A state representative from North Dakota, who serves on the Workers’ Compensation Insurance Committee at the National Conference of Insurance Legislators (NCOIL), says he’s concerned about reserves for paying claims in workers’ compensation opt-out plans.
During a July 2016 meeting of the NCOIL workers’ comp committee, North Dakota state Rep. George Keiser, a Republican from Bismarck who has served as vice chair of the legislative Workers’ Compensation Review Committee and is chairman of the House Industry, Business and Labor Committee, questioned where the reserves would come from if a company that had opted out of a state’s workers’ comp system was hit with a high-dollar claim from an injured worker.
The July meeting in Portland, Ore., focused on workers’ comp alternatives, such as the opt-out programs in Oklahoma and Texas. According to the minutes of that meeting, Keiser posed the following question to Gregory Krohm, director of research for Workcomp Strategies and former executive director of the International Association of Industrial Accident Boards and Commissions (IAIABC), and a speaker at the meeting: “Where is the reserve for an opt-out company in Oklahoma on a $15 million exposure?”
Krohm, who authored “Understanding the Op-Out Alternative to Workers’ Compensation,” published by the IAIABC in May, described two possibilities: “If insured, the insurance company carries the reserve as they are obligated to pay the benefit; if self-insured, the Oklahoma insurance commissioner establishes, at his discretion, what the security deposit has to be and that may or may not be adequate.”
Frank O’Brien of the Property Casualty Insurers’ Association of America (PCI), who also spoke at the NCOIL meeting, said while opt-out systems may save employers money, the costs are still there. Some costs will likely be shifted to the state’s safety net if the employer doesn’t have the ability to pay claims or if the employer’s plan excludes injuries or illnesses that would typically be covered under workers’ comp.
Krohm noted that the Texas and Oklahoma opt-out programs vary. In Texas, injured employees retain the right to sue non-subscribing employers over workplace injuries. Oklahoma’s system is exclusive remedy and disputed claims must go through an administrative review process.
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