DOL moves toward a takeover of state workers’ compensation systems

Roughly a century ago, grand bargain referred to the deal that states imposed on injured workers who lost their right to sue their employers in return for less generous albeit more certain benefits. The result is the Workers’ Compensation systems through which injured workers are provided with medical care, payment for lost wages, and compensation for permanent disabilities.

In an Oct. 5 report, the Department of Labor (DOL) took issue with the states, claiming that “working people are at great risk of falling into poverty as a result of workplace injuries and the failure of state workers’ compensation systems to provide them with adequate benefits.” Not being one to waste a good crisis, Labor Secretary Thomas Perez opined, “It is time that we look at whether this basic bargain is fraying and how we fortify this critical lifeline for millions of working families.”

{mosads}The department hinted that its investigation will reveal many states that are creating “additional holes in the fabric of insurance and coverage” that should be covered by “the establishment of standards that would trigger increased federal oversight if workers’ compensation programs fail to meet those standards.”

However, there is no crisis; non-fatal injuries to private sector workers dropped from 6.8 million in 1994 to 3 million in 2014. This is a decrease of 62 percent in the incident rate per 100 workers.

Similarly, fatal injuries have declined from 5,949 to 4,386 during the same period. Additionally, fewer injured workers miss work because of their injury — only 900,000 had to take time off in 2014 compared to 2.2 million in 1994.

The reduction in workplace injuries has naturally led to fewer Workers’ Compensation claims, which declined 56.7 percent from 1994 to 2012. Likewise, employer costs and employee payments for injuries paid per $100 of covered wages have also declined over 60 percent each. This is great news. Or should be.

The DOL, though, must not agree. Payment reductions, it says, are simply the result of “state legislatures [that] continue to attempt to reduce workers’ compensation costs” and “increase employer control over benefits and claim processing.”

One motivation for their disdain of state efforts appears to be a letter that ten members of Congress (five senators and five representatives) wrote to Sec. Perez a year ago expressing their concern about “a pattern of detrimental changes to state workers’ compensation laws…”

To support their concerns, the members pointed to a series of reports by leftist media outlets. In particular, they focused on efforts by “some states [that] are adopting “opt-out” laws which enable employers to set up their own ERISA-based workers’ compensation programs.” They encouraged the department to “take a renewed interest [in] strengthening oversight of state workers’ compensation programs by using agency’s expertise and authorities.”

Why all of a sudden are members of congress and the DOL asking such an active interest in state workers’ compensation systems? A clue can be found in the member’s’ “serious concerns” about employers setting up their own ERISA-based programs for injured workers.

The ERISA-based programs are modeled on a Texas law that governs Workers’ Compensation. Texas is the only state in the nation where employers do not have to carry insurance for injured workers. Most do, however; only 5 percent of Texas workers don’t have some kind of benefit plan that covers on-the-job injuries. About 80 percent of the workers are covered by Workers’ compensation, while 15 percent of covered by private ERISA-based plans.

None of this is new; Texas employers and employees have had the option to “non-subscribe” to workers’ compensation and use private benefit plans for injured workers since 1913. As a result, employees covered by these private plans have benefited by experiencing better medical outcomes, including shorter periods of disability and fewer claim disputes. Employers have benefited through lower costs, and they are also more likely to pay attention to worker safety since they can be sued by injured workers.

What is new, though, and has gotten the attention of folks in Washington and around the country is the recent attempt by the nonsubscriber industry to expand outside of Texas’ borders. In 2014, Oklahoma created the second private injured worker benefits market in the country, while other states are considering similar legislation.

The members expressed their serious concerns about this expansion, Secretary Perez called it a “disturbing trend,” and the DOL launched an investigation of Texas companies because neither the federal government nor the states can “evaluate the adequacy of a plan’s benefits.” In other words, the concern is not focused on the health of workers, but on government control of the plans.

Interestingly, three major insurance company trade groups appear to share this concern, having filed an amicus brief with the Oklahoma Supreme Court in support of a lawsuit to overturn Oklahoma’s opt-out law. The groups expressed their concern that neither states or the federal government can “force [nonsubscribers] to provide injured workers the same benefits as mandated by” state workers’ compensation law.” Likewise, trial lawyers also filed a brief in support of the lawsuit, claiming that “the ramification[s] are bleak” of allowing employers to opt out because “[p]reserving the rights of injured employees requires vigilant protection,” presumably from the government.

Why their concern? Perhaps because workers compensation systems are major profit centers for insurers and trial lawyers. Competition from a private sector alternative in other states might lead to fewer employers in the state systems and more efficient state systems—just like it has done in Texas. And while competition provides great outcomes for consumers, it can wreak havoc on profit margins.

No one seems to be concerned about workers, except employers. The federal government’s assault on Texas’ private injured workers benefit market and its expansion to other states represents a major threat to liberty and to the health of injured workers. The grand bargain of workers’ compensation doesn’t look as grand today as it once might have. Perhaps employers and workers ought to be given a chance to renegotiate.

Bill Peacock is the Vice President for Research and Director for the Center for Economic Freedom at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. He may be reached at bpeacock@texaspolicy.com.

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