Percentage of Non-Subscribers in Texas Workers’ Comp System Falls

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The percentage of companies that don’t participate in the Texas workers’ compensation system has fallen to the lowest level since 1993, the agency that regulates this line of insurance in the state has reported.

In its Biennial Report to the 85^th Legislature, issued this month, the Texas Division of Workers’ Compensation noted that the percentage of “private, year-round employers that were non‐subscribers to the workers’ compensation system decreased significantly, from 33 percent in 2014 to 22 percent” in 2016.

The DWC estimates that 82,260 Texas employers were non-subscribers in 2016.

Texas is the only state in which any private employer may choose not to participate in, or non-subscribe to, the workers’ compensation system without being penalized. Oklahoma’s Option, in which certain employers were allowed to develop their own plans for compensating injured employees under federal ERISA rules, was ruled a “special law,” and therefore unconstitutional, by that state’s supreme court earlier this year. Some states do allow exemptions for certain small employers in specific industries, the DWC noted.

Texas companies that choose to non-subscribe may be subject to negligence lawsuits brought by injured employees.

The DWC attributes the decline in Texas non-subscription participants in part to the fact that workers’ compensation insurance rates have dropped significantly in each of the last two consecutive years.

While there’s been more than a 10 percent decline in employers choosing to non-subscribe, the actual number of employees who work for non-subscribing companies decreased by only 2 percent from 2014 to 2016, the DWC reported. The agency attributes this difference in percentages to the fact that many smaller employers entered or re-entered the workers’ comp system 2016.

“Although the majority of non‐subscribing employers are small employers, about one out of every five large employers in Texas (employers with 500+ employees) does not participate in the workers’ compensation system primarily because they believe they can more effectively manage costs and ensure that their employees receive appropriate benefits as nonsubscribers,” the report states.

The two-year reduction in non-subscriber rates encompassed all employer sizes, and with the exception of mining/utilities/construction most Texas industry sectors saw a reduction in non-subscription rates.

About 23 percent of employers choosing not to participate in the workers’ comp system in 2016 provided “an alternative occupational benefit plan for their employees in case of a work-related injury,” the report states. The DWC noted “that these non‐subscriber benefit plans are not regulated by DWC and the benefits offered in these plans vary by employer.”

The DWC estimates that some 414,000, or about 4 percent, of private-sector employees in Texas were not covered for a work-related injury in 2016. That compares with around 470,000 employees, or an estimated 5 percent, without such coverage in 2014.

Non-subscribers to the Texas workers’ comp system are required to report their status annually to the DWC. Companies that fail to comply to the reporting requirements may be subject to enforcement actions and penalties of up to $25,000 per day per occurrence.

The DWC acknowledges, however, that without complaints from system participants, identifying those who do not comply with reporting requirements is a challenge. The agency said it has had some success with increased education and enforcement efforts in recent years, to the extent that “nearly half of the penalties levied against non‐subscribers [since 2009] were assessed in the last four years.”

Non‐subscriber reporting compliance remains low, despite a grace period allowed in 2016 for non-subscriber reporting. Required filings by non-subscribers of employee work-related injuries also remain low, the DWC said.

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Topics Texas Workers' Compensation

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