Tennessee Weighs Workers’ Compensation ‘Option’ Legislation

Tennessee may soon have its own alternative workers’ compensation insurance through new legislation by Republican lawmakers known as the Tennessee Employee Injury Benefit Alternative.

State Sen. Mark Green and Rep. Jeremy Durham introduced Senate Bill 721 and House Bill 0997, respectively, last month. The bills seek to amend Tennessee’s current workers’ compensation requirements through a “free-market alternative to traditional workers’ compensation insurance offerings in the state,” according to the Association for Responsible Alternatives to Workers’ Compensation (ARAWC), which worked on the bill with the lawmakers.

The not-for-profit group advocates in states for free market alternatives to workers’ compensation and is made up of companies including Nordstrom, Macy’s, and Wal-Mart, as well as insurers such as AmWINS and Great American.

Brent Buchanan, communications director of ARAWC, says the Tennessee Option, as it is being called, will create competition and give employers the ability to save money with plans appropriate for their businesses.

“Tennessee businesses currently don’t have an alternative – they either buy comp or they are breaking the law,” says Buchanan. “If you give someone only one option it really limits the creativity of the system and its ability to help employees get better and get them back to work faster.”

Tennessee state law requires businesses with five or more employees to carry workers’ compensation either through a private workers’ comp carrier or the Tennessee Workers’ Compensation Insurance Plan – also known as the “market-of-last-resort” for companies that cannot secure coverage through a private company.

Green, who authored the 23-page bill, says having an option alternative will put competition into the Tennessee system, which will “significantly decrease the cost of workers’ comp.”

If enacted, the legislation would essentially give private employers the option to opt-out of private insurance plans, and instead implement their own either fully insured or self-insured occupational injury benefit plans for their employees.

Green says he was motivated to write the bill because he believes lower cost comp insurance can increase employee satisfaction and in turn increase economic development. He says Texas rates are half the cost and employee satisfaction is much higher.

“We want to fix that and want our employees to be as happy as they are in Texas because it helps us recruit businesses.”

State Ranking

According to a national report by the Oregon Department of Consumer and Business Services, Tennessee ranks 22nd in the country in size of workers’ comp premiums with an average $1.95 per $100 of payroll, which is about five percent above the median for all states. The median index rate for workers’ compensation countrywide fell to an all-time low in 2014 to $1.85 per $100 of payroll.

From 2010 to 2014, rates in Tennessee have declined almost nine percent, according to the same study.

North Carolina ranks 27th highest, Alabama 29th, South Carolina 17th and Kentucky 40th.

North Dakota, Indiana, Arkansas, Virginia, Massachusetts and Nevada ranked the lowest and well under the median.

Minimum Benefits

The minimum benefits employers would have to provide would be the same as typical workers’ comp plans, including: temporary total disability; permanent loss or loss of use of a scheduled member; death; and medical benefits as a result of an occupational injury.

However, the legislation employer-offered plans would provide benefits for 156 weeks (three years) and $300,000 per employee, rather than for as long as treatment is needed as the current state program does.

In order to offer a plan, employers would have to receive certification from the Tennessee Department of Insurance, which will check employer’s business plans and balance sheets to ensure they are fiscally capable of offering a plan.

The bill creates a guaranty fund that is supported by fees assessed on insurance carriers and employers offering optional plans in order to cover obligations should a carrier or employer become unable to pay benefits.

Currently, school districts and municipalities can opt-out of the worker’s comp system and Tennessee law already exempts employers with less than five employees. These exemptions would remain.

Return to Work

Green says employees are more accountable and motivated to come back to work with the company providing benefits.

“Right now Tennessee workers don’t get a check from their company or any contact from their company while out of work – they get a check from a state managed insurance entity. With the Option, employees would get paychecks like if they were still working,” he says. “This way they still feel like they are still part of the company. In addition, the company has picked their healthcare plan workers so they are designed and incentivized to get them back to work instead of collect payments from an insurance company.”

Buchanan says employers would be involved in the coverage and treatment of injured employees.

“Employers actually want to take care of their employees because if someone crucial is out it costs them money. An Option system puts the mechanism in place to make those things happen versus an old system with an outside group of core stakeholders,” he said.

Right to Sue

Employees in Option plans would be able to sue their employer for economic, non-economic and punitive damages as a result of negligence that causes an employee injury. Employers would have damage caps and defenses.

Buchanan says a number of companies in Tennessee support the Option legislation and are forming a coalition of businesses and associations. ARAWC also has a few Tennessee-based employers as members.

Insurers’ Role

Companies can also work with workers’ comp insurers on the development of their plan, which Green says is an opportunity for the insurance industry to compete for private company business in Tennessee. Green says the goal is not to push insurers into a corner or “cut them out of the deal.”

“If you take a look at the legislation there are still opportunities for insurance companies to be a part of this,” he says. “Will they have more competition? Yes. Will that make them better? Yes. Competition isn’t a bad thing.”

Agents’ View

Jeff Anderson, executive vice president for the Professional Insurance Agents of Tennessee and registered lobbyist for the association, thinks the Tennessee Option is a “unique solution” and sees it as a positive for the state and insurance agents.

“The Option could help with economic growth in Tennessee and there will still be insurance in the transaction so companies will still need an insurance advisor to navigate that piece of it,” he says. “It creates a lot of opportunity on the agent side because you aren’t just doing the cookie cutter plan. They will have some design flexibility.”

Anderson says decreasing Tennessee compensation rates through competition is good for those businesses that have to pay more to secure coverage.

Insurance companies would be able to offer workers’ comp option plans for employers to use, which has been done in Oklahoma and Texas – the two other states that have adopted alternative models.

Texas has a non-subscriber model where employers can choose not to provide workers’ comp coverage because the state doesn’t require it. There, employers can go bare or choose an alternative. Oklahoma requires benefits be provided but allows employers to utilize an alternative option.

“There are insurance companies in Texas and Oklahoma that offer option insurance programs,” says Buchanan. “Most [insurance companies] that fight the Option are those who have money or power to lose. We look at it as how we can empower the employee and employer more. Free market competition does that.”

While the Tennessee option was modeled after the Texas and Oklahoma options, Green says his version is a “trade-off” of their policies. “It is definitely different than the Texas or Oklahoma options,” he says. “We took the best of both and put it together to make it work for Tennessee businesses.”

He says he wouldn’t be surprised if the Tennessee model is used nationwide.

If passed, the legislation would be the second major change since 2013, when the state changed how claims disputes are handled. Gov. Bill Haslam did not return requests for comment on the Tennessee Option but has expressed interest in reforming the system in the past.

Topics Carriers Texas Legislation Workers' Compensation Talent Oklahoma Tennessee