Each year, the National Council on Compensation Insurance (NCCI) shares a short definition of the industry condition. At the organization’s annual meeting last spring, Peter Burton, senior division for state relations, says the CEO called national workers comp insurance conditions “calm.”
Don’t necessarily expect it to last.
“There are some trouble issues ahead,” Burton says. “Some topics could come up and really throw a monkey wrench into some of these good numbers.”
In particular, medical and regulatory issues may have a dramatic impact on workers comp in 2016. Here are the ones you can’t afford to ignore.
Opt-out laws. Workers comp experts agree the biggest issue to watch this year is the rise of opt-out systems across the U.S.—“this whole concept of an alternative mechanism beyond the traditional workers comp system,” Burton says.
Workers comp opt-out plans allow employers to opt out of the traditional workers comp system and develop their own workplace injury plans. Although such programs are currently only in place in Texas and Oklahoma, similar programs have been proposed in Arkansas, North Carolina, South Carolina, Tennessee and West Virginia.
“Because of high employer costs of medical care, proponents in these states are proposing these alternatives for employers to choose between the traditional buying an insurance policy and being self-insured in a given state, or going with an opt-out type program,” Burton explains.
It’s an approach that seems to be gaining traction: After Oklahoma’s opt-out law took effect in 2014, Burton says approximately 60 employers received approval to implement opt-out programs in that state.
According to Donna Urben, vice president and workers compensation product manager at Erie Insurance, each state can devise the structure for employers to opt out of the standard market, depending on size, class of business or risk—“and what that does is set different standards,” she says.
The insurance industry has a slew of reporting requirements and procedures for ensuring injured workers receive appropriate medical care, Urben notes. “Those two guidelines are thrown out the window in an opt-out arena,” she says. “There are very lax to no reporting requirements for those employers that opt out, and employers can also set their own guidelines regarding length of treatment and type of medical treatment they pay for.”
“The benefit levels are different under both programs,” agrees Yvonne Hobson, vice president of corporate underwriting at Amerisure. “It’s really important that agents help their clients understand the differences between the two and how coverage can be impacted by the employer before they decide to forego coverage through a traditional state workers compensation program.”
Reform efforts. Burton says agents also need to be wary of the “attack on the exclusive remedy”: Due to state regulatory changes over the last several years that some believe have cut benefits to injured workers or otherwise made it more difficult for them to qualify for coverage, “the grand bargain between the injured worker and employer has eroded—it’s much more difficult for the injured worker to get benefits,” he explains. “As a consequence, some argue the system that was established 100 years ago has eroded to the point where the system should be changed.”
Is it time for states to revisit their workers compensation systems in total? Some members of Congress think so: In October, 10 Democratic lawmakers, including presidential candidate Sen. Bernie Sanders (D-Vermont), wrote a letter urging the U.S. Secretary of Labor to take action to ensure that state workers comp programs properly care for injured workers.
What would such a review entail? One argument is that “maybe workers comp should be nationalized—federal government should take control versus the state control of workers comp systems,” Burton summarizes. “That’s a big issue and one that a lot of state legislators may look at—not national overtaking of state systems, but whether benefit levels have been legislatively amended to such a low level that there’s a need to increase benefits going forward.”
But so far, the potential reaction of state legislators to these concerns remains unclear. “Will they look at their benefit levels as being too low and adjust laws that may increase benefits?” Burton asks. “That’s a choice states have to make. From an NCCI standpoint, we are in a position to price that activity, and if any change becomes law, we will make filings representing whatever the increase costs are to the system.”
Independent contractor classification. In the aftermath of the Department of Labor’s (DOL) Administrator’s Interpretation that seeks to classify most independent contractors as employees, urge your clients to pay close attention to the employment status of their workers.
“All businesses would be wise to carefully review their independent contractor relationships in light of that guideline that was established, and evaluate measures to reduce misclassification,” Urben recommends. “If they hire a true independent contractor, there must be full establishment that the status is truly an independent contractor. Otherwise, the exposure base for that independent contractor’s payroll must be added to the commercial client’s policy.”
Matt Lyon, head of workers compensation at Foremost Insurance Group, also stresses the importance of making sure commercial clients properly account for all 1099 contractors on their payrolls—and secure workers comp insurance for all of them. “If not, you will get assessed for those contractors come audit,” he warns.
In California, for example, “if you hire a contractor that comes and does work for you at your business and that contractor’s not insured, it will actually go up to your workers comp policy if they have a claim,” Lyon explains. “Really be careful with your clients about advising them to accurately capture work comp exposure through subcontractors they bring on, as well as people they’re bringing to work on their premises or do work on their behalf. They need workers compensation insurance so they aren’t on the hook for it.”
Jacquelyn Connelly is IA senior editor.