North Dakota Lawmaker Questions Reserves in Workers’ Comp Opt-Out Plans

By | August 11, 2016

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’ compensation system was hit with a high-dollar claim from an injured worker.

The July meeting in Portland, Ore., focused on workers’ compensation alternatives, such as the opt-out programs that exist in Oklahoma and Texas, and have been proposed in bills in South Carolina and Tennessee.

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 of this year, 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, with the Property Casualty Insurers’ Association of America (PCI), also spoke at the NCOIL meeting. He said while opt-out systems 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 certain injuries or illnesses that would typically be covered under the traditional workers’ compensation system, O’Brien said.

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, so there currently is no remedy in circuit court. Disputed claims must go through an administrative review process in Oklahoma.

Lowest Rates

North Dakota has the lowest workers’ compensation insurance rates in the country and that’s because the legislature designed it that way, according to Keiser.

The Oregon Department of Consumer and Business Services biannually issues a comparison of workers’ compensation insurance rates in the 50 states and the District of Columbia. Its 2014 Oregon Workers’ Compensation Premium Rate Ranking Summary shows that North Dakota had an index rate of 0.88, which represents 47 percent of the study median. By comparison, California, which has the highest rates in the country, had rate index of 3.48 or 188 percent of the study median in the 2014 summary.

Rep. Keiser of North Dakota told his fellow committee members at the July meeting that states don’t need opt-out programs like those in Texas and Oklahoma in order to achieve positive results in a traditional workers’ comp system. Legislators have the authority to design a system that works and they have to accept the responsibility to do just that, he said.

Contrary to the opinion of some that North Dakota premiums are low because the benefits are inferior, Rep. Keiser asserted that his state’s back to work record is very good and noted that the maximum average weekly wage replacement is $1,247 in North Dakota, compared to the average of $700 in Oklahoma.

Rep. Keiser recommended that states look at North Dakota’s system, which has an early intervention program and an automatic co-pay for every injury starting at $250 per claim. The co-pay is waived if the injury is reported within 24 hours or by the first workday after a holiday or weekend.

He also suggested that North Dakota’s system provides benefits that other states don’t have, such as college tuition for a spouse or children of a worker who suffers a fatality or permanent disability.

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