A recent ruling by the Oklahoma Workers’ Compensation Court undercutting so-called “opt-out” systems has set off a flurry of speculation about such systems, including whether this ruling signals the beginning of their end.
The short answer is: no.
While this ruling turned on some rather arcane details, there is a simpler reason why it is unlikely these less worker-friendly alternatives to traditional workers’ comp will be discarded or the push into other states halted.
The 100-year old “no-fault” system is a grand bargain; workers trade their right to sue for on-the-job injuries in return for guaranteed medical care and lost wages. Why would an employer voluntarily opt-out and, in essence, turn all of their employees into potential third-party claimants? Cost.
It’s all about the money.
Today, a workers’ comp claim is comprised of about 65 percent medical costs and 35 percent lost wages. These figures were reversed 25 years ago. The flattening of wage growth has left rising high medical care costs as the main driver in any significant claim. This has pushed employers to extreme measures in attempts to control these costs.
Switching to an opt-out program saves on premiums and creates control in managing claims expenditures. Under an opt-out plan employers pay the cost of all claims falling within their deductible, plus a premium for insurance above their deductible. They then aggressively manage the cost and number of claims to reduce their costs.
Employers now dedicate time to “managing” medical treatment and care directly with doctors. But, if the same doctors are handling the same injuries, how can an opt-out system lower medical costs? In many cases the answer is a limit on care, treatment and rehabilitation options.
Critics of opt-out systems have pointed to limitations on type and quantity of medical care, as well as lower payouts for specific injuries as inherent flaws. But, if your concern is cost control, you might see these as features.
An employer using opt-out to control costs, however, would likely see the potential of an employee to bring a third-party suit against them for providing an unsafe workplace as a bug. The opt-out “feature” to control that potential cost is forced use of arbitration to settle grievances — often controlled by the employer.
Reducing fraudulent claims has long been a goal of both employers and insurers. Opt-out proponents claim it saves resources for truly injured workers by allowing greater opportunity to weed out the bad cases. The “weeding” typically manifests as severe limits on accident reporting.
For example, a worker injured on Friday might not think it is serious enough to report a claim to management. Over the weekend, the worker realizes that the injury warrants treatment and so advises his or her employer on Monday. A “late-reporting” protocol written into the opt-out program makes it easy to deny this claim.
These sorts of limitations on accident reporting suggest an attempt to reduce all claims — including legitimate ones — not a focus on fraud. This brings us to back to the real drivers of, and the problem with, opt-out systems: a broken medical system and sense of moral obligation.
The rise of opt-out systems is yet another indicator that we have not solved the problem of rising medical costs. Doing so would benefit the economy, reduce workers’ comp costs and reduce the appeal of switching to an opt-out program. Actively seeking ways to not provide care and compensation for a truly injured worker is a major step back to the early days of the industrial revolution.
This article originally ran as the Closing Quote column in the March 21, 2016, issue of Insurance Journal magazine.