| December 13, 2012

Five facts about the Oklahoma workers' compensation system

Reform of the Oklahoma workers' compensation system is a bipartisan priority of state legislators, according to remarks from House and Senate majority and minority leaders at the State Chamber of Oklahoma Public Affairs Forum last week.

OCPA experts, business leaders and several legislators also gathered yesterday for an exchange of facts and ideas related to the issue. After the event, State Rep. Josh Cockroft tweeted, "Great roundtable discussion on #workerscomp with Pott. County businessmen and @OCPAThink at lunch. Major overhaul is a must!"

To appreciate the reasonableness of this appetite for reform, it's necessary first to fully appreciate and understand the state of the workers' compensation system in Oklahoma as it is today. A handful of basic facts are in order:

1. A workers' compensation system is exactly what it sounds like -- a system that focuses resources to rehabilitate injured workers so they can return to work if possible and a system to compensate both workers who have been injured on the job and the heirs of workers who have been killed on the job.

The coldest of employers might say we need no such system at all, that the risk of injury comes with a job and any injuries a worker sustains are just "the breaks." The rest of us would recognize that it's good business for employers to rehabilitate injured workers so they can return to work and to compensate employees who have sustained an injury at work -- even if that injury was not necessarily the "fault" of the employer.

Nothing dictates that a state government must run a workers' compensation system. Employers could simply include workers' compensation as a part of their benefits package to employees -- and employees could shop around for employers who offer the best possible workers' compensation, as they do for employers who offer the best health and retirement plans.

Inevitably, though, disputes between employers and employees about the particulars of an injury arise -- and somebody outside the two parties must settle those disputes. In all 50 states, some branch of the state government involves itself in the resolution of workers' compensation disputes. In Oklahoma, that branch is the judicial branch. In other words, the "somebody" who resolves workers' compensation disputes in Oklahoma is a court judge.

2. Oklahoma is one of just two states in the entire country that does not use an administrative system to compensate workers who sustain injuries on the job.

Again, court judges currently decide workers' compensation disputes. Lawyers represent both employers and employees -- and lawyers on both sides present competing medical evaluations. Lawyers who represent claimants receive a cut of any payouts their clients receive. The problems with such a system are self-evident, as OCPA Milton Friedman Distinguished Fellow Andy Spiropoulos explains:

[W]orkers’ compensation disputes are framed by the conflicting medical evaluations offered by each party. It is this conflict that leads to the spiraling costs in workers’ compensation. If we accept the claimant’s assertions that he or she is entitled to additional medical treatment, costs go up. If we accept the employee’s claims that he or she can’t go back to work and is entitled to additional disability pay, costs go up. And if we accept, in the face of a conflicting evaluation by the treating physician, that the claimant has suffered a permanent impairment and is therefore entitled to a cash award, costs go up. It is this last scenario that is of particular concern in Oklahoma because our high costs are driven by excessive PPD awards. For example, the claimant who has suffered a back injury will offer medical testimony that he or she has suffered a permanent 40 percent impairment. The treating physician—supplied by the employer—finds no permanent impairment. The judge compromises, as we human beings are wont to do, and settles on a finding of 20 percent impairment. Let’s say for the sake of argument that a truly objective evaluation would have found 10 percent impairment. The costs, therefore, of resolving this claim ended up twice as high as they should have been—increased costs that must be factored into insurance rates. Multiply this case many times over and we have our state’s workers’ compensation system.

In the state of Oklahoma, legislators cannot tell judges what evidence to consider or disregard in the settlement of a case, so legislators cannot insist that judges rule on the basis of the evaluation of an independent medical examiner. The opportunity for reform within the current workers' compensation system is consequently very limited.

In 48 states, however, the workers' compensation system is not court-based at all. Instead, an agency within the executive branch administers workers' compensation. Spiropoulos highlights the advantages to such a system:

What should we do? We should do what the vast majority of states have done—find ourselves a different kind of judge. Instead of the current workers’ compensation court, which is an established part of the judicial branch of government, workers’ compensation claims ought to be resolved initially by an administrative agency established in the executive branch of government. It is well established that legislatures possess the authority to prescribe the manner of the administration or execution of the laws; in other words, the legislature has far more authority to tell an administrative law judge how to do his or her job than to tell a member of the judicial branch. The legislature, then, should have no problem instructing an administrative law judge on which medical opinions he or she may rely upon in making decisions.

In other words, under an administrative system, administrative law judges would rely primarily upon the medical evaluations of an independent medical examiner -- instead of upon the conflicting evidence submitted by employers and employees.

3. The cost to employers of workers' compensation has continued to climb in Oklahoma at a faster rate than it has climbed nationally.

Public policy consultant Naomi Lopez Bauman writes:

Using data from the National Academy of Social Insurance, Oklahoma ranked 14th in the nation for largest increase in total workers’ compensation benefits paid out from 1999 to 2008. The average national increase for the 50 states and the District of Columbia was 44.73 percent. Oklahoma had a dramatic 68.11 percent increase, despite fewer workplace injuries and illnesses in the state.

4. State legislators have attempted to reform the workers' compensation system in Oklahoma six times since 1990.

In 1992, 1994, 1997, 2001, 2005 and 2011, state legislators attempted workers' compensation reform. Unfortunately, the Oklahoma Supreme Court struck down the most significant of these reforms. As explained in No. 2, the opportunity for reform within the current system is very limited. Legislators who are serious about reform, then, should consider the wholesale replacement of the current system rather than continue to tweak it to little positive effect.

5. Employers cite workers' compensation reform as a high priority.

Oklahoma employers think the cost of the Oklahoma workers' compensation system is the second most important issue facing them today, according to a 2010 survey by the State Chamber of Oklahoma. Even after the attempt at reform last year, members of the State Chamber continue to cite workers' compensation reform as a key priority.

Employers say they could hire more employees or pay existing employees more if they didn't have to pay for excessively expensive workers' compensation insurance. Workers' compensation costs (or relative lack thereof) also contribute to the overall business climate in the state -- a climate that either retains and attracts employers or loses and misses out on them.

In other words, the issue of workers' compensation affects every Oklahoman -- whether employer or employee, employed or unemployed. We all have a vested interest in an efficient and effective workers' compensation system -- one that ensures that injured employees receive fair compensation, that non-injured employees receive the best possible wages and that unemployed or underemployed Oklahomans at least have a shot at a (better) job because Oklahoma is an attractive place to do business.

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