FREQUENTLY ASKED QUESTIONS on the OKLAHOMA OPTION

(1)

Revised 12-15-14 1

FREQUENTLY ASKED QUESTIONS

on the

“OKLAHOMA OPTION”

By Bill Minick and the PartnerSource Team

This document addresses common questions regarding the Oklahoma Employee Injury Benefit Act (the “Option Act”). The Option Act contains several cross-references to the new Oklahoma Administrative Workers’ Compensation Act (the “WC Act”). Both of these Acts are found in Title 85A of the Oklahoma Statutes at

http://www.oscn.net/applications/oscn/Index.asp?ftdb=STOKSTB1&level=1. All references within this document to section numbers refer to Title 85A.

Who is PartnerSource? PartnerSource is a consulting firm focused on supporting

employers and their insurance agents in feasibility, design, implementation, administration, and funding of injury benefit programs outside of state workers’ compensation systems. PartnerSource provides support and oversight for injury benefit programs maintained by most of the largest employers that have “nonsubscribed” in Texas or elected the “Oklahoma Option”. We also develop insurance carrier programs that support both large and small employers and maintain the premier claim database for alternatives to workers’ compensation. Over the past ten years, PartnerSource clients have saved over $1 Billion on Texas workers’ compensation claim costs, positively impacting Texas’ economic development, while achieving higher employee satisfaction. Bill Minick (President of PartnerSource) and his 38 PartnerSource teammates (located in four states, including Oklahoma) have been integrally involved in the development and implementation of the Oklahoma Option statute and rules. For more information, go to www.partnersource.com or contact Russell Huber, EVP, at 214.239.4590 or rhuber@partnersource.com or Brian Merrell, Oklahoma Service Manager, at 918-740-9928 or bmerrell@partnersource.com.

Hyperlinks: Click on any question in the Table of Contents below to move to that issue.

Disclaimer: These new laws are ground-breaking and open to different interpretations. This document sets forth positions and interpretations that were relied upon by authors of SB1062 in the final enactment of the Option Act. The appropriate courts and regulatory agencies may advise with contrary opinions and interpretations in the future. This document does not purport to offer legal advice. The discussion herein of various laws and techniques may also become outdated or obsolete (for example, due to more recent regulatory, judicial or legislative activity). Before taking any action in this area, consult with experienced professionals.

(2)

FAQ on Oklahoma Option

Revised 12-15-14 2

OVERVIEW

1. What is the “Oklahoma Option”?

All Oklahoma employers now have an option to elect injury benefit coverage for their employees as an alternative to the WC Act. We call this the “Oklahoma Option”, but you may also hear it referred to as “Oklahoma Nonsubscription” or “Alternative Coverage” or “Opt-Out”. When an employer elects the Oklahoma Option, it replaces workers’ compensation benefits with an injury benefit plan that can create better medical outcomes for workers, at a lower cost to the employer. The Option Act creates broad, free-market competition with workers’ compensation insurance markets, within a statutory framework of employee protections.

2. How is this a “Free-Market” Approach to Injured Employee Care?

In states where workers’ compensation insurance coverage is mandatory for all employers, the insurance policy forms are identical and insurance carriers compete almost solely on price. But by creating an “option” to that traditional system, insurance carriers compete on price, as well as coverage. This is an excellent opportunity for insurance carriers to expand market share by enhancing their product offerings relative to their competitors. For example, insurance carriers and employers electing the Oklahoma Option have the ability to define key terms in an injury benefit plan, such as:

• Injury notice requirements,

• Covered and non-covered injuries,

• Covered and non-covered medical charges.

When insurance companies truly compete in a free market environment, we see who can offer the lowest price and the broadest coverage. Pricing is lowered by operating more efficiently and achieving the best medical outcomes. This competition with workers’ compensation insurance carriers also drives faster implementation of and results from workers’ compensation reforms. This dynamic has helped Texas move from the 5th most expensive state for workers’ compensation in 2002 to the 38th most expensive state in 2012 (per the Oregon Workers’ Compensation Premium Rate Ranking Summaries at

http://www.iaiabc.org/files/public/Oregon%20-%20Research.pdf and

http://www.cbs.state.or.us/external/dir/wc_cost/files/report_summary.pdf).

3. What Will the Impact Be on Employees, Employers, Medical Providers, and

Insurance Agents?

As described further in Questions and Answers below: • Impact on Employees:

o High level of benefits coverage

 The same forms of benefits, with dollar, duration and percentage limits at or above those in the workers’ compensation system

o Employee accountability with the goal of better health outcomes – The formula is very simple: Faster notice of injury leads to faster treatment by the best available medical providers, whose treatment plan must be followed in order to continue benefit payments. See Q&A 23.

(5)

Revised 12-15-14 5

o Procedural protections, including fair and efficient resolution of disputes

o Other legal protections (like the Americans With Disabilities Act, the Occupational Safety and Health Act, and the Family and Medical Leave Act) still apply

o Higher employee satisfaction – Again, the formula is simple: More direct engagement and communication between employers and employees about benefits provided and better medical outcomes supports a culture of care for employees and a positive impact on employee morale.

• Impact on Employers:

o More Participation in the Process

 Injured employees and employers re-engage

 Full, advance communication to employees of program features and requirements

 Medical management control by appointed claims administrator and medical director

 Support from insurance carriers

• Standardized program kits for small employers, or

• For larger employers, the ability to unbundle program components o Familiarity with communication and claim processes (similar to group health and

disability plans)

o Fair and efficient dispute resolution o Improved financial statements

 Cost savings are expected to be very substantial for most employers when compared to historic Oklahoma workers’ compensation costs, and substantial savings compared to the new administrative workers’ compensation program.

 Faster claim closure results in lower accrued liabilities. Lump sum payouts and claim settlements can be entered into between an employee and employer at any time, without the need for approval by the Workers’ Compensation Commission or any other party (subject to the employee protections in Section 203.C).

o Cost savings translate to economic development. The Option will place Oklahoma in a strong position to attract new companies and jobs to the state.

• Impact on Medical Providers:

o Faster access to injured workers – through immediate injury reporting requirements (compared to the 30 days an employee has to report an injury under Section 68 of the new WC Act);

o Less paperwork – freeing their staff time for actual medical care and other business priorities;

o Fast and fair payment for services – typically at or above the workers’ compensation fee schedules, or through use of existing PPO contracts, or negotiating of new agreements with employers without reference to the Oklahoma workers’ compensation fee schedules; and

o Accountability – medical providers who have strong credentials and practice evidence-based medicine focused on the injured employee’s best interest will receive more case referrals and thrive in the Oklahoma Option environment.

(6)

Revised 12-15-14 6

o Excellent medical outcomes – achieving the medical community’s mission through employee accountability to follow the provider’s treatment plan.

• Impact on Insurance Agents:

o Client goodwill – employers like choices and appreciate a competitive marketplace. o Fewer difficult claims and coverage disputes

 Procedural protections for employees AND employers  Faster resolution of disputes

o Agent access to carriers

 Carriers are developing products, and

 Looking for broad access to independent agents of all sizes that can satisfy basic professional standards

o Agent E&O exposure is manageable and insurable  Covered by standard E&O policies

 Insured signatures to acknowledgements and hold harmless

 Statutory protection for compliant plans (Section 204.I.) – a good reason to obtain PartnerSource support

o Higher commission rates

 Premiums will drop, but…

 Instead of 6-10% on workers’ compensation,

 Likely to be in the 12% range on Option insurance policies

4. What are the Risks for Option Employers?

Option employers are responsible for:

• Compliance with applicable state and federal laws, as described in Q&A 17 & 19.

• Benefit claims under the terms of their injury benefit plan (which may be insured or self-funded), as described further in Q&A 14 & 15.

• Employers liability – to the same extent permitted under the Oklahoma Administrative Workers’ Compensation Act (“action over”, loss of consortium, consequential injury, and “Dual capacity” claims), as described further in Q&A 35. Intentional torts, including any pre-

and post-judgment interest on the award and reasonable court costs (which are the same

exposures under workers’ compensation, and are uninsurable for public policy reasons),

and

• Attorney fees (which may also be fully or partially insured or self-funded). (Section 210.A)

A qualified employer under the Oklahoma Option receives the same “exclusive remedy” protection (against negligence liability claims by injured employees) that employers receive under the WC Act.

ELECTING THE OPTION

5. Characteristics of a Good Candidate for the Oklahoma Option?

Any private or governmental employer that:

• Has employees principally employed in the State of Oklahoma • Is headquartered anywhere in the U.S. or abroad

(7)

Revised 12-15-14 7

• Understands that savings can be achieved by streamlining processes through a competitive marketplace, without reducing benefits to injured workers

• Wants more direct communication with and accountability from employees • Wants to treat medical providers fairly

Common Industries include: • Food Service

• Hospitality • Manufacturing • Energy

• Construction

• Transportation, distribution & logistics • Retail

• Healthcare

• Government employers

• Other companies with claim frequency

The Oklahoma Option can be effective for employers in union and non-union environments.

6. Must Oklahoma Option employers meet the requirements of Oklahoma Law

to Elect the Option?

Yes. All Oklahoma employers (defined in Section 201.6. to include private and governmental entities) are eligible, and must be “qualified” (Section 202 and 210.B.), as determined by the Commissioner of the Oklahoma Insurance Department (Section 202.C.). The Oklahoma Employee Injury Benefit Act (commonly referred to as the “Option Act” at Title 85A, Sections 200-213 of the Oklahoma Statutes -

http://www.oscn.net/applications/oscn/index.asp?level=1&ftdb=STOKSTB1&year=#CiteID4715 41) and

Oklahoma Insurance Department rules

(http://www.ok.gov/oid/documents/081414_QE%20Emergency%20Rules%20with%20Appendi x%20Z.pdf)

specify very detailed requirements for:

A. What an employer must do to elect the Option, including required forms to submit for Department review and filing fees;

B. The benefits that must be paid under an Option benefit plan to be exempt from the Administrative Workers’ Compensation Act (the “WC Act”), including all the same types of benefits required under the WC Act, and at least the same dollar, duration, and percentage limits as the WC Act (with many employers electing to pay even higher levels of benefits); C. Financial security requirements that employers electing the Option must satisfy to confirm

(8)

Revised 12-15-14 8

D. Guaranty funds that further protect the payment of benefits to injured workers in case the employer and insurance company become insolvent; and

E. Claim procedures that apply, except to the extent the Employee Retirement Income Security Act (“ERISA”) applies (as described further below).

The Oklahoma Insurance Department is reviewing and approving benefit plans that comply with these Oklahoma laws.

7. What is the Step-by-Step Process to Elect the Option?

The Oklahoma Insurance Department has released a “Qualified Employer” election form, certificate of approval, employee notification form, election instructions, and rules. The Department has also established an electronic payment system for filing fees. These materials and information are all available on the PartnerSource website (http://www.partnersource.com/oklahoma-option-an-alternative-to-workers'-compensation/ or the Department website (http://www.ok.gov/oid/workerscompreform.html).

PartnerSource has participated in legislative and rulemaking processes, and is working with insurance agents and employers to ensure that each process step is completed and approved. This process for an employer to become qualified and voluntarily elect the Option can be summarized as follows:

Stage 1: Develop

• Planning & Analysis • Insurance Quotes

• Design & Documentation

Stage 2: Qualify • Application • Certificate Stage 3: Implement • Bind Insurance

• Setup Claims Administration • Employee Communication

Stage 4: Support &

Oversee

•Ongoing Communication •Support & Oversight •Program Update

(9)

Revised 12-15-14 9

STAGE 1 - DEVELOP

1. Planning and Analysis: The process begins with understanding the similarities and differences between the Oklahoma Administrative Workers’ Compensation Act and the Oklahoma Employee Injury Benefit Act. A formal or (most typically) an informal feasibility analysis can be performed that considers the employer’s historic injury program costs, such as insurance premium, claims and related costs; and the employer’s desire and commitment to actively engage in the design, implementation and ongoing administration of their injury benefit program. The employer’s insurance agent, as well as the employer’s claims administrator and/or legal counsel and PartnerSource, may participate in this process. A realistic design and implementation timeline should be developed that includes (but is not limited to) the following steps.

2. Consider Insurance Quotes for WC and the Option: Several insurance carriers are offering Option insurance coverage. Switching from workers’ comp to the Option can occur upon your normal workers’ comp renewal date or you can elect the Option mid-term (subject to considerations like monthly cost savings, any short rate cancellation penalty, and employer business priorities).

3. Program Design and Documentation: Develop your own or obtain from your insurance carrier a written injury benefit plan that satisfies certain minimum benefit and other requirements (Section 203). The Oklahoma Insurance Department will want to see and approve a copy of your plan. There will be significant variability in the quality and results from these plans. Preparation of employee training materials and communications and claim procedures, review of related human resource policies and employee benefit plans, and other steps to implement an Option program should begin here. The process and timing required for program development will vary by size of employer and/or claims volume, as described in Q&A 8.

STAGE 2 - QUALIFY

1. Submit Application to Oklahoma Insurance Department: Provide notice to the Oklahoma Insurance Department and provide other documentation the Department may request (Section 202.B.). PartnerSource provides turnkey, secure and confidential website support for Oklahoma Option program qualification at http://www.partnersource.com/oklahoma-option-web-support/ for $450. The Department wants applications for “Qualified Employer” status to be filed at least 60 days prior to the planned Option program effective date. The application must include (among other things) proof of Option insurance coverage, or a “bindable“ quote for Option insurance coverage, or financial information necessary for the Department to approve full self-funding of the program. See Q&A 7 and 35 regarding “Financial Security” rules. The Department will want to know who will administer claims and that you will satisfy the basic employee notice rules and when it will be done. An annual, non-refundable filing fee of $1,500 must be paid by electronic funds transfer.

2. Receive Certificate of Qualified Employer Status from the Department: A certificate of approval will be issued by the Department to the employer upon confirmation of

(10)

Revised 12-15-14 10

qualified employer status. This is a mandatory prerequisite to Option program implementation.

STAGE 3 - IMPLEMENT

1. Bind Option Insurance Coverage upon Receipt of Department Certification. This may require a “no loss” letter to be provided to the selected insurance carrier if the premium quote has expired or was offered more than a certain number of days in the past.

2. Confirm Claims Administration Agreement and Procedures. You must establish a process for fair and efficient administration of injury claims. Will the insurance carrier or a TPA handle claims? Is a separate contract required? What steps are needed to confirm and install the claim procedures? There will be significant variability in the quality, compliance and results from different claim administrators, based, in part, on the training, support and oversight they receive.

3. Communicate Program to Employees. Communicate the Option program to covered current and new employees (including the employee notice required under section 202.H. – in hand and posted in the workplace – in substantially the same form as language promulgated by the Department). Distribute “summary plan description” and notice of Option election (at a minimum). But consider formal rollout. Good communication – beyond the statutory minimum – will improve employee compliance with the benefit plan and improve employee morale.

OPTION PROGRAM EFFECTIVE DATE

STAGE 4 - SUPPORT & OVERSEE: Option program results (for both employees and

employers) will depend on what both parties put into the process. Optimal results will be achieved by both parties through good communication and accountability. For example, employees should be regularly reminded of the following fundamental program expectations:

o Report injuries timely

o Go to approved medical providers o Follow the treatment plan

o Return to work

Claim administrators should be provided the support they need in training, benefit plan interpretations, and making difficult claim decisions (including drafting of benefit claim denial letters). Oversight in the form of loss run reviews, open claim file reviews, and claim audits may also be appropriate. Medical providers should be credentialed, supported and overseen (such as oversight by a physician medical director), and be required to adhere to any provider network protocols. Program updates may be needed as the laws and rules related to Option injury benefit programs continue to develop. Lastly, obtain and review your claims performance data to measure program results.

(11)

Revised 12-15-14 11

8. How Soon Can We Elect the Oklahoma Option?

The process steps outlined in Q&A 7 above require some time.

Oklahoma Insurance Department provides that the application for Qualified Employer status must be filed with the Department at least 60 days prior to the desired effective date. This is consistent with the Department’s election instructions that provide, once all information is supplied, the Department will have up to 60 days to review an employer’s information prior to releasing a Qualified Employer Certificate. An employer may proceed with its written benefit plan only after receiving that Certificate. The program’s design and implementation timeline should also provide for the rollout communication to employees to occur after receipt of Department approval, and prior to the program effective date.

Small employers will purchase “package” programs from insurance carriers that support all key Option program components (the insurance policy, injury benefit plan, employee communications, claims administration and legal compliance). This type of program can generally be implemented in less than 30 days following Department approval. Larger employers will typically “unbundle” the decision on an insurance policy from these other program components, and the employer will take a more active role in design, implementation and claims administration. Such programs may also require more time to secure Department approval. Large employer programs will commonly require at least 30 days following Department approval to implement.

For these reasons, depending upon the size of the employer, we generally recommend at least a 90-day timeline for the planning, documentation, Department approval, and implementation process. The long-term gains (for both Oklahoma employees and employers) are too significant to pursue short-term thinking and risk compliance failures.

9. Should We Elect the Option on Our Normal Workers’ Comp Renewal Date?

Although consideration will typically be given to the next renewal date on the workers’ compensation insurance policy, many (perhaps, most) employers will elect the Option on a different date. Primary decision factors include the best timing for business operations and employee communications. Often, the primary influence on timing will be how much money can be saved by electing the Option sooner than later (which may make additional funds available for employee compensation, safety programs, new equipment or other priorities).

10. What About Program Changes and Annual Renewals?

Any changes in information required to be submitted to the Department (during or following initial qualification) must be provided within 14 days after the change. Consideration should also be given to ERISA compliance requirements related to program changes.

The employer’s election and Department approval are effective for a one-year term. An application to continue approval of Qualified Employer status must be submitted to the

(12)

Revised 12-15-14 12

Department at least 60 days prior to each Option program renewal date, along with the annual, non-refundable filing fee (which is currently $1,500).

An employer can return to the administrative workers’ compensation system at any time. Accordingly, this does not have to be a permanent decision.

11. What if the Employer has Employees Outside Oklahoma?

An Option insurance policy may provide “extra-territorial” coverage for Oklahoma employees that are injured while temporarily working in another state. But employers with employees working in states other than Oklahoma generally must arrange separate insurance coverage in compliance with those states’ laws.

