Dropping state-sponsored workers’ comp dropped Texas rates by 44%

A new report from Stanford Law finds that company costs fell significantly in Texas after opt-out legislation was passed

Insurance News

By Lyle Adriano

A study from a Stanford law professor revealed that companies in Texas that have replaced state-sponsored workers’ compensation for private plans saw their costs reduce significantly, by as much as 44%.

Texas was the only state without a compulsory workers’ compensation law by 1996, and by then 39% of all firms operating in the state opted out of the program.

Professor Alison Morantz’s study assessed all the injury and illness claims filed by employees of 15 major, Texas-based companies that withdrew from workers’ compensation between 1998 and 2010. Those companies that withdrew offered private benefit plans to replace the workers’ compensation system.

While workers’ compensation allows companies to avoid large lawsuits from their employees in the event of accidental workplace injury, as well as to circumvent paying the high costs associated with private insurance, Morantz’s study revealed that “companies are not accruing any additional costs from shouldering tort liability.”

The study found that of the 15 companies surveyed, 13 added mandatory arbitration clauses to their private occupational benefit plans, which helped mitigate the risks of large jury awards against them.

Notably, the report discovered that while the legal fees of the companies surveyed did not rise, they were still able to significantly reduce their occupational injury costs. The paper found that the companies’ costs per worker-hour plummeted by about 44%—this meant a reduction from approximately 4 cents per worker-hour under workers' compensation to about 8 cents with private plans.

Morantz’s paper also pointed out that not only did companies see fewer serious claims related to loss of work, but the costs per claim were virtually halved. This meant employers saved an estimated $1,900 per claim on both medical and wage-replacement costs.

In her paper, Morantz suggested that certain features of private voluntary plans have indirectly helped drive down company costs: “the lack of permanent partial disability benefits; caps on the total benefits individuals can receive; categorical exclusion of many diseases and some (mostly non-traumatic) injuries; and elimination of chiropractic coverage.”

She also posited that the shorter reporting windows of private plans for injuries, typically within the employee’s work shift, compared to 30-day window allotted by the state workers’ compensation system could be another factor in reducing company costs.

Keep up with the latest news and events

Join our mailing list, it’s free!