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TEXAS EMPLOYERS DEFEND WORKERS COMP OPT OUT

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Texas employers that have left the state's workers compensation system are ready for efforts to revoke their unique status as the legislative season cranks up, but they probably won't face a major challenge soon.

Texas now stands as the only state that allows employers to choose not to belong to the workers comp system.

South Carolina was the only other state where employers had the option to leave the system, but its law was changed last year, and employers must return to the system by July 1.

New Jersey's complex law theoretically allows the choice, but no employer has taken it.

Workers comp always has been elective in Texas.

Texas employers that choose to leave the system give up the protection of the exclusive remedy doctrine and risk unlimited tort liability.

According to data from the state's Research and Oversight Council on Workers Compensation unit, 3% of non-subscribers overall indicated they were sued by employees over injuries. Thirty-eight percent of companies with more than 50 employees reported being sued. However, the majority of the non-subscribing companies have fewer than 50 employees and only 2% of these companies reported being sued.

Proponents of an elective system say injured workers are adequately cared for under their programs, and they are reaping financial gains by not having to purchase workers comp coverage and follow statutory requirements.

Small employers, which make up the biggest percentage of the state's non-subscribers, would be particularly hard-hit by a forced return to the system, sources say.

Employers that support the current system routinely square off with detractors when the Texas Legislature meets every other year. This year, the first skirmish was early in the session that began last month.

On the second day of the session, the staff of the state's Research and Oversight Council presented a report to its board that included among other things a recommendation that legislation be drafted to make the workers comp system mandatory.

The council's nine-member board, however, instructed the staff to rewrite its report and "drop any reference to mandatory comp," said June Karp, executive director of the Research and Oversight Council, formed by legislation in 1995 to research and recommend changes to the state's workers comp system.

The board, made up of legislators, employer and employee representatives and a state Insurance Department designee, is "vehemently opposed to mandatory comp," said Ms. Karp. "They don't think its time has come."

Proponents of keeping the system elective are staying on their toes after this first call for a mandatory system.

"The folks who want mandatory comp will try and sneak it in," said Steve Bent, executive director of the Texas Assn. of Responsible Nonsubscribers, or TXANS, an organization of employers that have opted out of the state workers comp system. "During the last session, they snuck it onto a trucking bill."

Those who would like to see a mandatory system aren't as visible as in the past. "There seems to be no one person pushing for it," Mr. Bent remarked, a change from prior legislative sessions when trial lawyers and some legislators were out front in the call for a mandatory system.

Many of those who pushed for a mandatory system no longer are in the Legislature, Mr. Bent said.

When employers opt out of the Texas system, they have the choice of "going bare" and providing no benefits to injured workers, or putting together a plan that will pay lost income and medical expenses.

While self-insurance remains an option for those who choose to remain in the system, the law allows it only for those employers that would have had a workers comp premium of at least $500,000.

That means small employers forced back into the system would not have the option of self-funding their workers comp risk.

And even though workers comp rates are low in the current marketplace, the extra cost and administrative requirements of mandated coverage would be burdensome, according to some industry sources.

In fact, it could force many small employers out of business, said Nancy R. Long, president of NRL Claims Specialists Inc. in Houston, a claims adjuster with several non-subscribers as clients.

"My clients that are non-subscribers don't want it mandated," she said, adding that they take better care of their employees than state regulations require of employers that remain in the system.

A 1996 survey by the Research and Oversight Council showed that small employers-those with one to four employees-are the largest group of non-subscribers, making up 44% of the total. The survey indicated that 39% of Texas employers have opted out of the system (BI, Aug. 5, 1996).

A finding that disturbs proponents of an elective system is that only 29% of non-subscribers responding to the survey have a written policy to pay benefits to employees injured on the job.

Mr. Bent of TXANS concedes that too many small employers who have opted out are not providing workers benefits through an alternative to workers comp insurance. That hurts the organization's efforts to keep comp elective, he added.

"That's our worst enemy," he said of the number of non-subscribers not providing benefits. "Many will pay for injuries out of their pocket, but if there is a catastrophic injury, what will they do?"

He suggested legislators focus on creating programs that could help such businesses in the event of a catastrophic injury rather than simply forcing them into the workers comp system, perhaps by forming a catastrophe pool program for small businesses.

