016 election: Republican victories at both the state and federal levels may pave the way for states to pass opt-out legislation. Democratic victories could make it more difficult to pass such bills and may even result in congress taking action to prevent it.
If one or more of these events comes to pass, 2017 may be the year when many states draft bills that would give employers the option to forego their states’ workers’ compensation coverage. If not, then federal intervention in the form of congressional legislation, administrative rulemaking or a U.S. Supreme Court decision may end up putting an abrupt halt to a trend that has yet to gain momentum.
Texas may no longer be the only state that has a workers’ comp opt-out program, but 2017 may be the year that all changes for the better — or worse.
- For more on training your employees to avoid painful and costly injuries, read Do Your Employees Need Safety Training? The Answer Is Yes!
- For more on options for reimbursing injured employees, read Texas Workers’ Compensation vs. Occupational Accident Insurance [Infographic].
- For more on finding a workers’ compensation policy and claims management partner, read What Are the HR Functions of a PEO?