Column: Workers' Comp

The Outlook for Alternatives

By: | November 3, 2014

Roberto Ceniceros is a retired senior editor of Risk & Insurance® and the former chair of the National Workers' Compensation and Disability Conference® & Expo. Read more of his columns and features.

“Disruptive innovation” may be unfolding in workers’ comp as some large employers and service providers push for more states to allow opting-out of traditional mandates for addressing worker injuries. Clayton M. Christensen, a Harvard Business School professor and disruptive-innovation expert, writes and talks about forces that positively transform markets, industries or products. The innovations typically simplify purchasing or reduce costs.

Examples of disruptive innovation that Christensen has cited include the rise of retailers like Wal-Mart. It transformed from its original five-and-dime store roots by expanding its product line to more profitable items such as clothing.

The innovation disrupted, or shifted, the way many people now buy garments. As a result, far fewer traditional department stores exist across the country today.
Now Wal-Mart and other retailers are backing an organization called the Association for Responsible Alternatives to Workers’ Compensation. ARAWC will lobby states to allow employers to adopt alternative options for delivering medical and wage replacement benefits to injured workers.

There are two existing models ARAWC can point to in its lobbying efforts. One exists in Texas, which has allowed employers to entirely opt out of its workers’ comp system since that system was created.

The other is Oklahoma, which only last year enacted a law allowing employers to adopt an alternative to the state’s traditional benefits delivery system, but only if they provide equivalent benefits.

ARAWC’s executive director, Richard Evans, expects other states will adopt an approach similar to Oklahoma’s rather than follow Texas. I can see how that would be an easier sell to lawmakers than a Texas-type option that allows employers greater freedom, but in turn allows injured employees to sue their employers.

Oklahoma remains experimental, in my mind, however. In late September, the Oklahoma Insurance Department said that only nine employers had qualified to provide an alternative “Oklahoma Option.” What their experience will be remains to be seen.

Bill Minick, president of Dallas-based consulting firm PartnerSource and a major proponent of alternative options, disagrees with my description of Oklahoma’s alternative as “experimental.”

Minick says employers have seen positive results in both Oklahoma and Texas despite significant differences between the alternative models in each state.

Yet I still have several questions that will only be answered with time.

For instance, now that workers’ comp rates appear to be falling in Oklahoma and dropping across other states, will more employers disrupt their current arrangements to adopt an alternative option? Or, as often happens when insurance pricing drops, will many employers remain content with the status quo?
ARAWC says its goals are long term. So perhaps current insurance pricing won’t matter. But ARAWC’s success does remain to be seen.

That is why I say disruptive innovation may be unfolding. While I think ARAWC’s effort may help drive changes in workers’ comp arrangements across more states, it’s not certain yet, but that’s how disruptive innovation often occurs.

The theory’s observers say disruptive innovation often begins in niche areas and can appear unattractive or even inconsequential before driving major changes.

It doesn’t happen overnight.

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