PROGRAM DESIGN

12. What are the Main Components of an Option Program?

The Oklahoma Option will include the following seven primary components (described further below):

Oklahoma Option employers reduce program risks and drive improved program results by ensuring optimal coordination of these key program components:

(13)

Revised 12-15-14 13

• Injury Prevention – Avoiding on-the-job injuries will always be the single best way to care for workers and control occupational injury costs. Option employers (like employers who purchase workers’ compensation insurance) must also comply with health and safety rules of the Occupational Safety and Health Administration (“OSHA”) and related state and federal laws.

• Injury Benefit Plan – The Option Act requires a written injury benefit plan that provides the same form of benefits, and at least the same dollar, duration and percentage limits as the WC Act (as described further below). (Section 203.A. and B.)

• Employee Communications – ERISA requires most private (non-governmental) employers to provide complete disclosure of all terms, conditions and limitations on benefits in language that is understandable by the average plan participant. Governmental employers may have similar requirements under their policies, collective bargaining agreements or other rules. Regardless of any legal requirement to communicate, Oklahoma employers electing the Option will use a variety of workplace communication strategies to ensure that employees value, understand and comply with the injury benefit plan’s terms.

• Claims Management – Injury claims reporting, investigation, medical management, information systems and other common features of workers’ compensation claims administration will also be fundamental to Option claims administration. Employers electing the Oklahoma Option will maintain a dispute resolution process focused on resolution of injury benefit claims. The liability exposure for Option employers mirrors the liability exposure for Oklahoma employers that remain in the WC Act because of the high benefit requirements that Option employers must satisfy (mirroring workers’ compensation benefits). (Section 209) All employers electing the Option must identify the injury benefit plan claims administrator when providing notice to the Oklahoma Insurance Department. (Section 202.F.)

• Litigation Defense – The Oklahoma Option provides efficient processes for resolving benefit disputes. (Section 211) In the event that a claim for benefits or intentional tort cannot otherwise be resolved, legal representation will be needed to defend claims in the applicable state or federal court or alternative dispute resolution process.

• Option Insurance – The Oklahoma Option requires most employers to purchase insurance coverage to fund all or part of their benefit obligations (a plan may be partially funded through use of a deductible or self-insured retention on the Option insurance policy). Larger, more financially stable employers may be able to satisfy security requirements of the Oklahoma Insurance Department through a surety bond, letter of credit or other demonstration of their ability to pay claims. (Section 204) See Q&A 36 regarding the purchase of insurance.

• Compliance – Employers electing the Oklahoma Option must satisfy certain state compliance requirements (like providing appropriate notices to the Oklahoma Insurance Department and employees), as well as any applicable federal compliance requirements (such as ERISA reporting and disclosure for private employers).

(14)

Revised 12-15-14 14

13. Which Employees are Eligible to Participate in an Employee Injury Benefit

Plan?

Qualified Employers that elect the Option must provide eligibility to participate to all Oklahoma employees of that particular company and must provide the same benefits to these employees. This includes all full-time and part-time employees, but does not include volunteers, independent contractors or other employees that are not performing service for the employer in Oklahoma.

14. What Benefits Must be Included in an Employee Injury Benefit Plan?

Section 203 of the Option Act incorporates certain provisions of the new WC Act by reference, so you will see very similar benefit requirements. But it is important to understand the limited purpose for which reference is made in the Option Act to the WC Act, and where differences may be found. These differences are at the heart of this legislation’s purpose to create a free-market, competitive dynamic between the workers’ compensation and Option systems, which will drive better outcomes for injured employees and economic development.

Mandatory Forms of Benefits: Section 203.B. of the Option Act says the employee injury benefit plan must provide for “payment of the same forms of benefits included in the Administrative Workers' Compensation Act for”:

1. Temporary total disability, 2. Temporary partial disability, 3. Permanent partial disability, 4. Vocational rehabilitation, 5. Permanent total disability, 6. Disfigurement,

7. Amputation or permanent total loss of use of a scheduled member, 8. Death, and

9. Medical.

This is only a specification of the types of benefits that must be provided. It provides no details of the actual benefit coverage. However, certain minimum benefit dollar, duration and percentage limitations in the WC Act also apply to Option benefit plans, as described in Q&A 15) and certain definitions in the WC Act also apply to Option benefit plans (as described in Q&A 16).

Optional Non-Occupational Benefit: The benefit plan may also provide some level of benefit coverage for sickness, injury or death not due to an occupational injury. (Section 204.H.) The purpose of this section is to further support the applicability of ERISA to private employer plans, making clear that this is not a plan maintained “solely to comply with a workers’ compensation law”. See Q&A 19 regarding the applicability of ERISA.

Covered Claims: The above mandatory forms of benefit are payable as a result of an “occupational injury”. This term is broadly defined in section 201.A.7. of the Option Act as “an injury, including death, or occupational illness, causing internal or external harm to the body, which arises out of and in the course of employment”. And section 203.B. of the Option Act says that (with the exception of certain definitions discussed in Q&A 16), no provision of the

(15)

Revised 12-15-14 15

WC Act defining covered injuries shall apply. Section 203.C. also says that the WC Act “shall not define, restrict, expand or otherwise apply to a benefit plan.” So, terms like “injury” and “course and scope of employment” can be further defined in the injury benefit plan.

No Fault: Such benefits must be paid “on a no-fault basis”. It does not matter whether the employee, the employer, or a third party caused the injury. (Section 203.C.)

Nondiscrimination: The benefit plan must provide eligibility to participate and the same forms and levels of benefits to all Oklahoma employees of the employer. (Section 203.C.)

15. What Dollar, Percentage and Duration Limits Apply to Such Benefit Plans?

Section 203.B. of the Option Act says the benefits must have “dollar, percentage, and duration limits that are at least equal to or greater than the dollar, percentage, and duration limits contained in Sections 45, 46 and 47” of the WC Act. A determination of the applicable limits requires a high degree of familiarity with the legislative history and experience in drafting and administration of occupational injury benefit plans. Following is a high-level summary. This is not presented as a complete discussion of applicable benefit requirements:

A. Temporary Total Disability – (Section 45.A.) 70% of the employee’s average weekly wage not to exceed 70% of the State’s average weekly wage for up to 104 weeks.

1. State average weekly wage is determined by the Oklahoma Employment Security Commission in the preceding calendar year. The current state average weekly wage for Oklahoma is $800.

2. Note that many employers will choose to increase the percentage of pay (for example, to 85%) pending recognition by the Internal Revenue Service that Temporary Total Disability benefits and Temporary Partial Disability benefits are non-taxable as payments “in the nature of workers’ compensation”.

3. A three-day waiting period applies to the initial period of disability. (Note that many employers electing the Option will choose to reduce this waiting period to zero days.)

B. Temporary Partial Disability – (Section 45.B.) 70% of the difference between pre-injury average weekly wage and his or her weekly wage for performing alternative work after the injury, but only if the weekly wage for performing alternative work is less than the temporary total disability rate. This benefit can last up to 52 weeks. If the employee refuses to perform alternative work offered by the employer, he or she is not entitled to temporary total or temporary partial disability benefits.

C. Permanent Partial Disability – (Sections 45.C. and 46) Permanent partial disability awards are made only after maximum medical improvement has been reached. For this purpose, it was intended that this definition of “maximum medical improvement” from the WC Act be included in an Option plan: No further material improvement would reasonably be expected from medical treatment or passage of time. (Section 2.28.) For amputation or loss of use of a scheduled member of the body (e.g., arm, hand, leg, etc.), a table in Section 46 of the WC Act specifies the number of weeks for benefits to be paid based on body part and severity of loss. Other than for scheduled members, (1) the injured employee must reach MMI and be unable to return to his or her pre-injury or equivalent job, (2) an impairment rating is then determined by an approved physician, and (3) that percentage

(16)

Revised 12-15-14 16

point of impairment is multiplied by 3.5 weeks to determine the number of weeks benefits are to be paid. The benefit amount is 70% of the employee’s average weekly wage, not to exceed $323 per week, for the specified number of weeks (not to exceed a total of 350 weeks for the body as a whole). The benefit is reduced (potentially, to zero) if the employee reaches MMI and returns to his or her pre-injury or equivalent job or is offered such a job, but refuses to return.

D. Permanent Total Disability – (Section 45.D.) 70% of the employee’s average weekly wage, but not in excess of the state’s average weekly wage. This benefit must be paid during the continuance of the disability until the employee reaches the age of maximum Social Security retirement benefits or for a period of 15 years, whichever is longer. Any awarded PPD benefits must be exhausted before PTD benefits can be awarded. PTD ceases on date of death.

E. Vocational Rehabilitation – (Sections 45.C. and E.) An injured employee who is eligible for PPD or is otherwise unable to return to his or her pre-injury or equivalent position due to permanent restrictions (as determined by an approved physician) can request vocational rehabilitation services. Such services include retraining and job placement to restore the employee to gainful employment. An order for a vocational rehabilitation evaluation must be issued for any injured employee unable to work for at least 90 days. These services or training can last for up to 52 weeks.

F. Disfigurement – (Section 45.F.) If an injured employee incurs serious and permanent disfigurement to any part of the body, an award may be granted by the plan of up to $50,000; but none for a body part for which PPD is awarded and no award shall be made until 12 months after the date of injury.

G. Death – (Section 47) Surviving spouse, children, and/or other dependents may receive a combination of a lump sum payment and a designated percentage of the deceased employee’s average weekly wage. Benefit duration depends upon a surviving spouse’s marital status and the child’s age, full-time enrollment in school, or physical or mental incapacity. Funeral expenses are payable not to exceed $10,000.

H. Medical – Sections 50 – 53 and other medical provisions of the WC Act are not listed among the WC Act sections that are incorporated into section 203 of the Option Act. For this reason, we could take the position that an Option employer does not have to pay unlimited medical expenses for the life of the injured employee. We could acknowledge that the medical “form of benefit” must be paid, but apply different dollar or duration limits. However, that was not the legislative intent. Among other reasons, such dollar and duration limits would be contrary to the public policy behind Option employers being entitled to exclusive remedy protection. Such a fundamental difference in dollar and duration limits may also be contrary to the Oklahoma Constitution. Therefore, reasonable and necessary medical expenses should be paid under Option benefit plans with no maximum dollar or duration limits (Section 51); provided, however, that once the employee has reached maximum medical improvement, continuing medical maintenance will be awarded only if recommended by the treating doctor. (Section 50.D.) As described in Q&A 24, a medical director or treating physician under an Option benefit plan has considerable authority to determine what is in the best interests of the injured employee.

(17)

Revised 12-15-14 17

16.What Other WC Act Provisions Apply?

The definitions of average weekly wage, death beneficiaries, and disability under the WC Act are specifically incorporated into the Option. (Section 203.B.) There are many other nuances and ambiguities in the Option Act that can be resolved through PartnerSource experience in drafting occupational injury benefit plans and an understanding of legislative intent.

17. How Do I Know Whether My Program Complies with State Law?

Section 203.C. of the Option Act provides that “the Commissioner [of Insurance] shall adopt rules designating the methods and procedures for confirming whether an employer is a qualified employer, notifying an employer of any qualifying deficiencies, and the consequences thereof.” Although the Oklahoma Department of Insurance cannot dictate or otherwise control the design or documentation of an injury benefit plan under the Option Act (per section 202.D.), the Department can verify (or confirm) that an employer’s program satisfies the requirements of the statute. (Section 202.C.) This will primarily be accomplished at the time of filing the required notice with the Department as described in section 202.B. of the Option Act. As described in Q&A 7, the Department has developed a process for acknowledging that the employer’s request for Qualified Employer status either complies or fails to comply with the requirements of the Option Act. Thus, it will be important for employers desiring to elect the Option to work with advisors well-versed in the Option Act and this compliance process. Such compliance is also of importance to any insurance agent desiring the release from errors and omissions liability exposure provided in Section 204.I.

18. Should the Option Plan be Combined with our Group Health Plan?

Some employers combine different types of employee benefit plans into a single benefit program for ease of communication and compliance. If an Option injury benefit plan is to be incorporated into an employer’s group health plan, relevant considerations include (but are not limited to):

• Different employee eligibility requirements: Group health plans typically have an eligibility waiting period and may not cover all Oklahoma employees.

