Workers’ Compensation Reform: A Tale of Two States

By Joe Woods | July 4, 2005

The cries for meaningful workers’ compensation reforms have reverberated in the halls of the capitol buildings in Austin and Oklahoma City for many years. Session after session the respective legislatures tinkered with reform while costs continued to build and confidence in the systems crumbled.

The Texas system had been plagued by rising costs, poor medical outcomes and frustration by everyone involved. In 2004, the Workers’ Compensation Research Institute reported that costs per claim in Texas increased at double-digit rates for the third consecutive year. The study said the average total cost per workers’ compensation claim rose 10 percent between 2000 and 2001, following an 11 percent increase between 1999 and 2000, and a 13 percent hike between 1998 and 1999.

Over the years Oklahoma employers have complained about the rising cost of workers’ comp. The issue of higher costs for employers makes the state less attractive to businesses that may want relocate or expand their operations there. On top of that, employers could be facing additional rate increases in order to fix the state guaranty fund.

However, for the 2005 legislative session, events and circumstances aligned and the political environment was right for major workers’ compensation reform in Texas and Oklahoma. For starters, everyone–business, labor, insurers, medical providers, Republicans and Democrats–agreed that major reform was essential.

Successful reforms in Texas
This year Texas scrapped its workers’ comp system and enacted meaningful reforms that will gain control of medical costs by establishing networks for medical care and reduce the number of medical disputes. The network approach will result in quality care at a reasonable cost and will return employees to work in an appropriate amount of time.

The details of the law include the following:

  • Abolishes the Texas Workers’ Compensation Commission: The Division of Workers’ Compensa-tion, to be established within the Department of Insurance, will regulate the comp system.
  • Office of Injured Employee Counsel: The counsel will administer the ombudsman program, represent injured employees in rulemaking procedures and certain court actions, and guide injured workers through dispute resolution in complicated cases.
  • Medical networks will be allowed: Rules will be adopted by Dec. 1, 2005, to implement the network system. Networks will be able to designate providers to serve as treating doctors; injured employees must choose a treating doctor from that list.
  • The reforms are a breath of fresh air that will bring more accountability to the system. Now Texans face the challenge of transitioning to this new system; it is not unrealistic to expect that the effects of the reforms will not be realized until the legislative session of 2007 is ready to begin.

    Progress in Oklahoma
    While the changes in Oklahoma were not as dramatic as in Texas, lawmakers took an important step forward by enacting reforms that will help to reduce medical and legal costs while ensuring that injured workers receive quality medical care. One of the key reforms for the insurance industry was the adoption of a use-and-file rating system. This will encourage competition, streamline the rate approval process and hopefully attract more workers’ compensation carriers into the state.

    Among its provisions, the new law includes:

  • Employer choice of physicians: Employers will choose doctors for workers as part of their terms of employment. However, the employee will have the right to request an independent doctor.
  • An end to “dueling doctors”: To speed up benefits for workers and prevent litigation from prolonging cases, workers’ compensation judges will appoint independent doctors to evaluate injured workers.
  • This bill falls short of fully reforming the system. A major remaining issue involves the solvency of the guaranty fund and as a result, workers’ comp will certainly be on the agenda again in 2006. Lawmakers may be forced to consider levying an assessment on the state fund, CompSource, which writes approximately 40 percent of the market. As the insurer of last resort it currently is exempt from assessments. Including CompSource in the guaranty fund assessments will help equalize the playing field for private insurers and go a long way toward finding a solution for the reserves short fall.

    Overall these reforms will send positive messages about Texas and Oklahoma. The 2005 session demonstrated that both states are serious about improving their workers’ comp systems, addressing rising medical costs, providing quality care for injured workers, decreasing litigation and bolstering job growth and the economy.

    Joe Woods is assistant vice president and regional manager for the Property Casualty Insurers Association of America.

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