View this article online: https://www.insurancejournal.com/news/midwest/2016/08/08/422557.htm
An Illinois think tank has issued a report expressing support for a workers’ compensation opt-out system, stating that it would give employers the ability to lower costs and allow for a more flexible workforce.
In its report, “Fixing Illinois’ Outdated Workers’ Compensation System,” the Illinois Policy Institute also asserts that the current, state-run workers’ comp system “does a poor job of serving the majority of workers, especially parents and other workers who need flexibility to work hours outside the traditional workday and in off-site locations such as their own homes,” and “prioritizes the financial interests of groups such as lawyers and workers’ compensation doctors over the needs of both workers and employers.”
Instead of forcing employers into a one-size-fits-all system that it says is one of the most expensive in the country, the institute proposes that workers and employers should be allowed to opt-out and “craft their own agreements around their particular circumstances — rather than forcing all workers and employers to adhere to rigid regulations that often no longer serve their purpose.”
At least one insurer trade group thinks that’s a bad idea.
In response to the July 20 article written by Mark Adams for the institute, the American Insurance Association (AIA) issued a statement saying that advocating that employers would be able to control costs by opting-out “takes the wrong approach” to reforming the workers’ compensation system in Illinois.
“AIA was disappointed by the Illinois Policy Institute’s report,” said Stephen Schneider, Midwest region vice president for the AIA.
He said opt-out “creates a separate and unequal system of work injury benefits, an un-level playing field among employers who will be incented to opt-out to minimize their work injury costs.”
Schneider said the AIA has “proposed meaningful reforms” to “reduce costs and not harm the benefits to workers injured on the job. These reforms include addressing abuses associated with the practice of dispensing prescription drugs in non-pharmacy settings and examination of the present medical fee schedule, suggesting as an alternative the use of a Medicare rate-based schedule.”
According to Illinois Policy Institute, the state’s workers’ comp system was designed for an industrial workforce and has not evolved to keep up with modern workplaces, which are inherently safer, employ more women and take advantage of technology to allow for more flexibility in both workers’ time and their working environments.
The report pointed out that Illinois does not allow for exemptions for small businesses or domestic workers, which “hurts increasing numbers of workers who must balance work with child or elder care. As with telecommuting, this can affect all workers, but it disproportionately affects women, who tend to spend more time caring for children. And while not everyone can afford a live-in nanny, reducing impediments to hiring domestic help makes it easier for women to hold more senior positions.”
Under the current system businesses also are “less likely to give workers flexibility to work at home, or when employers do, to let workers set their own hours,” because of the vulnerability to workers’ compensation claims.
“Employers have little control over possible costs if the employee is injured at home, and the broken workers’ compensation system gives employers an incentive to take away flexible working arrangements for fear of legal liability,” the report states.
The report cites the advantages to employers of the Texas workers’ comp system, which allows employers to opt out, or nonsubscribe, entirely.
“Critics of the Texas system allege this has led employers to cut services, but the evidence suggests employers prefer to save money by cutting areas prone to fraud, while often increasing benefits employees value. Employers often provide better benefits than required for the same reason they offer flextime: to recruit the best employees at the lowest cost,” the report states.
Though the numbers fluctuate, the Texas Association of Responsible Nonsubscribers (TXANS) estimated in 2014 that approximately 114,000 employers operate as nonsubscribers in Texas, or about a third of the businesses in the state, according to Texas Department of Insurance – Division of Workers’ Compensation. While many nonsubscribing businesses have developed their own plans for compensating injured workers not all nonsubscribing businesses carry insurance to cover worker injuries, according to TDI-DWC. Those that do create voluntary benefit programs must do so under federal Employee Retirement Income Security Act of 1974, or ERISA, guidelines.
According to TDI-DWC, the top three reasons employers cite for not subscribing to the comp system were “the perception that they had too few employees, they had few on-the-job injuries, and that they were not required to have workers’ compensation insurance by law.”
While proponents of workers’ comp opt-outs assert that employer developed plans offer benefits that are equal or better that those offered in the workers’ compensation systems, an analysis published by the International Association of Industrial Accident Boards and Commissions (IAIABC) in May 2016 asserts that the quality of any employer-run plan depends on the specifics contained in the individual plan.
“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.”
Oklahoma lawmakers approved legislation in 2013 allowing the creation of an opt-out system in that state. Unlike in Texas, Oklahoma employers are still required to provide protection for injured workers, the Oklahoma Option, as it is sometimes called, allows employers to develop an ERISA-based plan that must be approved by the state insurance commissioner.
Oklahoma’s opt-out portion of the 2013 workers’ compensation act has been subject to numerous legal challenges and was declared unconstitutional by the Oklahoma Workers’ Compensation Commission, in a case that is now being considered by the Oklahoma Supreme Court.
The Illinois Policy Institute describes itself as an independent research and education organization generating public policy solutions aimed at promoting personal freedom and prosperity in Illinois. It is a member of the State Policy Network, a network of politically conservative research organizations.
Related: