Friday, April 5, 2019
While rumor has it the Arkansas opt-out bill, Download Ark Opt Out Bill (002), does not have time to be enacted into law, it has nevertheless provided me with a wonderful opportunity to get a look into the architects’ minds. This is a useful exercise because, as I have said repeatedly, opt-out is not going away. A section by section dissection of the bill would have you, my dear readers, heading for the exits. But I think a “moderate delve” may be tolerable.
The first major thing to note is the unusual posture of the bill. It was “dropped” into legislative session with very little time left to enact it. Under Section 5 of the bill:
(a) The state shall seek a federal waiver for regulatory authority to regulate issuance of a universal workers' compensation insurance policy under this chapter;
(b) The universal workers’ compensation insurance policy issued under this chapter shall be to one (1) company with no more than 500 employees;
(c) No additional universal workers’ compensation insurance policy shall be issued until the General Assembly grants authority to universal workers’ compensation carriers to issue universal workers' compensation insurance policies to an authorized employer.
It is hard to escape the conclusion that the drafters immediately feared the statute would not survive ERISA scrutiny (I share their assessment—I think much of the content of the bill would be preempted by ERISA, both under Section 514 and Section 502) and would not even take the chance of rolling out the system in the absence of a federal “waiver.” This is quite interesting. I am not sure what the drafters are contemplating the federal government could waive. Surely it cannot mean that the state authorities anticipate that the federal executive branch will “waive” the congressional determination that state laws “relating to” employee benefit plans are preempted by federal law. (Agencies may, of course, at times waive requirements that have been established administratively, a process roughly equivalent to prosecutorial discretion). But I would be very surprised to learn that anyone with legal training in the Department of Labor believes the agency possesses the authority to disregard a congressional directive. In any event, the drafters seem to contemplate holding the state statute in a kind of “abeyance” during which permission will be sought from the Feds—post enactment—before proceeding further (so don’t worry legislators if you don’t quite understand the details). A bit weird and this presents—uumm—a bit of a federalism tension.
The second major thing to note is that the bill is very poorly written. It is so poorly written that I feel confident it was drafted in great haste; why, I don’t know. Regardless, it is a very difficult bill to read—in sections it is impenetrable.
There are a few major substantive issues worth mentioning here.
Substantially fewer benefits are available to a “covered employee” for a “covered disability” that is not the direct consequence of a “covered injury” by accidental cause than for a “covered” disability that is the direct consequence of a covered injury by accidental cause. Yep, that will sure simplify the causation analysis. I refuse to scrutinize the distinction at length (there is a lot of imprecision created by overuse of the term “covered”), but anyone who imagines there would be clearer legal outcomes utilizing a direct/indirect “consequence” standard instead of the “injury by accident arising out of and in the course of employment” standard is wrong. But that is not the point. The point is that the state is purporting to authorize and regulate ERISA plans in lieu of workers’ compensation. And in an ERISA regime, it would be a Plan Administrator (not a judge or other public official) making these kinds of causation/“consequence” determinations. The private administrator’s determinations would almost always have to be challenged in federal court under an arbitrary and capricious standard of review (for you non-lawyers, that means the party appealing usually loses).
Covered/Non-Covered Medical Expenses
Although the bill lays out how rates of medical expense compensation will be determined—there is a lot of tethering to CMS Medicaid fee schedules, for example—the statute does not unequivocally state what medical conditions are covered in the first place. See Section 11-16-204. But in Section 11-16-205 there is a somewhat elaborate mechanism whereby the covered employee and “authorized medical care practitioner” together may determine that “noncovered medical care is preferred” but the provider nevertheless (despite the noncoverage of the preferred treatment) “desires compensation under this chapter.” Did I mention that the practitioner is permitted to balance bill the “covered” employee for noncovered medical care?
My admittedly jaundiced eye sees a scenario in which the doctor tells the injured worker, “look you need procedure x, but they will only pay me for procedure y under the terms of the plan. So sign this acknowledgement of financial responsibility if you want me to proceed further.” Frankly, it is a chilling prospect. I guess you should not deliver painkiller to the injured worker until all of the correct signatures have been obtained at the scene.
Preference for Lump Summing and Actuarial Benefit Caps
Although biweekly indemnity benefits are permitted, it caught my eye that maximum benefits are frequently expressed in aggregate terms:
“Indirect consequence” injury=max of 156 weeks at the normal benefit rate (75% of preinjury AWW); all compensation (presumably also medical benefits) 234 weeks x national (Longshore) AWW
“Direct consequence” injury=max of 520 weeks x normal rate; all compensation 780 weeks x the Longshore rate
Injury by co-employee=max of 2600 weeks x normal rate; 3900 weeks x Longshore rate
In short, there is a lot of math to do, and the obvious expectation is that the opt-out insurance carrier will lump sum claims at present value. It is not clear to me that under the bill injured workers could obtain legal representation to check all that math (and other things). Unless I am missing something—and it is possible that I am—there is no explicit mention of attorneys’ fees (or even attorneys) in the bill. (In a few places in the bill curious reference is made to attorneys-in-fact acting as employee representatives). Perhaps the bill means to incorporate by reference sections of the existing Arkansas Workers’ Compensation Act.
No Permanent Partial Incapacity Benefits
While 11-16-209 of the bill provides compensation for scheduled losses, I find no provision in the bill for partial benefits. None at all. If the drafters thought they were making such provision in 11-16-201, the section should be redrafted for clarity. Again, perhaps this is an incorporation issue?
I could dance all night, but will stop here. It hardly seems necessary to conclude that a system of the kind presented here (again, allowing for the possibility that I am not getting the entire intended statutory picture) is one in which employers: have control of causation determinations, have the ability to shunt significant responsibility for medical costs on to employees (and others), do not appear to assume responsibility for partial incapacity benefits at all (except arguably by proxy through use of scheduled benefits), and make it difficult for employees to ascertain to what benefits they are entitled even while making no provision for employee attorney representation. Such a system would obviously reduce employers’ operating costs substantially. I think ERISA, as currently written, would prevent wide scale adoption of such systems (seeking both to spur creation of and to regulate ERISA-governed plans). In another post, I will discuss similarities between the Arkansas and Wyoming constitutions that I think create additional state law obstacles to enactment of such systems.
Michael C. Duff