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What’s Going on With Workers’ Compensation “Opt-Out”?

What’s Going on With Workers’ Compensation “Opt-Out”?The workers’ compensation system has been around for more than a century, helping both employees and their employers recover, physically and financially, following a workplace injury or accident. Workers’ compensation insurance was created to protect injured employees and their employers from time-consuming and costly litigation resulting from workplace injuries and to implement a system that allows employees to receive benefits while they are being rehabilitated on their path to returning to the workplace.

Supporters of the traditional workers’ compensation system have repeatedly highlighted how the system “continues to work as intended, fulfilling the grand bargain.” More recently, however, the concept of alternative coverage for workers’ compensation has been gaining traction and starting debates among workers’ compensation stakeholders across the country. The alternative coverage mechanism of “opting-out” of workers compensation has been heavily debated by both sides, but little about it has been mentioned in recent news. This raises the question: what’s going on with workers’ compensation opt-out?

Current laws in every state except Texas mandate that employers provide workers’ compensation benefits to their employees. Some employers have become concerned with the cost or complexity of the workers’ comp system over the last few years and have been vocal about wanting to explore other options. State legislators soon joined in the discussion, looking into the possibility of changing state laws to permit employers to opt-out of workers’ compensation plans and allow them more flexibility in crafting their own programs.

In October 2015, the federal government jumped in to express concerns about state opt-out programs. A total of 10 US senators and representatives sent a letter to US Department of Labor (USDOL) Secretary at the time regarding the state-based system of workers’ compensation. The USDOL subsequently looked into the issue and released a report in October 2016 that discussed some of the recent developments in opt-out at that time. However, no activity on the federal level has occurred since the 2016 election.

In 2017, three states – Florida, Arkansas and Oklahoma – attempted to introduce opt-out related bills but none of them were able to advance their efforts. No new efforts have been made by any states so far in 2018, possibly due to the mid-term election activity. Whether or not the discussion will pick back up following the frenzy of state elections remains to be seen.

One factor that may be impacting states’ interest in workers’ compensation opt-out is the decrease in frequency and recent declines in loss costs/rates across the country. As the cost of workers’ compensation steadily decreases, the benefits of opting out become less attractive when weighed against risks, such as employees retaining the right to sue employers even if the employee declined to take part in an optional workers’ compensation plan. For now it seems like opting out may be on the back burner, but only time will tell if it will become a hot legislative topic again in the next two years.

About ASIA Workers’ Compensation

Associated Specialty Insurance Agency, Inc. has been “The Workers’ Compensation Specialist for Brokers and Agents” for the past two decades and is committed to providing brokers and insurance agents across the East Coast with expertise and services to develop a Workers’ Compensation policy. For more information about how we can assist you with claims management, anti-fraud measures, and more call (610) 543-5510 to speak with one of our professionals.

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