Larger non-subscribers have a much better track record of providing injured workers with benefits. "I don't know of a large employer that doesn't have a written plan," Mr. Bent said.

Whataburger of Mesquite Inc., which has 325 employees at 17 worksites in the Dallas area, wouldn't make the cut as a business large enough to self-insure if the option to leave the system is taken away, said Bob Potter, vp of the Mesquite, Texas, restaurant company.

And even if the company could self-insure, it wouldn't want the restrictions that come with the statutory requirements.

"I think it's very important to have the option," said Mr. Potter. "We don't want to go back into comp because of the increased costs, for one thing."

Whataburger of Mesquite has seen its claims costs drop dramatically since opting out of the system in 1990, Mr. Potter said. Those costs dropped in 1991 to about $16,000, down from $160,000 the year before, and have stayed at the lower figure each year since.

"We pay a lot more attention to safety since we carry more liability," Mr. Potter said. "The other cost savings is from the premium decrease."

He said Whataburger of Mesquite retains $150,000 of its workers comp risk. Excess coverage picks up losses above that amount.

Jostens Inc., a Minneapolis-based manufacturer of class rings, yearbooks and other products with a plant in Denton, Texas, would incur a "significant increase in expenses" if forced to enter the system, said Jerry Ciar-delli, corporate risk manager.

Workers comp costs at the Texas plant have fallen to less than $100,000 since Jostens became a non-subscriber in 1994. Before opting out, Jostens' costs were running from $500,000 to $800,000 per year, he said.

Part of the savings comes from legal expenses no longer incurred to defend claims the company does not consider compensable, Mr. Ciardelli pointed out. "In our current system, it's clear what's compensable and what's not."

He said Jostens would likely be able to self-insure under statutory requirements if workers comp is mandated, but the company would not want to have to comply with requirements that would drive up costs.

"We handle everything in-house," he explained. "Whereas if we are a subscriber, then we have to have a TPA. That's more expense."

Some industry sources say reforms that took effect in 1990 and marketplace changes make the workers comp system more attractive to Texas employers.

"Given the 1990 reforms and what's happened in the marketplace vis-a-vis rates, it seems to me more than likely that will be bringing people back into the system," said Ron Cobb, southwest regional vp for the American Insurance Assn. in Austin.

"At prices you can buy workers comp these days, there will be fewer and fewer who elect to go without it," he added.

While the AIA supports efforts to require all Texas employers to belong to the system, Mr. Cobb said he doesn't think it will happen soon. "Politically, those who oppose it are strong, so I don't view the chances of mandatory comp as being particularly high. I do think it will eventually happen."

The survey by the Research and Oversight Council indicated that employers are drifting back into the system. While 39% of Texas employers did not buy coverage in 1996, that figure is down from 44% in 1995.

Some employers, however, are adamant about not returning to the workers comp system as long as they have the option to stay out. The survey indicated that 39% of the non-subscribers said they would never buy coverage again.

And despite falling prices, 38% said the cost of coverage would have to be cut in half before they would buy workers comp insurance.

Mr. Bent said a mandatory workers comp system would hurt not only employers that want out, but also the vendors that provide products and services to non-subscribers.

A directory of service providers published by TXANS includes law firms, third-party administrators and medical care providers, he said, and the publication grows each year.

"Those people would really suffer if this were to happen," he said of service providers.

But some service providers said a mandatory system would not mean much of a loss of businesses.

In fact, a mandatory system could boost the business at Benefit Staffing Inc., an Abilene, Texas-based provider of benefit plans and other services.

While he supports keeping the system elective, a mandated system would mean all employers would be forced to "spend money on their employees, and we help them save that money," explained John M. Groce, marketing manager at Benefit Staffing.

He said about 40% of Benefit Staffing's clients are non-subscribers, and those companies range from three employees to 250 employees. If a mandated system is put in place, those companies likely would remain clients, Mr. Groce added.

"We think it's important to have a choice," said Katya Lastra, services coordinator with Garcia Consultants Inc., a Dallas-based company that provides medical case management and other services to non-subscribers and subscribers.

But while non-subscribers are part of the company's target market, most of Garcia Consultants' clients are in the system, she said. "We don't think we would lose a customer base at this point."