Tennessee Considers Workers’ Comp Alternative

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

Tennessee State Senator Mark Green and State Representative Jeremy Durham introduced Senate Bill 721 and House Bill 0997, respectively, earlier this month. The legislation seeks 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 development of the bill with the lawmakers.

The not-for-profit group advocates in state legislatures for free market alternatives to workers’ compensation and is made up of companies like 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 by creating a workers’ comp plan that is appropriate for their business.

“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.

Senator 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 create and 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 lower cost comp insurance can increase employee satisfaction and in turn increase economic development. For example, he says, in 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.”

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.

In order to offer a plan, employers would have to receive certification from the Tennessee Department of Commerce and Insurance. The Department will check employer’s business plans and balance sheets to ensure they are fiscally capable of offering a workers’ comp option plan. The bill also creates a guaranty fund that is supported by fees assessed on Option insurance carriers and employers to provide for the payment of obligations should a carrier or employer become unable to pay benefits.

Currently, public entities like school districts and municipalities already have the option to opt-out of the worker’s comp system and Tennessee law already exempts employers with less than five employees. The Option will not change these exemptions.

The legislation also stipulates that employee offered plans will provide benefits for 156 weeks (three years) and $300,000 per employee, rather than allowing for coverage for as long as treatment is needed as the current state program does.

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

“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 having an employer-sponsored option can keep employees from taking advantage of the system because employers are 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.

Employees in Option plans would also 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, but are ultimately held more accountable for providing a safe workplace than the traditional workers’ comp system, according to ARAWC.

Buchanan says there are a number of companies in Tennessee that support the Option legislation, so much so that a coalition is being formed of businesses and associations. ARAWC also has a few Tennessee-based employers as members. He says a group of employers and associations had discussed an option previously but did not seriously pursue it at the time.

Green: Insurers Not Lost in Option

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 their 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.”

Jeff Anderson, executive vice president of for the Professional Insurance Agents of Tennessee and registered lobbyist for the Association, says he 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 can also offer workers’ comp option plans for companies to use, says Buchanan, which has been done in Oklahoma and Texas – the two other states that have adapted workers’ compensation 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 does require benefits be provided under the workers’ comp system but passed a law last year to allow 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 their 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 the one eventually used nationwide.

“I anticipate if we pass this, the Tennessee option will become the U.S. option. I think we have hit the happy medium between the two states,” he says.

The bill is currently being reviewed by state legislators and will be discussed by Committee on March 10. It is expected to be voted on during this legislative session.

If passed, the legislation would be the second major change to Tennessee’s workers’ compensation system since 2013, when the state enacted legislation changing how injured workers’ claims disputes are handled. Governor Bill Haslam did not return requests for comment on the Tennessee Option but has expressed interest in reforming the system in the past.