Legislative Update. legal challenge to new law. significant changes to oklahoma work comp

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1 Quality Insight for Your Industry Legislative Update significant changes to oklahoma work comp Since our last Legislative Update on the new Workers' Compensation system in Oklahoma, the NCCI filed a 12.9% average rate reduction that becomes available for new policies January 1, 2014 and existing policies effective February 1, Employers should note, however, that insurers have some flexibility on when they will adopt the new rates and how they will implement the reductions on existing policies. Employers should also be aware the 12.9% reduction is the average rate reduction from the newly released loss costs. Depending on an employer s work comp class codes and how each insurer chooses to modify the NCCI loss costs, employers may see their rates change more or less than the 12.9% average. legal challenge to new law On November 25th, a challenge was made to SB 1062 s constitutionality. Many individuals and organizations delayed further consideration of the bill while awaiting the Oklahoma Supreme Courts decision. On December 16, the Oklahoma Supreme Court issued its ruling in response to the November 25th constitutional challenge of SB1062. The Court ruled SB1062 is not unconstitutional as a multiple-subject bill and that the Legislature has exercised proper authority in a matter over which it has power to act by adopting a code for the future execution of workers compensation law in Oklahoma. Until such time as a case or controversy or a justiciable issue is presented to this Court, we are without jurisdiction to rule further with regard to this Act. The Court s ruling seemingly provides a preview of potential legal issues that could be challenged as the new work comp system is implemented and claims or controversies arise. Specifically, the following Consitutional concerns were raised: The appeal process associated with the Opt-Out or Oklahoma Option portion of the bill may not provide a claimant with appropriate due process. The Legislature s authorization of appeals to the Workers Compensation Commission may be problematic, as this responsibility should rest solidly with the Court. Exclusive remedy provided in the Workers Compensation code may be challenged as the law excludes same sex spouses from death benefits and makes mental injury non-compensable when there is no accompanying physical injury. The law differentiates or defers the amount of permanent partial disability that is awarded depending on whether the employee returns to his/her pre-injury employment position with or without complete loss of use of a body part or parts, amputation or loss of scheduled members. (continued)

2 next steps Regardless of how continued legal challenges may play out, the combined impact of these changes will improve Oklahoma s Workers' Compensation environment and are already projected to reduce overall Workers Compensation costs in our state. Whether an employer chooses to move to the Oklahoma Option or stay within the Administrative System, all indications point to increased competition and downward pressure on rates moving forward. During this time of significant change and transformation, it is prudent to be both patient and proactive. On that point, rest assured that INSURICA is fully engaged and working diligently to develop programs and solutions that will allow our clients to fully capitalize on these groundbreaking changes. We will be in close contact with each of you over the next few weeks and will be providing individualized recommendations including the approach that may best fit your business needs as well as the potential impact of these changes to your overall workers compensation costs. new law in summary Effective February 1, 2014, Senate Bill 1062 will change the Oklahoma Workers Compensation landscape dramatically. The bill contains provisions for three major changes: implementation of an administrative Workers Compensation system, the right for employers to adopt arbitration agreements, and the Oklahoma Option, which allows qualified employers to adopt and administer benefits consistent with the Administrative Act. Administrative Workers Compensation Act The Administrative System As part of SB1062, the current court-based system will transition to an administrative system beginning February 1, A three-member Commission has been appointed to establish rules, procedures and build the infrastructure for this new system. All claims occurring before February 1, 2014 will be handled by the Court of Existing Claims (formerly the Work Comp Court) and will adhere to all current regulations and benefit levels. Any injuries occurring on or after February 1, 2014 will be handled by the new administrative system and will be subject to the new regulations and benefit levels set forth in SB1062. While it remains to be seen how effective this new system will actually be, the reasoning behind this new approach is simple: claims can be processed more quickly, there will be a reduction in litigation, and average claim costs will decline over time. These goals may be achieved through a variety of changes, including reductions in benefits for injured workers, changes to the methodology and payments of Permanent Partial Disability awards, and refinements to attorney fee structures throughout the litigation process. A summary of benefit changes is attached. (continued)

3 Workers compensation arbitration act Oklahoma employers participating in the administrative system will also be able to utilize arbitration agreements to arbitrate and resolve disputes. Participating employers must file their plans with the Commission and provide notices to their employees and their Worker s Compensation carrier. The goal of arbitration is to quickly and efficiently resolve disputes between employers and claimants. Oklahoma Employee Injury Benefit Act The Oklahoma Option SB1062 also includes the Oklahoma Employee Injury Benefit Act (OEIBA), which allows qualified employers to adopt and administer benefit plans consistent with the Administrative Act. It is important to note that the Oklahoma Option does not allow employers to go bare (i.e. not offer any coverage) as is the case in Texas. Instead, employers must provide coverage and benefit levels that meet or exceed the minimum requirements as set forth in SB1062. There is a $1,500 annual filing/application fee associated with this option. The financial obligations of the employer may be met through a variety of insurance products or through a demonstrated ability to self-insure, as determined by the Insurance Commissioner. The main objective of the Oklahoma Option is to give employers more control over claims and medical treatment after an injury occurs. For instance, employees may be required to give quicker notice of a claim, and adhere to proper treatment plans. A variety of products are being developed by insurance carriers to provide options for employers who wish to move to the Oklahoma Option. The best option for your company will depend on a variety of factors that will need to be considered on an individual basis. It is important to note that the Oklahoma Supreme Court ruled that the Workers Compensation reforms would go into effect as planned, but the Court also mentioned that the constitutionality of individual aspects of SB 1062 may still be reviewed. There are a variety of areas that will almost certainly be challenged, including payment of permanent partial disability, the internal appeal process outlined within the law, and the exclusive remedy provision extended to employers who opt out of the Workers Compensation system. Copyright 2013 INSURICA. All Rights Reserved.