• Different funding: Group health plans typically have co-pays and deductibles paid by employees. An Option plan can shift no cost to employees. (Section 203.D.)

• Different medical providers: Occupational injuries are typically not handled by the same medical providers focused on occupational illnesses; but both occupational and non-occupational medical providers may be included in a single preferred provider organization. • Different laws: Federal privacy and health care reform laws do not apply to Option benefit

plans. (See the HIPAA and PPACA – “ObamaCare” – definition of “excepted benefits”.) • Different claims administrator and systems: Different claim administrators may be needed

for group health plan claims and occupational injury claims.

• Different implementation dates and plan years: Option benefit plans can be implemented at any time during the year. See Q&A 8 on Option timing. Consideration should be given to specifying a different component plan years or a short plan year for the Option plan; and human resource and operation managers availability for employee communication.

• Different insurance agents and company personnel: Some employers deal with different insurance agents and other advisors for casualty and employee benefit insurance needs. Divided responsibilities between risk management and employee benefit managers and

(18)

Revised 12-15-14 18

internal systems must be considered when combining an Option injury benefit plan and group health plan.

19. Does ERISA Apply?

• ERISA applies to “employee welfare benefit plans” established by private employers. For this purpose, an “employee welfare benefit plan” means any plan, fund, or program established by an employer to provide employees and their beneficiaries, through the purchase of insurance or otherwise, medical, disability or similar benefits. 29 U.S.C.A. section 1002(1). Injury benefit plans established by private employers under the Option clearly satisfy this definition.

• However, ERISA exempts from federal law any “governmental plan”, “church plan”, or plan “maintained solely for the purpose of complying with applicable workmen’s compensation laws”. 29 U.S.C.A. section 1003(b).

Government Plan Exemption. Governmental plans (e.g., plans established by federal, state, or local governmental entities) are exempt from ERISA.

Church Plan Exemption. Church plans are exempt from ERISA, unless they opt into ERISA. Workers' Comp Exemption. ERISA does not apply to any employee benefit plan if "maintained solely for the purpose of complying with applicable workers' compensation laws". Note that: • Separate Acts: Senate Bill 1062 creates a single Title 85A in the Oklahoma Statutes, but

replaces Title 85 (the prior “Workers’ Compensation Act”) with two new, separate acts: o The Administrative Workers’ Compensation Act; and

o The Option Act.

• Voluntary Exemption from WC Act: – Section 201.A.8. of Title 85A defines the term "Qualified employer" to mean “an employer otherwise subject to the Administrative Workers' Compensation Act that voluntarily elects to be exempt from such act by satisfying the requirements under this act.” Similarly, section 202.A. of the Option Act says that, “Any employer may voluntarily elect to be exempt from the Administrative Workers’ Compensation Act and become a qualified employer”. Section 203 says, “Qualified-employer status is optional for eligible “Qualified-employers.”

With two separate acts, and qualified employers voluntarily electing to be exempt from the WC Act, it is clear that an Option plan is NOT maintained solely to comply with the WC Act. As noted in Q&A 14 and section 204.H. of the Option Act, some employers may include a non-occupational benefit (such as life insurance) in their Option injury benefit plan just to further confirm that the plan is not "maintained solely for the purpose of complying with applicable workers' compensation laws".

All Option injury benefit plans established to date:

• Are sponsored by private employers (not governments or churches) that have made this election to be exempt from the WC Act, and

(19)

Revised 12-15-14 19

• Deliver medical and disability benefits required under the Option Act, as well as other benefits (such as enhanced levels of wage replacement and non-occupational death benefits), and

• Include claim procedures and other provisions specifically designed to comply with ERISA. Cross References to WC Act: The Option Act incorporates certain provisions of the WC Act by reference, but this does not mean that an Option employer is establishing a plan “solely for the purpose of complying with applicable workers’ compensation laws”. These references to the WC Act are simply a matter of drafting convenience and carry out the legislative intent to create a broad statutory framework of Option benefits that are similar to (but not the exact same as) benefits under the WC Act.

20.What ERISA Requirements or Other Employee Protections are Built Into an

Option Program?

Government employers will rely on and adapt their existing or newly-developed employee relations rules and procedures for their Option programs, such as those found in city ordinances, human resource policies and procedures, collective bargaining agreements, and group health and disability plans. Section 211 of the Option Act also includes a claim procedure that applies to government-sponsored (aka, non-ERISA) Option plans. Private (non-governmental) employers that elect the Option must adopt an ERISA-compliant benefit plan and meet the Act’s many requirements designed to protect the interests of employees. ERISA standards of conduct and responsibility include:

• Clear Communication and Disclosure of Employee Rights and Responsibilities: Having in place a detailed, written plan document; communications that are understandable by the average employee (including, but not limited to, a clear explanation of benefits and all claim procedures before getting injured); and a full and fair review of all employee claims for benefits.

• Fiduciary standard of care:

o Administration of claims in accordance with the provisions of the plan o Plan administration in the best interests of covered employees • Prohibits discrimination or wrongful termination

• Claim Procedures:

o The same claim procedures that apply to most private employer-sponsored group health plans.

o Similar to Section 211 of the Option Act for governmental employers (see Q&A 22). o Note that the Tenth Circuit Court of Appeals (the federal appellate court for

Oklahoma) has acknowledged that a primary goal of ERISA is to provide a method for workers and beneficiaries to resolve disputes over benefits inexpensively and expeditiously.

• Civil and Criminal Enforcement Rules

We can provide additional detail on ERISA requirements or refer you to Oklahoma ERISA legal counsel.

(20)

Revised 12-15-14 20

PROGRAM ADMINISTRATION

21. Who Will Administer Claims?

Employers and insurance carriers are keenly interested in excellent medical outcomes, reducing benefit coverage disputes, and promoting consistency in claims administration. The Option Act clearly envisions that claims administration can be setup, at the discretion of the employer, either in-house or with a “third-party administrator” (i.e., an insurance carrier or an independent TPA approved by the insurance carrier). (Section 203.E.) The vast majority of Option employers will be required by their insurance carrier to turnover day-to-day claims handling to the carrier or its preferred TPA. Employer self-administration of claims or use of another carrier-approved TPA (for an “unbundled program”) will only be available to the most financially stable employers that have large workforces and a significant deductible or self-insured retention on the Option insurance policy. Self-administration will also require a track record of successfully self-administering workers’ compensation and/or other casualty claims. If of interest, we can discuss factors that should be weighed by any employer considering self-administration.

