| Perspectives on Texas

Who pays the bill when an injured employee isn’t covered by insurance? And how does that employee get access to medical care and compensation for missed work or other economic damages? Some Texans believe the answer is requiring employers to carry workers’ compensation insurance.

But mandatory workers’ compensation is unlikely to garner support among state lawmakers — and it’s wrong for Texas.

Why? First, mandating the purchase of insurance doesn’t always result in employee coverage. Some employers might misclassify employees to avoid coverage or might refuse to comply with the mandate. Second, simply having workers’ compensation insurance does not prevent injuries from occurring. Preventing injuries is a safety issue, and buying an insurance policy doesn’t ensure a safe working environment.

Since the adoption of the first workers’ compensation law in Texas in 1913, private employers have had the right to elect whether to purchase workers’ compensation insurance for their employees. Employers that elect not to purchase insurance are called “nonsubscribers” and can be sued by injured employees.

For many Texas employers, nonsubscription has become an effective way to provide alternative plans with medical and wage benefits and programs that focus on safety and returning injured employees to work. Prompted by the success of nonsubscription in Texas, other states have started looking at allowing employers to implement alternatives to workers’ compensation. Oklahoma, for instance, recently enacted legislation to allow employers to elect an alternative to the traditional workers’ compensation system. The Oklahoma option requires employers to offer benefits equivalent to those in a workers’ compensation plan.

According to a Texas Department of Insurance survey, 33 percent of employers are nonsubscribers, but only 19 percent of Texas employees work for nonsubscribers. The survey also found that 71 percent of nonsubscribing employers offer benefit plans to employees.

In Texas, the nonsubscriber community has split into two distinct groups. One group includes large employers that offer sophisticated benefit plans that provide for wage replacement and medical care to injured workers. Their programs have extensive safety components and focus on taking care of injured employees, who give these plans high satisfaction rates. The second group includes smaller employers that often lack resources to purchase insurance. Although the smaller employers may not have insurance, they may pay out-of-pocket expenses directly to assist injured employees.

At a recent hearing of the House Business and Industry Committee, Chairman René Oliveira said that about 500,000 Texas employees don’t have workers’ compensation coverage or an alternative benefit plan. Even if this figure is accurate, only a small fraction of those workers are ever injured. Also, while Texas law allows any private employer to elect to offer coverage, over a dozen states with “mandatory” workers’ compensation have exceptions for small employers.

A few Texas lawmakers over the years have attempted to require employers to purchase workers’ compensation insurance. The Legislature has recently considered bills to mandate workers’ compensation coverage for contractors and subcontractors in the construction industry. Numerous business groups, including the Texas Alliance of Nonsubscribers, the Texas Association of Business, the National Federation of Independent Business, the Texas Hospital Association, the Texas Hotel and Lodging Association, the Texas Association of Builders and the Texas Restaurant Association, have opposed such legislation.

Nonsubscription has been called a “competitor” to workers’ compensation insurance, and employers’ ability to opt out of the system has certainly played a role in pushing the Legislature to enact reforms. Texas has led the nation in reforming its workers’ compensation system by implementing new fee and treatment guidelines, a closed pharmacy formulary and health care networks to control the cost of medical care and reduce overutilization.

These efforts have resulted in lower premiums and more employers purchasing coverage. The combination of workers’ compensation reforms and competitive pressure on carriers has moved Texas’ workers’ compensation premium rates from the 12th most expensive in the nation to the 38th most expensive. Changes like that just don’t happen in states with mandatory workers’ compensation.

Groups like the Texas Alliance of Nonsubscribers are committed to working with legislators to improve safety, return employees to work and reduce the cost of coverage. We encourage legislators to continue pushing to make workers’ compensation more affordable so that employers will elect to purchase insurance.

Mandating coverage in Texas hasn’t been the answer for more than 100 years — and it’s not the solution for the future.