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Risk in Context

Opting Out of a Workers’ Compensation System? Make Sure You Get It Right

Posted by Conrad Renz May 07, 2015

Many employers in Texas and Oklahoma can choose to nonsubscribe or opt out, respectively, of those states’ workers’ compensation systems. And similar alternatives may soon become available in other states. These approaches to traditional workers’ compensation insurance programs can potentially offer valuable cost savings if they’re managed correctly — but also can lead to significant financial harm if not.

Opt Out and Nonsubscribe

In Texas, the term used for not participating in the state workers’ compensation program is “nonsubscribe.” And it’s pretty straightforward: File the state paperwork and notify your employees. That’s about it.

Oklahoma uses the term “opt out.” Among the differences, Oklahoma requires you to meet several qualifications. Unlike in Texas, if you opt out in Oklahoma, you are still required to provide the same level of indemnity benefits to injured workers as they would receive under the workers’ compensation system.

Nonsubscription and opt-out are not right for every employer. But if you decide they’re right for your company, following are two things you need to get right.

Find an Experienced Third-Party Administrator (TPA)

The claims process for nonsubscribers is different from traditional workers’ compensation. So if you decide to nonsubscribe (Texas’ term) or opt out (Oklahoma’s term), it’s vital that you select the right third-party administrator. For example, your TPA should have direct experience in this area. And because you could be facing additional litigation, your TPA’s adjusters should know how to handle both liability and employee-injury claims.

Build an Effective Safety Program

All employers can benefit from a strong safety and loss control program. But claims avoidance and mitigation are especially important for Texas nonsubscribers that are no longer protected by exclusive remedy.

Workplace safety is best managed through a three-part approach:

  1. Put systems in place to prevent injuries: Robust training, communications programs, and management support help create a culture of safety throughout the organization.
  2. When an injury happens, local management and employees should work together to minimize the potential damage. Ensure that your employees and key leaders, including those in environmental health and safety, have the right risk assessment tools and know how to deliver first aid and manage early symptoms (to avoid cumulative trauma claims later).
  3. After an injury, focus on claims management and getting employees back to work. Your TPA can be invaluable to this effort.

Listen to a replay of our Workers’ Compensation Center of Excellence webcast, Understanding the Evolving Legal and Regulatory Landscape, for more on this topic.

Conrad Renz