Workers Comp Opt-Out Programs

In recent years, a small number of states have considered implementing an opt-out option for workers’ compensation insurance for certain employers. Workers’ comp insurance is compulsory in every state except Texas (some states have exceptions for employers with just a few employees). Essentially, opt-out programs allow generally large employers to provide an alternative form of work comp benefits from the statutory defined benefits enacted in a given state. Oklahoma enacted their current workers comp opt-out law in 2013. There is at least some consideration in Tennessee and South Carolina to adopt similar programs (however, these alternative plans are currently on hold in both Tennessee and South Carolina due to concerns raised in other states such as Oklahoma).


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As recently reported in the below story, the Oklahoma Workers’ Compensation Commission ruled part of Oklahoma’s current law to be unconstitutional:

There will likely be a final determination of this ruling by the Oklahoma Supreme Court.

Workers’ comp insurance is designed to be an ‘exclusive remedy’ for employees injured on the job. This is generally the case when employers’ carry workers comp insurance (where as employers without workers’ comp insurance bear the risk of being financially responsible to employees injured at work). This system is designed to control costs for employers with respect to workplace injuries, whereas without statutorily defined benefits, employers would be routinely subject to litigation related to on the job injuries.

Most opt-out programs are conditioned on the premise that workers injured on the job will receive equal or better benefits under the alternative program as they would if their employer participated in the traditional workers’ comp system in a given state. In Oklahoma, there is criticism that the definition of workplace injury is varied by companies that decide the workers comp opt-out option from the traditional workers’ comp system. For example, the article above indicates the Dillard’s department store’s alternative benefits plan considers injuries arising from exposure to asbestos on the job as a non-covered injury. On the other hand, statutory worker’s comp laws cover injuries arising from workplace asbestos exposure.

At a minimum, the Oklahoma Workers Compensation Commission’s decision highlights a legitimate concern with respect to opt-out programs. In other words, it seems reasonable to assume that certain employers might at least attempt to provide less benefit than statutorily defined benefits if allowed and they could get away with it.

It will be interesting to see how this trend develops nationally. It is important that injured employees maintain the right to have adequate and efficiently provided benefits. It remains to be seen whether alternative programs can accomplish that or not. Self-insurance has clearly worked in certain situations, so it’s possible the system can still work or even improve with less regulation. However, if not done correctly, there is also substantial opportunity for alternative programs to be manipulated by large employers with substantial negotiating leverage.