Thursday, April 25, 2013

OK's Lesson In Value

The big news this morning is that the Oklahoma House passed SB 1062, that state's workers' compensation reform bill, inclusive of the option for businesses that qualify to opt out of the otherwise mandatory system.

The question arose in the WorkComp Analysis LinkedIn group whether this portends a trend reflective of employers increasing wariness and discontent with workers' compensation.

My opinion - no.

But that is an opinion in direct response to the LinkedIn question.

Oklahoma opt-out IS a trend and one that will spread throughout the United States relatively quickly. Relative, of course, speaking in the political time reference - it took nearly 40 years for all states in the union to create workers' compensation systems so I certainly don't expect opt-out provisions to occur overnight.

But the Oklahoma experience is not a reflection of employers feeling that workers' compensation works against them - it is a return to the grand bargain that was the original vision of workers' compensation 100 years ago.

When workers' compensation was devised, it was an agreement between Business and Labor whereby each would give something up the other desired in exchange for each getting something they wanted but lacked - i.e. a compromise.

Business wanted certainty in costs. Labor wanted certainty in life style. Both had to give up certain legal positions, and both sought the assistance of intermediaries - the government, insurance, doctors, attorneys (and eventually the list got very long of all sorts of other assorted vendors) to help get the job done.

The problem really started when all of the intermediaries assumed control over the destinies of the employer and the employee.

Business was mandated to pay for something that, over time, lost value - the only reason to buy workers' compensation insurance for most businesses over time was simply because it was mandated by law. The protections and certainty that was part of the original value proposition in work comp have been compromised over the course of 100 years.

Labor was mandated to use something that, over time, likewise lost value - the only reason to not to sue the employer for injuries and consequences was simply because it was mandated by law. The protections and certainty that was part of the original value proposition were, over time, compromised.

For employers, costs not only increased, but sometimes dramatically from one year to the next. The ability for a business to control costs was lost.

For employees, rapid medical care and financial assistance not only slowed to a crawl jeopardizing workers' well being, but the ability to seek redress was lost.

And in the meantime there were plenty of other interests jumping in taking control away from both the employer and employee - and we're all part of that game.

There is not one person that is in the workers' compensation industry that can claim exemption from being an unnecessary intermediary in the relationship between the employer and the employee - not one.

Each one of us - be it insurance, medical, legal, brokerage, legislative, judicial - we're all in between the primary relationship that work comp was intended to manage. And each one of us exact a cost on that relationship - monetarily, emotionally, intellectually.

Will Oklahoma opt-out change things? Probably not for the vast majority of employers in that state - the requirements to legally opt-out are too onerous for small employers to exercise.

But the Oklahoma experiment will spread - I have no doubt about that.

Two states presently give employers the option to not participate in workers' compensation.

New Jersey's option is too complex and difficult so no employer really exercises that option. Texas has been described more accurately as an "opt-in" state because the reality is that no Texas business must carry any insurance whatsoever - so it is a much more level playing field.

I opined that the threat to workers' compensation from Oklahoma opt-out style options in other states is that the industry will be required to become better, more efficient, more cost effective - and the biggest part of the revolution is that the industry may be forced to be less of an intermediary in the direct relationship between employer and employee.

Oklahoma opt-out gives large employers the ability to structure their own work injury programs, and to integrate those programs with non-industrially related programs.

Efficient, and good, employers will merge their industrial programs with their general health and disability systems so that employees, regardless of causation, are simply taken care of.

The perceived threat is that employees will lose rights and will end up on the short end of the bargain, but studies refute that argument. Yes, there will be some left behind, but that is nothing new - that happens now in the current structured environment.

I think that Peter Rousmaniere and Jack Roberts, in their November 2012 report on privatization of workers' compensation said it best:

"An opt-out program without defined benefits isn’t privatization. It is simply the elimination of workers’ compensation."

Essentially, this is a recognition that workers' compensation may not be particularly relevant and the Oklahoma message with SB 1062 is that the industry better watch itself because the opt-out provision is only one aspect of Oklahoma reform.

Does the Oklahoma opt-out bill reflect a trend of employers increasing wariness and discontent with workers' compensation?


It reflects a trend that both employers and employees no longer feel that workers' compensation either meets their needs, or provides any value relative to the costs of having multitudes of intermediaries messing with the primary relationship.

It reflects a growing trend that the value provided by workers' compensation is perceived to be declining.

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