Everyone likes to come up with ways of saving money with workers' compensation insurance plans. The latest idea is known as "opt-out" plans, and Oklahoma is the first state to put such an operation into practice. An employer can use the state's workers' compensation system or they can opt-out, and develop their own plan. The employer's own plan is virtually unregulated and unsupervised.
Proponents of this system argue that employers are required to offer as good or better benefits than the state regulated program. A study by the International Association of Industrial Accident Boards and Commissions found that it was very difficult to assess these plans due to the lack of uniformity. The U.S. Department of Labor has begun an investigation into these programs.
Given the lack of oversight and regulation, it is unclear how this would be enforced if a substantial number of employers opted-out of the traditional workers' compensation program. Most states have enough trouble regulating the existing system and investigating fraud by employers who attempt to game the system and misrepresent their workforce or their staffing numbers.
The inherent conflict in an opt-out plan is that employers are paying insurers to, in effect, minimize their costs for injured workers. The most efficient way to do this is to deny claims quickly. An insurer that decided too many claims in favor of workers would be unlikely to see their contract renewed, as the employer shopped around for a cheaper alternative.
The Oklahoma Workers' Compensation Commission recently found sections of the legislation creating the law were unconstitutional, which will likely lead to months or years of litigation to determine the legality of many of the plans and how they operate. Nebraska still uses a traditional program and it is unclear how an opt-out program would offer any real advantages to most workers in the state.
Source: publicnewsservice.org, "Workers' Comp Alternative Probed by U.S. Labor Dept.," May 25, 2016