22. What Claim Procedures Apply?

Claim procedures under Section 211 of the Option Act somewhat vary based upon whether the employer’s injury benefit plan is subject to ERISA (see Q&A 19 regarding the applicability of ERISA). Key features for all Option plans include:

• An initial benefit determination by the employer or insurance carrier; • Right to an internal appeal of any denial of benefits; and

• Access to the courts for an external, independent review of any denial of benefits.

For most private employers, ERISA provides extensive, mandatory claim rules to ensure a full and fair review of injury claims. Among other things, ERISA requires clear communication directly to employees (in writing or electronically, and in non-English languages) regarding all of their claim procedural rights; and requires the injury benefit plan to be administered “in the best interests of the participants” (employees). Other injury benefit plans that are not subject to ERISA (such as those sponsored by government employers) are subject to all the claim procedures of section 211 of the Option Act. Many of the requirements in section 211 of the Option Act are consistent with ERISA; but section 211.D. acknowledges that any inconsistencies in the Option Act may be “preempted by any other applicable law” (ERISA). Additional information on Option claim procedures is found in the section below on “Court Challenges to the New Laws”. PartnerSource can provide further information and support upon request.

23. How Will the Option Improve Employee Accountability?

Examples of program features that focus on rebuilding a culture of paternalistic care and employee accountability include:

• Immediate notice of injury by the employee to the employer (such as an injury benefit plan’s 24-hour notice requirement for injury due to an accident), as opposed to 30 days allowed to report an injury under WC Act section 68. More prompt notice of injury results

(21)

Revised 12-15-14 21

in faster medical care, which almost always results in better medical outcomes, including shorter periods of disability.

• Listening and Seeking Care. Employer selection of approved medical providers is followed by advance communication to all employees of the need to immediately report injury claims and obtain care from one of these approved providers as a condition of benefit payments. The benefit plan can also specify maximum timeframes for the injured employee to seek initial and continuing medical treatment. Such requirements hold the injured employee accountable for his or her actions, as compared to the WC Act’s focus on an employer obligation to provide medical treatment within a certain number of days. (see Section 50.B.) • Disability Payments on Normal Payroll System. Disability benefits can be paid on the

employers’ normal payroll system, so no payday is missed and normal payroll deductions for a 401(k) plan, group health insurance, child support garnishments, union dues, etc. are supported. Seeing a disability check directly from the employer also creates direct accountability between the employer and employee for time away from work.

• Direct Communication Between Claims Administrator and Employee. Change of treating physician and second medical opinion issues are directly addressed between the injury benefit plan’s claims administrator and the employee. (compare Section 56)

24. How Can the Option Impact Medical Outcomes?

The new WC Act provides many favorable medical management features, including employer selection of treating physician, exclusions for degenerative conditions and certain preexisting conditions, cessation of benefits for missed medical appointments, and reference to Official Disability Guidelines (“ODG”) from the Work Loss Data Institute. However, an injury benefit plan under the Option Act can include all of those features and more. In general terms, this means that physicians have more flexibility and accountability to determine what further medical treatment is reasonable and necessary (with the claims administrator obligated under any ERISA plan to promote the best interests of the employee). The benefit plan can also promote better medical outcomes by requiring timely, appropriate medical care, with the most qualified physicians making all medical determinations (rather than rely on a court, commission, committee or statute for medical judgments).

25. Can Fees, Taxes or Similar Charges be Assessed Against an Employee?

No. Section 203.D. of the Option Act provides that, “No fee or cost to an employee shall apply to a qualified employer's benefit plan.” This is a prohibition on co-pays, deductibles or similar charges to employees in order to be covered by the plan. However, this does not prohibit the state or federal government from imposing otherwise applicable taxes, garnishments, etc.

COURT CHALLENGES TO THE NEW LAWS

26. Will the Option Act be Subject to Further Constitutional or Other Legal

Challenge?

Yes. The Oklahoma Supreme Court issued an order on December 16, 2013 rejecting a constitutional challenge to the state's new workers' compensation law and the Oklahoma

(22)

Revised 12-15-14 22

Option. The challenge included numerous constitutional and other objections, but largely revolved around the Oklahoma Constitution's prohibition against a single legislative bill addressing multiple subjects. The court confirmed that the new law only deals with work-related injuries and rejected the challenge.

Specifically, the Oklahoma Supreme Court ordered that Senate Bill 1062 (as passed by the 2013 Legislature and including both the new WC Act and the Oklahoma Option) is not unconstitutional as a multiple-subject bill, and the Oklahoma Legislature has exercised proper authority in a matter over which it has power to act. The court’s order does provide a caveat that future lawsuits may (of course) be possible based on a particular set of facts. But at this time, the court is without jurisdiction to rule further with regard to these new laws. The court’s full opinion and background on this case can be found at

http://www.partnersource.com/oklahoma-option-an-alternative-to-workers'-compensation/. Primarily due to the negative financial impact that cost containment features in the new WC Act and Oklahoma Option laws will have on certain professionals, further constitutional and perhaps other legal challenges may be made to this new law. If the law is found partially invalid, the remainder of the Option Act will remain in effect. (Section 213.B.1.) If the law is found entirely invalid, the employer will remain entitled to exclusive remedy protection and have no obligation beyond that of an employer who complied with the WC Act and have 90 days to secure compliance with the WC Act. (Section 213.B.3. and 4.) Employers that understand the Option and want to immediately reap the advantages for their employees and the company are pressing forward with program implementation, and will be supported by the claims administration and insurance communities in any transition back to the workers’ compensation system, if ever needed.

27. How Will Future Option litigation Arise?

As described in Q&A 22 above, employees who are dissatisfied with the Option injury benefit plan’s determination on their claim have access to the courts for an external, independent review of any denial of benefits. This will most likely arise by an aggrieved employee filing a CC-Form-3 (claim for compensation) with the Oklahoma Workers’ Compensation Commission under Commission rule 810:10-5-5. But as noted in Q&A 29 below, an aggrieved employee may instead file for review in a federal district court.

