Opt Out

A ruling by the Oklahoma Workers' Compensation Court undercutting so-called “opt-out” systems set off a flurry of speculation about such systems, including whether this ruling signals the beginning of their end.

In my opinion, the short answer is: no. While this particular ruling turned on some rather arcane details, there is a simpler reason why it is highly unlikely these less worker-friendly alternatives to traditional workers compensation will be discarded, or the push into other states to be halted.

It’s about the money.

The 100-year old “no-fault” system is a grand bargain; workers trade their right to sue for on-the-job injuries in return for guaranteed medical care and lost wages. So, why would an employer voluntarily opt out and, in essence, turn all of their employees into potential 3rd party claimants? Cost.

While employers and their lobbyists speak of improved benefits for workers under opt-out, the real goal is reduced costs. Today, a workers compensation claim is comprised of about 65 percent medical costs and 35 percent lost wages. These figures were reversed 25 years ago. Why? Simple, inconsistent at best wage growth has left high medical care costs as the main driver in any significant claim. This has driven employers to extreme measures in attempts to control these costs.

Switching to an opt-out program saves on premiums and creates control in managing claims costs. A structure familiar to most employers large enough to have used deductibles or self-insurance in their previous workers' comp policies, under an opt-out plan employers pay the cost of all claims falling within their deductible, plus a premium for insurance above their deductible. They then aggressively manage the cost and number of claims.

Here’s how that management turns into cost savings:

Employers now dedicate time to “managing” medical treatment and future care directly with doctors. But, if the same doctors are handling the same injuries, how can an opt-out systems lower medical costs? In many cases, the answer is simply a limit on care, treatment and rehabilitation options for employees.

Critics of opt-out systems have pointed to limitations on type and quantity of medical care, as well as lower payouts to employees for specific injuries as inherent flaws. But, if your only concern is cost control, you might see these as features, not bugs.

An employer using opt-out to control costs, however, would likely see the potential of an employee to bring a 3rd party suit against them for providing an unsafe workplace as a bug. The opt-out “feature” to control that potential cost is forced use of arbitration to settle grievances—often controlled by the employer.

Reducing fraudulent claims has long been a goal of both employers and insurers. Opt-out proponents claim it saves resources for truly injured workers by allowing greater opportunity to weed out the bad cases. The “weeding” typically manifests as severe limits on accident reporting.

For example, a worker injured on Friday might not think it serious enough to report a claim to management. Over the weekend, the worker realizes that the injury is severe enough to warrant treatment and so advises their employer on Monday. A “late reporting” protocol written into the opt-out program makes it easy to deny this claim.

Typically not allowed under workers compensation, these sorts of limitations on accident reporting suggest an attempt to reduce all claims—including legitimate ones—not a focus on fraud.

This gets us to back to the real drivers of the problem with opt-out systems: a broken medical system and sense of moral obligation.

The rise of opt-out systems is yet another indicator that we have not really solved the problem of rising medical costs, including the increasing cost and use of prescription drugs. Doing so would benefit the economy, reduce workers compensation costs and reduce the appeal of switching to an Opt-Out program.

It has been said that we would rather see nine guilty people go free than one innocent person to prison. I view the provision of workers compensation as a similar moral duty. Actively seeking ways to not provide care and compensation for a truly injured worker is a major step back to the early days of the industrial revolution.