How Well Do Oklahoma Opt-Out Plans Serve Injured Workers? It Depends, Study Says

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A recent analysis of the workers’ compensation “opt-out” system in Oklahoma concludes that employer-run plans for injured workers may offer benefits that are equal to or better than those provided by traditional workers’ compensation as proponents suggest, but there are no guarantees that they will.

The quality of any employer-run plan depends on the specifics contained in the individual plan, the study concludes. And that’s the problem.

“This lack of uniformity and consistency has drawn sharp criticism from the workers’ compensation community because equity in benefits and the treatment of employees, irrespective of employer, is a core value in workers’ compensation,” said Gregory Krohm, author of “Understanding the Op-Out Alternative to Workers’ Compensation,” published by the International Association of Industrial Accident Boards and Commissions (IAIABC).

In May 2013, Oklahoma Gov. Mary Fallin signed legislation reforming the state’s workers’ compensation system that, among other things, allows employers to opt out of workers’ compensation and provide benefits to injured employees through a qualified benefit plan.

Supporters of Senate Bill 1062 said workers’ comp costs for business would fall as a result of the bill’s passage. And loss costs have dropped. According to the Oklahoma Insurance Department, with a decrease that took effect on Jan. 1, 2016, loss costs have dropped by more than 37 percent since the bill was enacted.

However, opponents said those cost savings come at the expense of injured workers, and portions of the 2013 Oklahoma Workers’ Compensation Act — including the Opt-Out provision — have been challenged in court since it went into effect.

Just this year, the Opt-Out provision was declared unconstitutional by the Oklahoma Workers’ Compensation Commission (which was created under SB 1062); and the Oklahoma Supreme Court struck down the provision that bars workers’ comp claims from workers who have been employed less than 180 days, as well as the portion authorizing deferral of payments for permanent partial disability for workers who eventually return to their jobs. More litigation is waiting in the wings.

Krohm, in the IAIABC analysis, said many of the opt-out plans studied offered similar wage replacement benefits as those mandated in the workers’ compensation system, and a few plans “were even more generous.” But there were differences.

For instance, injured workers seem to be better served by the opt-out plans when it comes to very short-term claims — four to seven days — as most employer-run plans eliminate the waiting period for benefits, which is three days under the workers’ comp system.

For longer-term claims, opt-out plans may be less advantageous for injured workers, the report states, because for one thing, the “benefits appear to be subject to income tax.”

The workers’ compensation systems specify “highly structured rights and responsibilities for employers” in an effort to equalize the protection of injured workers among various types and sizes of employers, the report states. Those rights and responsibilities include rules that govern selection of the medical providers, medical treatment disputes and an impartial dispute resolution process.

With opt-out plans, employers have “much greater control and decision-making authority” across the board. For example, under many plans language employers may deny a claim if an injured worker misses an appointment, or “fails to comply with medical treatment or follow the claims process.”

Causation and Covered Illnesses

The workers’ comp system and opt-out plans vary widely in Oklahoma when it comes to which illnesses or injuries are covered.

Under the workers’ comp system, the threshold for eligible claims is both defined by state statute and influenced by case law. In general, workplace illness and injury, and their causes, are “generally broadly construed by the courts” and “determinations are made according to well established precedent,” according to the IAIABC report.

With opt-out plans, the employer decides which claims are compensable and many conditions are excluded. For instance, illness or injury resulting from asbestos, silica or mold exposures are often excluded, the study found. The employer also controls where and when an eligible claim may occur.

Dispute Resolution

The two mechanisms for providing benefits to injured workers also differ in the way disputes are resolved. Initial levels of dispute resolution are defined by the employer (subject to ERISA requirements) in the case of the opt-out plan, and by statute and administrative procedure under workers’ compensation.

Advanced claim disputes under both arrangements may be heard by a worker’s compensation administrative law judge.

In general, however, claimants under the workers’ comp system can expect uniformity in the process of filing and resolving claims, the report states.

Opt-out plans, on the other hand, “have considerable flexibility in designing and administering their claims process and dispute resolution.” While they may be more efficient and less costly, an employer designed dispute resolution process that controls medical evidence through provider selection “allows for the possibility that internal appeals will fall short of the common standards for impartiality found in most state workers’ compensation systems.”

Governance in Question

Opt-out plans are built as employee benefit plans under the Employee Retirement Income Social Security Act, or ERISA, which sets standards for plan execution and development but does not mandate benefits. The extent to which ERISA regulation applies to opt-out plans in Oklahoma “has not been clearly defined by the US Department of Labor and federal courts,” the report states.

According to the analysis, there are three “schools of thought” on the application of ERISA on Oklahoma plans:

Does not apply because opt-out plans are alternative workers’ comp mechanisms and ERISA exempts workers’ compensation. The report found that this opinion is not widely held.
Is concurrent with state law and the mandate for providing equivalent benefits can be enforced by the state. According to the IAIABC study, at least “two federal trial judges appear to have accepted this concurrent governance by remanding appeals of benefit denials to the Oklahoma Workers Compensation Commission, in accordance with the Oklahoma statute.”
Pre-empts state law; employers are not be held to state benefit provision requirements or security against default, and employers may develop plan requirements at their own discretion.

According to the IAIABC report, while some proponents say ERISA is concurrent with state law, others are not so sure. Addressing the question of whether ERISA applies to opt-out plans, the report states: “This is a very complicated issue that will ultimately need definitive rulings by the US Department of Labor (US DOL) and the courts.”

In Oklahoma, the sole responsibility for determining whether an employer qualifies for opt-out lies with the Oklahoma Insurance Department. The report questions whether that responsibility would be better placed with the Oklahoma Workers’ Compensation Commission, which is responsible for qualifying employers for self-insurance and already “has a detailed application process” in place for determining qualification .

The insurance department’s process, on the other hand is “not transparent,” according to the study.

“The Oklahoma Insurance Commissioner has broad discretion to define the application form and materials to evaluate an employer’s capacity to be certified as a qualified employer. The application form posted to the Insurance Department web site is relatively less detailed than the application for self-insurance. We do not know how rigorously the Insurance Department reviews these applications,” the IAIABC report states.

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