Texas Doesn’t Require Employers to Provide Workman’s Compensation Insurance
In case you didn’t know, Texas doesn’t require companies to carry Workman’s Compensation insurance to protect their employees from workplace injury related costs. Texas is the ONLY state in the country that doesn’t require employers to carry Workman’s Compensation insurance. That’s right, the only state in the country. It’s a surprising fact and many Texans don’t even know about. The situation can create devastating problems for injured workers and their families, as this blog post will discuss.
A recent segment on Vice, a daily news show broadcast on HBO, discussed this issue in detail and I’ll use their story, as well as some of my own experiences, as a basis for this blog post. (If you haven’t heard of Vice, you should check it out. It’s a daily 30 minute news show without commercials. The reporters are all millennials, and the format consists of a quick briefing on 3-4 headlines for that particular day, followed by 3 more in depth stories about specific subjects, each one lasting about 5-8 minutes. The workmans compensation story was one of those in depth stories.)
The Vice story began with a reporter interviewing an injured truck driver from Texas. The truck driver was sitting in his living room next to his wife, wearing a neck brace and watching TV. He described how he was driving his truck one day when suddenly the steering wheel locked up causing him to lose control of the vehicle. It ended up veering off the road and eventually crashed. During the accident, the driver was bounced around the cab and wound up with a very serious and painful neck injury. When he reported the accident to his employer (Swift Transport), they referred him to a specific doctor. Apparently that doctor didn’t perform any sort of examination, and instead just asked a few questions and talked for about 5 minutes, telling the driver that he was “fine and could return to work.” The driver, unhappy with that result, then went to another doctor of his own choosing, assuming that the company or their insurance would pay for it. He soon learned different.
The medical bills began piling up and when he tried to submit them to the employer for payment, he learned that his employer didn’t carry Workman’s Compensation insurance, and that it was now his responsibility to pay the bills. That’s when he learned about the WC exemption for Texas employers. The news was devastating for him and his family. Not only did he have to pay all of the medical bills, which added up to $10s of thousands of dollars, but he was still injured and unable to work. Had his employer carried WC insurance, not only would his medical costs have been covered, it would have also received 70% of his salary while he recovered. This is an all too common scenario in Texas when workers get injured and their employer doesn’t carry WC insurance.
So if Texas companies aren’t required to carry WC insurance, how do they manage workplace injury costs? The answer is surprising and not very reassuring for workers. They’re able to use what are called “opt out” or “alternative” plans. According to Houston injury attorney James Grantham, typical opt-out policies have language stating “is not covered” for various work related injury medical costs, whereas workmanship compensation policies state “is covered.” These plans also allow employers to assign their own appointed doctors to manage cases. As described above, these doctor’s rarely, if ever, advocate on behalf of injured workers and instead help the employer skirt responsibility and associated medical costs.
Mr. Grantham had some colorful and angry things to say about this practice and Texas employers who use and benefit from it. Apparently he’s overrun with injured clients who’ve been victimized by the law and are seeking justice from their employers and payment for their medical bills. As Mr. Grantham went on to explain, it rarely works out well for the employee because these large employers have the resources to fight and drag out lawsuits for years. Since most workers can’t wait it out, nor pay legal costs, they often end up settling for much less than what’s needed to cover their medical and other associated costs. Mr. Grantham explained that due to these long odds, 6 out of 10 injured workers never bother to sue.
The concept behind Workman’s Compensation insurance is that companies will provide this injury benefit, so that workers won’t sue them when they get injured at work. Opt-out, or alternative, plans are built around the concept that it’s easier and cheaper to fight these lawsuits, than it is to buy and manage WC insurance. Based on the Vice story and Mr. Grantham’s comments, the alternative plan concept is apparently working.
So what happens to these injured workers? They often end up turning to government subsidies for help, in the form of food stamps, low cost housing, and state funded hospital emergency rooms. In effect, the costs that should be paid by the employer end up shifting to the government so that tax payers end up footing the bill.
Some employers argue that workmanship compensation insurance is fraught with problems, including abuse when workers file fraudulent claims so they can get paid for not working. When worker succeed in doing this, employers end up paying when their EMR, or experience modification rate, goes up.
EMR determines what a particular company pays for their workmanship compensation insurance. The higher the EMR, the more expensive the insurance. EMR calculation includes a number of factors including industry, number of employees, location, claims history, etc. It also includes the overall costs of claims, so even fraudulent claims can impact EMR in a way that hurts employers. Here’s a quick summary of how EMR impacts premium costs: an EMR of “1” essentially means that a company is paying a fair cost for their insurance. In other words, a “1” translates, or is equivalent, to what underwriters believe a company should be paying assuming no negative impacts such as a high claims history, etc. But when claim costs go up, so does EMR along with premium costs. For example an EMR of 1.2 means that an employer is paying a 20% penalty for their coverage, an EMR of 1.5 means that the employer is paying a 50% penalty, and so on. Once EMR goes up, it can take years for it to go back down, and that’s assuming that the employer succeeds in reducing injuries and claims. High EMR can also result in lost business for companies who work in industries where their clients scrutinize and monitor safety performance indicators such as EMR, TRIR and DART (OSHA safety and injury rate scores).
Workmans compensation fraud is a major problem in the US. According to the National Insurance Crime Bureau, workers’ comp fraud totals $7.2 billion a year!. The Texas Department of Insurance notes that insurance fraud is the second most profitable crime after drug trafficking.
Many carriers write fraud off as a cost of business, but Texas Mutual, TX’ largest carrier, takes it seriously. Learn more about WF fraud and statistics here:
I have owned and operated 4 different industrial service businesses, all of which exposed my employees to significant health and safety hazards. As a result, I’ve always purchased WC insurance, not only to protect my employees but also my businesses. It’s expensive, but well worth the cost in my opinion. It’s always boggled my mind when my competitors chose to not provide WC coverage for their employees, and made it tougher to compete against them, but that never impacted my decision to buy the insurance. In the 17 years of carrying this coverage, I’ve only experienced one suspect claim from an employee, but it was a very expensive and frustrating claim. That employee ended up receiving salary benefits for several years, while not having to work, and may still be receiving them of all I know. I shut down that business in 2012, but if i hadn’t, my EMR would have gone through the roof and probably cost me $10s of thousands of dollars had I continued to operate.
It was a very eye opening experience for me, and taught me the importance of not only implementing and managing a solid OSHA compliant health and safety program to help prevent injuries in the first place, but also a solid “case management” and “return to work” program to reduce workers compensation costs. These programs help employers to properly manage claims to minimize lost time and associated medical and claims costs, not to mention fraudulent claims. The bigger the company, the more important these programs become due to the number of employees.
As you can see, Workmans Compensation is a complicated subject, and is more so in Texas where it’s not required. Despite the prevalence of fraud, overall it succeeds in its mission to protect both injured workers and employers. Companies should take note of this and purchase this invaluable insurance, even if the state of Texas doesn’t require it.
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