Soft market keeps lid on state opt-out efforts

The movement to make carrying workers compensation optional for employers in some states stalled in 2018 with no state introducing legislation, and the upcoming year won’t produce much change as insurance rates continue to drop — in some states by digits — for 2019, experts say.

In addition to soft market conditions, other factors caused the trend to die down: the failure to pass “opt-out” legislation in four states — Tennessee, South Carolina, Florida and Arkansas — since 2015; and an Oklahoma Supreme Court ruling in September 2016 that determined the state’s opt-out law to be unconstitutional, according to experts.

But opt-out will not go away for good, experts say.

“Opt-out, or ‘the option’ as it is formally called, continues to have many supporters,” said Eric Silverstein, Dallas-based national casualty and new business development leader who heads up the nonsubscription practice for Willis Towers Watson PLC.

“It’s just not a priority right now,” he said. “If the market changes, I would anticipate legislation.”

Meanwhile, proponents are “reorganizing and rethinking their strategy,” said Trey Gillespie, Austin, Texas-based assistant vice president of workers compensation with the Property Casualty Insurers Association of America, which historically has opposed opt-out legislation.

The Oklahoma Supreme Court decision concerned a case where a department store employee was denied treatment for a 2014 injury that was said to have aggravated a pre-existing spinal injury, according to documents in Jonnie Yvonne Vasquez v. Dillard’s Inc.

Ultimately, the majority of judges in the state Supreme Court ruled that the Oklahoma Employee Injury Benefit Act, enacted in 2014, allowed employers to provide “impermissible, unequal, and disparate treatment of a select group of injured workers” compared with standard comp policies, thus affirming the Oklahoma Workers’ Compensation Commission ruling that found the law was unconstitutional because it denied equal protection to injured workers and denied injured workers their right to court processes, according to court records.

That case “put a lot of transparency in these programs, and that is they do not provide the same level of benefits and protections as the workers comp systems,” Mr. Gillespie said.

Jeff Pettegrew, Fallbrook, California-based chief policy officer for the Association for Responsible Alternatives to Workers’ Compensation, acknowledged that the situation in Oklahoma wasn’t good for proponents but called that state’s defunct program “poorly designed.”

“(Opt-out) flatlined for a while because of the setback in Oklahoma, but I think we will see a resurgence,” said Brian Allen, Salt Lake City-based vice president of government affairs for Mitchell International Inc., a provider of comp administrative services. “I think you will see some focus in Texas initially.”

Texas, the only state that currently gives employers the choice of subscribing to the workers comp system, will likely see improvements to its “injury benefit program” for employers who choose that over workers comp insurance, said Mr. Pettegrew, a well-known insurance industry executive and risk manager who was hired in September to help lead ARAWC.

Also brought in to work for the Dallas-based nonprofit as a consultant was Ryan Brennan, who served as the Texas insurance commissioner under two gubernatorial administrations.

Both were hired by ARAWC to “promote and protect the Texas nonsubscription program,” said Mr. Pettegrew, adding that continual improvement in Texas is the focus for 2019.

“We are not pushing out to other states,” said Mr. Pettegrew. “If we do a really good job of creating an achievable standard that produces excellent outcomes, if (opt-out) goes to other states there will be a model (in Texas) for them … What’s good for Texas would be good for other states.”

What remains attractive to some employers who opt out of carrying comp insurance is less red tape, according to Bill Minick, chairman of Dallas-based PartnerSource, a consulting unit of Arthur J. Gallagher Risk Management Services Inc. that develops nonsubscription programs.

“Two of the biggest concerns that have been expressed of workers compensation has been the adequacy of the benefits and system complexity,” said Mr. Minick, adding that employers’ ability to apply “best practices to better medical outcomes allows you to pay better benefits.”

New federal guidelines under the Employee Retirement Income Security Act of 1974 applied to the Texas nonsubscriber program this year have “recognized that nonsubscription is a viable option,” Mr. Silverstein added. The new rules apply to conflicts of interest and denials for those who provide injury benefits as opposed to comp, he said.

“They cleaned up the playing field and made it a better environment to support nonsubscription in the future,” said Mr. Silverstein. “If you don’t have any rule, you will have bad actors that give nonsubscription a bad name and threaten the sustainability over time.”

Proponents’ focus on Texas is a valid strategy, Mr. Allen said.

“I think it’s fair to say that in Texas the satisfaction of employees who are injured in the opt-out companies seems to be pretty high; we just don’t hear a lot of noise from them … (Companies) are not seeing a lot of litigation because they are taking care of injured workers. There must be something working for them,” Mr. Allen said.