28. Do claim procedures under Oklahoma law or federal law apply to Option

claim disputes?

A. The answer depends upon whether ERISA applies to the Option benefit plan. See Q&A 19. B. The Oklahoma Option is a hybrid state and federal system. The Oklahoma Legislature

created a framework for minimum benefit entitlements under Oklahoma law, and existing federal employee benefits law provides a system of employee protections for any private employer plan that is subject to ERISA. The Oklahoma Legislature relied exclusively on state law for minimum benefit requirements AND claim procedures under Section 211 of Title 85A for claims under Option benefit plans that are not subject to ERISA, such as government-sponsored plans and church plans.

(23)

Revised 12-15-14 23

C. Even the Oklahoma administrative workers’ compensation system is a hybrid state and federal system. Federal laws such as the Family Medical Leave Act (FMLA) and the Americans With Disabilities Act (ADA) directly impact workers’ compensation claims administration. Workers’ compensation is also impacted by the Occupational Safety and Health Act (OSHA) and Fair Labor Standards Act (FLSA).

D. As described in Q&A 20, the sole purpose of the Option Act and ERISA claim procedures is to ensure a “full and fair” review of injury benefit claims filed by injured workers.

E. ERISA is the same federal law that has ensured the efficient processing of group health claims in Oklahoma and across the U.S. for the past 40 years.

F. Section 211 is a short-hand version of the same claim procedures that apply under ERISA. See 29 U.S.C.A. section 1133 and 29 CFR 2560.503-1.

G. Section 211.D. of Title 85A says, “The provisions of this section shall apply to the extent not inconsistent with or preempted by any other applicable law or rule.” This acknowledges that, to the extent ERISA applies to an Option injury benefit plan and duplicates or conflicts with provisions of the Option Act, the ERISA provision will apply. See 29 U.S.C.A. section 1144.

H. Similarly, section 210.A. of Title 85A says, “A qualified employer or its insurers or other payment sources shall be responsible for: 1. Compliance with any applicable federal law regarding the administration of the plan and claims for benefits under such plan”.

I. So, the claims administrator of an Option injury benefit plan must apply the appropriate claim procedures when reviewing any benefit denial. The terms of the Option injury benefit plan document must reflect the applicable Oklahoma (Section 211) or federal (ERISA) claim procedures that apply. Those claim procedures are virtually identical because section 211 was modeled after the ERISA claim procedures. The ERISA version simply provides more detailed claim procedures, and ERISA supplies additional employee rights to disclosure of plan information and fiduciary protections.

29. Does Oklahoma law and ERISA allow an employee to file an Option claim

with either the Oklahoma Workers’ Compensation Commission or federal

district court?

Yes.

A. See the flow chart below. ERISA provides that state courts of competent jurisdiction and district courts of the United States shall have concurrent jurisdiction of actions “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C.A. section 1132(e)(1).

B. Oklahoma law acknowledges this concurrent jurisdiction by naming the Oklahoma Workers’ Compensation Commission as the state court for this purpose. Section 211.B.5. of Title 85A mirrors the above section of ERISA by providing, “The Commission en banc shall act as the court of competent jurisdiction under 29 U.S.C.A. Section 1132(e)(1), and shall

(24)

Revised 12-15-14 24

possess adjudicative authority to render decisions in individual proceedings by claimants to recover benefits due to the claimant under the terms of the claimant’s plan, to enforce the claimant’s rights under the terms of the plan, or to clarify the claimant’s rights to future benefits under the terms of the plan”.

C. So, an injured worker wanting to appeal a benefit denial under a plan subject to ERISA can take that claim to either the Oklahoma Workers’ Compensation Commission or to federal district court.

30. If an employee files an Option claim at the Workers’ Compensation

Commission, can the employer remove the claim to federal district court?

Yes.

A. If the claim for benefits is filed with the Commission, the employer and employee can proceed in that forum. However, just like a group health claim, the employer can remove such a “state court” claim under an ERISA plan to federal district court within 30 days. 29 U.S.C.A. sections 1441 and 1446.

(25)

Revised 12-15-14 25

B. Removal to federal district court is generally at the discretion of the defendant (employer). C. In certain cases, an employee’s benefit claim may be initially denied by the claims

administrator, and the employee may then fail to file an internal appeal to the plan administrator (as required by the plan document and ERISA) before filing the claim at the Commission. In those cases, if the employer wants to remove the claim to federal court, the employer can file for removal to federal court. The employer may also consider whether to file a motion in federal court to dismiss for failure to exhaust administrative remedies (a Rule 12(b)(6) motion). Note that section 211.B.4. of Title 85A also states, “No legal action may be brought by or with respect to a claimant to recover benefits under the benefit plan before the foregoing claim procedures have been exhausted.” If the claim is dismissed (by the Commission or federal court) for failure to exhaust administrative remedies, then the employee may still have time to go through the benefit plan’s internal appeals step, and (if still not satisfied) re-file the claim with the Commission or in federal district court.

31. Do the rights of the employee vary based upon whether the claim is heard at

the Commission or in federal court?

A. No. Whether the claim is in front of the Commission or a federal district court, the employee’s rights to benefits will be determined under the terms of the injury benefit plan, which must comply with the benefit mandates of Oklahoma law.

B. In either forum, the Commission or federal court must:

i. Review the administrative record from the plan administrator’s prior decision(s) on the claim, and

ii. Determine whether the plan administrator’s decision on the claim should be:

a. upheld as being consistent with the terms of the plan and the plan administrator’s fiduciary obligation to administer the program in the best interests of employees, or

b. reversed as being arbitrary and capricious.

32. Can the employer first allow the employee’s claim to be heard at the

Workers’ Compensation Commission and then remove it to federal court?

No. The right to remove a case to federal court may be waived by acts taken in “state court”, subsequent to the creation of the right to remove, that indicate the defendant has invoked the jurisdiction of the state court. Courts have found a clear intent to remain in state court may be shown by taking “substantial defensive action” before removal, or by seeking a final determination on the merits of the case before removal.

FREQUENTLY ASKED QUESTIONS on the OKLAHOMA OPTION