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Texas employers that opt out of the workers compensation system are likely to have higher injury rates than their insured counterparts, but those injuries are likely to be less severe, resulting in less lost time.

And even though employers that opt out of the workers comp system run the risk of unlimited tort liability, their overall lost worktime and legal costs appear to be about the same as other employers'.

Those are the findings of a recent study by University of Minnesota researchers of the cost of work-related injuries for insured and uninsured employers in Texas, where about 44% of employers have chosen to opt out of the workers compensation system. Besides Texas, only New Jersey and South Carolina permit employers to opt out, and few employers in either of those states have taken the step.

"Employers that opt out are more safety conscious than those who buy insurance," concluded the study's author, Richard J. Butler, a professor of industrial relations in the Carlson School of Management.

Employers that have opted out of the system have slightly higher injury rates than those within the system, he concedes.

For example, in 1994, the number of lost-time accidents per employee in the mining and construction fields was 0.091 for companies outside the system; the rate for companies within the system was 0.042. Similarly, in food manufacturing, the injury rate was 0.140 for non-covered employers and 0.068 for covered employers.

But employees covered by workers compensation insurance spend 10% to 50% longer off work after an injury than do employees not covered, according to the study, which examined Texas Workers Compensation Commission data for 1992, 1993 and most of 1994.

Also, companies outside the system "report fewer strains and sprains than those firms with workers compensation insurance," he said.

One major reason employers outside the system report higher accident rates, he explained, is that they usually offer temporary total disability benefits to injured employees from the first day of injury.

Under the Texas workers comp system, employees generally must wait a week before receiving TTD benefits.

But average claim severity is greater for those companies in the system since very few employers outside the system pay permanent partial benefits, according to Mr. Butler.

In some cases, employers that opt out of the Texas workers compensation system provide more generous disability benefits than the state requires of employers within the no-fault system.

For example, Jostens Inc., which has 300 employees in a plant just outside Dallas, pays injured workers 85% of their usual wages for total temporary disability benefits. State workers compensation rules require only 66.7%.

Still, Josten's work-related injury costs are about half the level they were when it purchased workers compensation insurance in Texas, according to Gerald Ciardelli, risk manager for the Minneapolis-based manufacturer of class rings, yearbooks and other products.

"We're probably saving $250,000 a year in Texas," Mr. Ciardelli said. And even though by opting out the company gives up a shield from civil tort liability, "we have not had one claim in litigation," he boasted.

Jostens opted out to get better control over medical costs, Mr. Ciardelli explained.

"We also don't have to pay residual market charges," he pointed out.

But once it opted out, Jostens implemented an aggressive safety program, requiring employees to report the first signs of pain or discomfort to supervisors.

"Before people didn't come to us until after they were injured," which often resulted in higher medical costs, Mr. Ciardelli explained.

Josten's also now has control over employee choice of doctor. In the workers compensation system, by contrast, employees can choose to see whichever health provider they desire.

"Now the employee has to go to our company doctor, or to a doctor on referral to our company doctor," he said. And "our company doctor is an occupational medicine specialist familiar with our company. His first course of action is not surgery, but to rehabilitate."

Even though Josten's decision to opt out of the Texas comp system has paid off, Mr. Ciardelli is cautious about urging others to follow suit.

"Josten's is a 'responsible' non-subscriber," Mr. Ciardelli said. "I would only prescribe non-subscribing to companies with a proactive management team. It doesn't work with traditional management."

In fact, Josten's delayed for one year its decision to pull out of the Texas comp market so that it could implement a team-based management approach that fostered workplace safety and early injury intervention, Mr. Ciardelli explained.

"Employers that opt out are extremely motivated to provide a safe workplace," agreed Steve Bent, executive director of the Texas Assn. of Responsible Non-subscribers, an organization of employers that have opted out of the workers compensation system.

To show what a disincentive to safety workers comp insurance is, Mr. Bent recounts the experience of a loss control specialist he knows.

"When he hadn't heard from one of his employer clients in a while, he called and asked what was up. They replied: 'We've gone back into work comp and we don't need safety anymore.'"

The objective of Mr. Bent's organization is to provide a viable alternative to purchasing workers compensation coverage in a state where rates have gotten out of hand, he explained.

Employers in Texas who opt out of the system are under no obligation to provide health and disability benefits to employees, but employers must provide a minimum level of this coverage to be a member of TXANS.

TXANS has approximately 1,200 employer-members that employ 375,000 workers in the state. While 70% of employers that opt out of the workers compensation system in Texas have fewer than 15 workers, TARN members have an average of about 400 employees.

The organization also is lobbying the legislature to limit the liability of employers that provide medical and disability benefits to their injured workers.

But "our primary roadblock is people who profit from the work comp system," Mr. Bent said.

Indeed, one such service provider who asked not to be identified was highly critical of Texas' opt-out system, which has been in place since before workers compensation was instituted in 1915.

"When employers opt out of work comp, the cost of injuries don't go away, they just go somewhere else-to HMOs, Medicare, other welfare benefits, tort litigation," he said.

"As a hard-working taxpayer, I'd rather not pay higher taxes to support deadbeat employers who don't meet their legal and/or moral obligation to pay their work comp premiums," he added.

But the study's author asserts that such is really not the case in Texas.

The study was financed by Zenith Insurance Co., a San Francisco, Calif.-based workers compensation insurer.