Texans benefit from alternatives to workers' compensation

Photo by Todd Wiseman

Texas has become the nation's economic engine in large part by allowing competition to thrive in markets, even in such unlikely activities as providing benefits for injured workers.

Since 1913, Texas employers have been allowed to opt out of the state workers' compensation system and adopt private plans to meet their employees' needs. Employees have benefited by experiencing better medical outcomes, including shorter periods of disability and fewer claim disputes. Many employees also receive better wage replacement benefits. Employers have benefited through lower costs, and they are also more likely to pay attention to worker safety.

Apparently, though, healthier workers and lower costs don't seem to matter to several members of Congress, the U.S. Department of Labor or special interests that appear opposed to free-market alternatives to workers' compensation. If the opposition were to succeed in disrupting or shutting down Texas' private injury benefits market, Texas' workers, businesses, and economy will suffer.

Earlier this year, the Labor Department launched an investigation into Texas' private injury benefits market. Secretary Thomas Perez said the department would use its "bully pulpit" to look into Texas' private sector alternative — which he calls a "disturbing trend." This investigation comes at a time when several members of Congress are calling on the department to consider "strengthening [its] oversight of state workers' compensation programs" while criticizing "opt out" programs like Texas'.

Though the Labor Department can regulate private benefit plans under the Employee Retirement Income Security Act (ERISA), its authority is limited since workers' compensation is a state program. In other words, the department can require private plans to comply with ERISA but cannot force changes beyond this scope. However, Perez makes it clear that the department would prefer more than ERISA compliance, "I wish under ERISA that we had more authority to do more things," he said.

Meanwhile, in Oklahoma, trial lawyers and workers' compensation insurance companies supported a recent decision by the Oklahoma Supreme Court to strike down its version of the private benefits market. This decision has led at least one Texas labor union to consider using a similar approach to challenge the Texas law.

This type of attack on free markets is nothing new, particularly not to our state. Texas' alternative to workers' compensation is simply one of many in a long line of successful efforts to reduce government interference in markets that have been repeatedly assailed by the federal government and special interests.

The sudden interest in a 100-year-old Texas industry helps shed light in what is going on behind the scenes. Based on the success in Texas, other states started looking at allowing private sector alternatives to workers' compensation. In 2014, Oklahoma passed the Oklahoma Employee Injury Benefit Act, creating the second private benefits industry in the country. Tennessee, South Carolina and other states are considering similar legislation.

At this point, special interests that had been willing to overlook the private benefits model as long as it was contained in Texas began to get alarmed. These interests gain profits by using the legislative and regulatory process to design the comp systems, and they would lose control — and profits — if states began to join the "trend" of allowing employers to shift to private-sector alternatives that deliver better outcomes for injured workers. Their efforts received a substantial boost when joined by the federal government.

In today's policy climate, no marketplace is safe from the federal government or from special interests that use the courts and the regulatory process to shut down competition. This is true even in those cases, like with Texas' private benefits market, when the facts clearly show that this battle is not over protecting the health and safety of workers or consumers.

The assault on Texas' private injury benefit market is really about Texas' effort to promote freedom and prosperity through the free market. It is about politically connected special interest groups using government to stifle competition and earn excessive profits. And it is about eliminating states that provide a model of how we can live and work in freedom and still have healthy workers, high wages, and a strong economy. Texas policymakers should ensure that the private injury benefits market survives this latest assault on our liberties.

Disclosure: The Texas Public Policy Foundation has been a corporate sponsor of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.

Bill Peacock

Vice president of research, Texas Public Policy Foundation

@BillPeacock3

Jennifer Minjarez

Research associate, Texas Public Policy Foundation

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