4 COMPARISON OF MANDATED MINIMUM BENEFITS UNDER OKLAHOMA WORKERS COMPENSATION TITLE 85 AND THE ADMINISTRATIVE WORKERS COMPENSATION ACT (the WC ACT ) TITLE 85A The materials regarding Oklahoma workers compensation reform are for general informational purposes. Please contact your attorney or other competent advisor regarding any company specific or individual concern Types of Covered Injuries Medical - Duration Vocational Rehabilitation Temporary Total Disability(TTD) -Benefits Begin -Duration Limit Temporary Partial Disability (TPD) -Duration OKLAHOMA WORKERS COMPENSATION - TITLE 85 Injury by Accident, Occupational Disease, and Cumulative Trauma. 100% No Limit Up to 52 weeks. (+52 weeks additional benefits at same rate as employee s TTD if employee, actively and in good faith, is being evaluated or participating in a retraining or job placement program for PTD evaluation) 70% of employee s AWW, not to exceed state s AWW. Starting 8 th day of disability. If disability extends more than 21 days, payment due from 1 st day of disability. 156 weeks (+52 weeks for consequential injury) 70% of the difference between employee s AWW and employee s wage-earning capacity thereafter in same employment or otherwise, if less than before the injury, during continuance of partial disability not to exceed 80% of employee s AWW at time of accident. 156 weeks. WC ACT - TITLE 85A Injury by Accident, Occupational Disease, and Cumulative Trauma. 100% No Limit Up to 52 weeks. (+52 weeks additional benefits at same rate as employee s TTD if employee, actively and in good faith, is being evaluated or participating in a retraining or job placement program for PTD evaluation) 70% of employee s AWW, not to exceed 70% of state s AWW. Starting 4 th day of disability. 104 weeks (+52 weeks for consequential injury) 70% of the difference between employee s AWW and employee s weekly wage for performing alternative work after injury, but only if weekly wage for alternative work is less than TTD rate. 52 weeks. Permanent Partial Disability(PPD) ( Impairment ) 70% of employee s AWW up to $323 and not less than $150 per week for period prescribed for scheduled members. If employee refuses alternative work, no benefits are paid 70% of employee s AWW up to $323. -Max Duration 500 weeks maximum. No PPD allowed to part of body not medically treated. The fact that employee suffered previous disability or impairment or 350 weeks maximum. (for body as a whole) No PPD allowed to part of body not medically treated. For amputation or permanent total loss of

5 received compensation therefor shall not preclude compensation for later accidental personal injury or occupational disease. If existing previous impairment, including nonwork-related injury or condition that produced permanent disability and same is aggravated or accelerated by accidental personal injury or occupational disease, compensation for PPD shall be only for such amount as was caused by such accidental personal injury or occupational disease and no additional compensation shall be allowed for the preexisting disability or impairment. Sum of all PPD awards, excluding awards against MITF, shall not exceed 520 weeks, except for awards for amputations and disability to the parts of the body for which surgery was received in the latest injury. No payments on any PPD order shall begin until payments on any preexisting PPD orders have been completed. use of a scheduled member, 70% of AWW up to $323, multiplied by number of weeks in the schedule of compensation for the member, regardless of whether employee is able to return to pre-injury or equivalent job. Payment of PPD deferred and held in reserve if employee: 1. Has reached MMI; 2. Has been released to RTW; and 3. Returns to pre-injury or equivalent job for a term of weeks determined by dividing the total dollar value of award by 70% of AWW. PPD reduced by 70% of AWW for every week the employee: 1. Works in the pre-injury or equivalent job; or 2. Refuses an offer to return to the pre-injury or equivalent job. Lump Sum: Employee terminated other than for misconduct or position offered is not the pre-injury or equivalent job, remaining PPD paid in a lump sum. Permanent Total Disability (PTD) -Duration 70% of employee s AWW, not to exceed state s AWW, until SS maximum retirement age or 15 years, whichever is longer. Disfigurement Up to $50,000 Up to $50,000 Death Benefit -Surviving Spouse -Children Up to $8,000 Funeral Expenses. $100,000 + Lesser of 70% of employee s AWW and state s AWW. Lump Sum + % of employee s AWW depending on number of children. No compensation for preexisting disability or impairment. If employer is the same employer when injury resulting in preexisting disability or impairment was sustained, award against employer shall be reduced by current dollar value of the percentage of preexisting disability. 70% of employee s AWW, not to exceed state s AWW, until SS maximum retirement age or 15 years, whichever is longer. Up to $10,000 Funeral Expenses. $100,000 + Lesser of 70% of employee s AWW and state s AWW. Lump Sum + % of employee s AWW depending on number of children.