Wednesday, August 19, 2015

Opt In vs. Opt Out

The issue of alternatives to workers' compensation is volatile and emotional.

There are die-hard workers' compensation advocates and even if they disagree on whether workers' compensation is working or not, they do band together when arguing against opt-out proponents.

Those who pitch alternative benefit systems are vociferous in defending their ideals, saying the costs are lower to business, the results are better for employees, and they like that government largely stays out of the way.

I'm a firm believer in market economics. A free economy means that ultimately the consumer benefits because there's always someone around the corner that will provide goods or services better, faster and cheaper.

When "open rating" was first introduced in California around 1992 I bought in. It made sense to me that market competition would result in lower prices for insurance to the business consumer, rather than having the government dictate the least that could be charged (i.e. a floor).

What I didn't appreciate is that workers' compensation in California, nor most states, is NOT a free market; it is a captive market. The government says, with rare exception, that an employer must be covered for employment injury risk.

A free market would not impose that condition.

The only free workers' compensation market in the United States is Texas. Neither employer nor employee need "subscribe" to the system, and indeed, neither need to have any protection whatsoever, and can "go bare."

Even then, Texas had its share of problems controlling work injury issues. Until that state's historic reform in 2004, Texas employers suffered higher than average premiums for workers' compensation insurance. Bigger businesses could afford to put together alternative benefit plans, but small businesses with fewer resources weren't as able to adapt.

A few suffered the consequences...

The opt-out movement has been heating up with moves into Oklahoma and Tennessee, and it is being pitched at other states.

There are two issues that opt-out opponents really have to alternative systems: 1) disputes are governed by arbitration clauses and the employer controls that process, putting the employee at an unfair disadvantage; 2) when employment ends, so too does the employer's obligation to take care of the injured worker.

Neither of those are trivial, in my mind.

The employer for the most part has an unfair bargaining advantage over most workers - employer has the money, employee needs the money... And most employees don't think they'll ever get hurt at work. And even if they might appreciate the risk, they don't generally think of any protection in such an event.

Proponents say that opt-out plans are actually better for the employee because they eliminate a lot of the game playing, take lawyers out of the equation, and provide a better return-to-work result. That may be, but I don't know. I have never seen any study that supports those arguments. I have seen anecdotes, but nothing that has been academically reviewed.

The only research that I can recall that comes close to reviewing opt-out in Texas was by Stanford Law School professor Alison Morantz.

Her work, "Opting Out of Workers' Compensation in Texas: A Survey of Large, Multistate Nonsubscribers," found near universal praise by non-subscribing employers for Texas alternative plans because of the huge cost savings over traditional workers' compensation.

But unfortunately Morantz' survey did not delve into injured workers' opinions or experiences.

And I don't know of any studies that do so other than the Texas Department of Insurance surveys, which don't provide statistics on whether or not injured workers actually fare better (or worse) under opt-out than regular comp.

Here's what I DO know - any employer that doesn't have something in place to take care of workers hurt or killed on the job is not only risking itself, and its workers, but risking the entire community in which it does business. One need only look to West Texas, and the decimation to the local economy there following the explosion of a "bare" fertilizer plant a couple of years ago, to understand that some form of occupational injury protection is necessary for a vital economy.

Argue as we might about opt-out versus "traditional" workers' compensation, the fact is that we can all agree that the modern economy requires some form of work injury protection. We can debate all day long about its form (heck, we all seem to disagree even as to how work comp itself should operate!), but any notion that there need not be something in place is purely fodder, and the subject of Bangladeshi politics...

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