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Tuesday, April 10, 2012

Trending: Opting-Out of Workers' Compensation

Opting-out of workers' compensation coverage is now a significant national trend. The opt outs are  both through a legitimate elective process and a de-facto scheme.

The opt-out process arose through a  legislative process over a decade ago when Massachusetts legislation permitted the option to elect out of the mandatory workers' compensation system. Since then it has grown through both legitimate and illegitimate expansion. Some legislators have proposed that religious organizations should now be permitted to not obtain coverage.

In March the expanding trend to opt-out of the workers' compensation system took a major leap as large employers began to leave the system and offer less benefits to injured workers. Walmart, one of the largest employers in Texas has made the election to leave the system. Within the last two years other large employers have exited the system, including Target, seeking to reduce costs through a private non-workers' compensation plan.

Some states have reported increasingly high rates of uninsured workers. The enforcement and collection activities, are unfortunately both time consuming and expensive and are usually conducted after the fact.

A de-facto opt-out process is also occurring nationally through a process of misclassification of workers. Employees are designated by employers as independent contractors and consultants to avoid mandatory coverage and taxes. In North Carolina  it has been reported that 30,000 business do not have mandatory workers' compensation coverage. The system attempts to avoid the tedious and time consuming process to seek workers' compensation benefits, and instead employees seek benefits from alternative sources including major medical plans, Medicare and social security. Temporary disability plans and major medical plans act as coverage for loss time and treatment. Employee are willing to fore go permanent disability inorder to get certain and immediate medical care and lost time benefits. Many employees have no idea that workers' compensation pays for permanent disability. The aging workforce assumes that Social Security Disability is a more user-friendly system to navigate.

The growing trend of opting out of the workers' compensation system is of concern to all. Why this is occurring in a system that was designed to protect both the worker and the employer needs to be identified and addressed.