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You are here: Home . reports . wcreg . nonsub93

A Study of Nonsubscription to the Texas Workers' Compensation System

EXECUTIVE SUMMARY

The purpose of this study is to describe the characteristics of Texas employers that have not obtained workers' compensation insurance coverage (hereinafter referred to as "nonsubscribers"), to gauge the size of this group relative to those employers in the Texas workers' compensation (WC) system, and to assess the occupational and nonoccupational benefits available to employees of nonsubscribers. 1 Three major data collection and analysis efforts were undertaken including:

  1. an analysis of data on employers from both the Texas Workers' Compensation Commission (TWCC) and the Texas Employment Commission (TEC) to select a sample and provide initial data on subscription to the WC system;
  2. a survey of Texas employers; and
  3. in-depth case studies of several employers' benefit programs.

Based on our analysis of TEC, TWCC and survey data, we estimate that 44 percent of Texas employers are nonsubscribers, and 20 percent of Texas employees are employed by non-subscribing employers. Nonsubscription increases as the size of the employer decreases. Forty percent of employers with two to five employees are nonsubscribers compared to 12 percent of employers with more than 1,000 employees.

Nonsubscription rates vary across type of industry. Nonsubscription is highest among manufacturing (53 percent), finance (51 percent), and wholesale/retail (49 percent) employers, and lowest among transportation (38 percent), construction (37 percent), and health service (30 percent) employers. 2 The percentages of employees working for nonsubscribing employers are highest in wholesale/retail (33 percent), agriculture (32 percent), and health services (30 percent), and lowest in construction (11 percent), transportation (9 percent), and mining (5 percent).

An estimated 38 percent of nonsubscribers were previously in the WC system. Of those who have dropped out of the system, 28 percent left before 1990, 36 percent left in 1990, and fewer left in subsequent years (16 percent in 1991 and 12 percent in 1992). 3 By far, the most important reason given by respondents for opting out of the WC system was the cost of being in the system.

An estimated 35 percent of the nonsubscribing employers surveyed indicated they pay occupational benefits, which includes four percent providing only wage replacement benefits, four percent providing only medical benefits, and 23 percent providing both. 4 Among respondents, there is a substantial difference in benefits offered between large and small employers. Ninety-four percent of the large employers provide occupational benefits, while 30 percent of the small employers provide occupational benefits. 5 Thirty-three percent of employers with 50 or fewer employees provide occupational benefits compared to 91 percent of employers with more than 50 employees. These size related differences indicate that the percentage of workers covered by an occupational benefit plan is fairly high. Seventy percent of employees work for employers that provide some form of medical benefits and 64 percent of employees work for employers that provide wage replacement benefits. Sixty-two percent of employees work for employers with both medical and wage replacement benefits.

The majority of employers with an occupational benefit plan pay for these benefits "out of pocket" rather than through insurance. Seventy percent pay wage replacement benefits out of pocket, and 55 percent pay medical benefits out of pocket. There is relatively little difference between large and small employers in terms of whether they pay benefits out of pocket.

There are several different types of insurance policies being offered to nonsubscribers on both an excess and first-dollar basis. Some policies are being offered on a "services provided" basis, which means insurance payments stop if a policy is subsequently terminated. This is different from workers' compensation insurance policies which covers all costs associated with a compensable injury, regardless of when those services are provided.

Of the 35 percent of nonsubscribers with an occupational benefit plan, 43 percent have the plan in writing. Among nonsubscribers with plans, a greater percentage of large employers have a written plan (80 percent for large compared to 36 percent for small). Seventy-four percent of employees of these nonsubscribers with a plan are covered by a written plan.

An estimated 23 percent of all nonsubscribers carry employer's liability insurance. The lack of liability coverage is more prevalent among nonsubscribers that do not provide occupational benefits. Large employers are more than twice as likely as small employers to have liability insurance (53 percent compared to 21 percent).

In addition to the analysis of the survey data, a handful of specific examples of formal nonsubscriber benefit programs were reviewed in detail. The programs reviewed generally include first-dollar medical coverage, some percentage of wage replacement and, in some cases, accidental death and dismemberment coverage. Although there is substantial variation among the programs, the data suggest these programs offer more limited total benefits than are available through the WC system. In particular, many of the handful of programs reviewed in depth had medical and wage loss benefits comparable to workers' compensation medical and temporary income benefits, while none of these example programs had benefits comparable to impairment, lifetime or supplemental income benefits in the WC system. However, some of the nonsubscribers indicated they may extend benefits of employees who have exhausted their formal benefits on a case-by-case basis.

This study highlights two issues:

  1. The perceived cost of the WC system is an important determinant of employer behavior; and
  2. Formal benefits are generally more limited outside the WC system.

This raises several questions for future research:

  • Are nonsubscribing employers relatively low risk employers who view workers' compensation insurance as too costly for the value received, or are nonsubscribers relatively high risk employers who see an opportunity to avoid the costs of this risk by not subscribing?
  • What are the workers' perceptions of subscription versus nonsubscription, particularly with regard to such factors as the type and amount of benefits available, the level of service provided, the effect on labor relations, the effect on workplace safety, the effect on wages, the extent of fraud, etc.?
  • How accurate are employer perceptions about the cost of workers' compensation insurance and the cost of alternative coverage? and
  • How do injury rates differ, if at all, between subscribing and nonsubscribing employers?

Footnotes:

  1. While the term "nonsubscriber" is not used in the Texas Workers' Compensation Act, it will be used in this report to refer to employers who do not have workers' compensation insurance coverage. Employers that have workers' compensation coverage will be referred to as "subscribers".
  2. Public administration and education employers were not included in this survey because of an anticipated low nonsubscription rate. The nonsubscription rate for these industries was estimated to be about eight percent for employers and three percent for employees using TWCC and TEC data only.
  3. Reported percentages sum to 92 percent rather than 100 percent. Excluded categories include "Don't Know" responses and those leaving in the partial year of 1993.
  4. The remaining four percent stating they provide occupational benefits did not identify the type of benefits provided.
  5. Except where specifically noted otherwise, small employers are defined as those with 10 or fewer employees and large employers are defined as those with over 100 employees. The groups from 11 to 100 employees are reported in the tables in the appendix, but are usually ignored in the discussion since they typically fall between the two groups described. Tables dividing the sample into large and small using 10, 25 and 50 employees are reported in the appendix.


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Last updated: 09/06/2014

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