The Dangers of “Opting Out” of Workers’ Compensation Programs

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Understanding the Employer’s Rights in Opt-Out Programs

Opt-out programs allow employers to determine everything from the timeline an employee must file a claim following an injury, to how much the company will pay for certain injuries. They also allow employer’s to determine the physicians and facilities injured workers may seek treatment from, and the types of injuries the company will consider work related.

Company administered programs have tighter restrictions on timelines (sometimes as short as 24 hours) and remove many of the protections granted to injured workers under state administered programs. Should employees fail to adhere to the terms and conditions of their benefit plans, they have little recourse to appeal or seek damages via the legal system.

The Problems are Real

Proponents of opt-out legislation claim that these programs are working. That is true…they’re working for the companies that administer them. For starters, benefits paid to workers under opt-out plans are taxable income. In contrast, state administered benefits are not taxable. This means that employees receiving benefits under state administered plans are actually receiving less than they should be. The NPR study indicated that up to 80% of workers filing claims under company administered plans ultimately received lower benefit payments.

Further, privately administered plans give employers broad discretion regarding settlements. If workers reject these terms, they are denied payment. Moreover, should a worker choose to fight the company’s assessment, most are bound by strong mediation language that limits their ability to fight the claim through legal channels.

Finally, these plans are not regulated by the state or federal government. There is no oversight which means that a company can essentially do what it wants. Because there is such broad discretion in the wording of the legislation, two employees, working for two different companies in identical jobs, could receive vastly different treatment and settlements for suffering the same exact injury.

Opt-out programs give employers the ability to administer their own workers’ compensation programs. This means that they are solely responsible for determining everything from the time within which an employee must file a claim, to the physicians they are able to seek treatment from. This gives employers broad discretion which in many cases includes limited coverage amounts and usurious filing restrictions.

More States are Considering Similar Opt-Out Programs

Legislators in South Carolina and Tennessee are currently considering the passage of opt out legislation. In Tennessee, the proposal is being sponsored by State Senators Mark Green and Jeremy Durham and would require that employers meet minimum financial requirements that would show they could self-fund their own injury benefit programs.

In South Carolina, the legislation is known as the South Carolina Injury Benefit Plan Alternative and is being sponsored by State Representative David Hiott. The legislation requires that a worker receive a minimum of 75% of their average weekly wage and provides for a no-fault basis for filing claims. However, there is concern over two facets of the legislation. First, that the discretion it grants companies in determining the level of disability following an accident is considerable; and second, that the availability and access to physicians can be greatly restricted by an employer.

Investigations of Workers’ Compensation Opt-Out Programs are Pending

The National Conference of Insurance Legislators (NCOIL) has announced plans to investigate the opt out programs that have been implemented in Texas and Oklahoma. The announcement of this investigation follows reports that injured workers in these states were unable to collect benefits under these programs. Nationwide, there is growing concern that workers are being unfairly denied benefits they were legally entitled to prior to their state’s passage of opt out legislation. The investigation will be led by North Dakota Senator Jerry Klein who is the head of NCOIL.

Could Opt Out Programs Come to Illinois?

Workers compensation attorneys in Chicago are currently watching the discussions and debates taking place in Tennessee and Oklahoma. It is unlikely that the Illinois General Assembly would ever pass opt-out legislation. While Governor Rauner has proposed sweeping changes to the state’s workers’ compensation program, support for options that would allow companies to opt-out entirely have found little support. It is likely that future support for opt-out legislation will decrease following the results of the NCOIL investigation. This will mean that legislators will instead focus on streamlining the state administered workers’ compensation program so that it is more efficient and effective at meeting the coverage needs of injured workers.