Texas Workers’ Compensation System’s Path to Wellness

Since 2003, insurance rates in the Texas workers’ compensation system have dropped by nearly 72 percent, according to a new study released by a research group within the state’s insurance department.

In 2003, the Texas workers’ compensation system was in dire straits. Medical costs per claim were high, return-to-work rates were dismal, and satisfaction with care was low. Workers’ comp insurance was expensive and hard to find.

Legislation approved that year, as well as in 2001, ushered in some reforms, but House Bill 7, passed by the Texas Legislature in 2005 has had a greater impact, transforming the state’s workers’ comp system from one of the least weakest in the U.S. to one of the healthiest.

The sweeping reorganization of the system initiated by HB 7 implemented reforms that included creating medical networks to help rein in skyrocketing costs and abolishing the Texas Workers’ Compensation Commission, replacing it with the Division of Workers’ Compensation housed within the Texas Department of Insurance. The DWC’s first commissioner, Albert Betts Jr., appointed by then-Gov. Rick Perry, now serves as executive director of the Insurance Council of Texas.

The 2005 bill called for the creation of the Workers’ Compensation Research and Evaluation Group (REG) within TDI. Under the bill, REG and TDI-DWC are required to release by Dec. 1 in every even numbered year a report to the legislature analyzing the impact of HB 7 reforms on the state’s workers’ comp system.

The REG is tasked with reporting on the affordability and availability of workers’ comp insurance. Its most recent report, Setting the Standard, An Analysis of the Impact of the 2005 Legislative Reforms on the Texas Workers’ Compensation System, released on Dec. 1, looks at data through 2019 to create a picture of the changes that have occurred in the system since 2005.

The total written premium for Texas workers’ compensation insurance was $2.52 billion in 2019, with 312 insurers writing policies. While the market is competitive, with hundreds of insurance companies writing workers’ comp business in the state, it is nevertheless “moderately concentrated,” with the top 10 insurance groups by market share writing 76% of the market.

Texas Mutual Insurance Co. leads the way with a market share of 42% and $1.069 billion in premium in 2019. Previously operating as the Texas Workers’ Compensation Insurance Fund, which was created in 1991, Texas Mutual was transformed by lawmakers in 2001 into a workers’ comp insurer of last resort that would write voluntary business and compete in the marketplace. The transition moved the Fund’s policyholder surplus — $650 million at the time — out of the reach of state government. While initially created by the legislature, Texas Mutual is not affiliated with the state, though five of its nine-member board are appointed by the governor and it is prevented by statute from expanding into other states.

Top 10 Texas Workers’ Comp Groups in 2019

Company	Market Share
Texas Mutual Ins Co	42%
Travelers Group	7%
Liberty Mutual Group	5%
Zurich Ins Group	5%
Hartford Fire & Cas Group	5%
Chubb Ltd Group	4%
American Intl Group	2%
WR Berkley Corp Group	2%
CNA Ins Group	2%
BCBS of MI Group	2%

Source: TDI

The workers’ comp market for the last 10 years has been profitable overall, according to the report. It enjoyed double digit underwriting profit for many of those years. In 2019, the combined ratio increased to its highest level during the decade but remained marginally profitable with a combined ratio of 98%, the report states. The market has experienced a 10-year average return on net worth of 10%, outperforming the national average of 7.4 percent.

Not only were there large rate decreases in the years following HB 7, there also have been large declines in recent years, coinciding with lowered rate bases.

“Rate bases include the National Council on Compensation Insurance (NCCI) advisory loss costs and TDI relativities. Since NCCI’s initial Texas filing in 2011, loss costs have decreased by nearly 46 percent, while TDI relativities decreased about 44 percent through 2019. Insurers generally must file to adopt one of these rate bases each year. Senate Bill 1336, 86(R), repealed the relativities as of July 1, 2020. The TDI relativities are no longer produced by TDI or used by insurers, and all insurers have adopted NCCI’s loss costs,” the report states.

COVID-19

The impact of the COVID-19 pandemic is not fully represented in the most recent REG study. However, the Texas Division of Workers’ Compensation reported in early November that as of Sept. 27, workers’ comp carriers had reported more than 25,000 COVID-19 claims and 103 fatalities to the state’s regulators. The numbers cover virus-related claims reported to insurers through June 30, 2020. In addition, around 22% more overall workers’ comp claims were reported to DWC from January to August 2020 than during the same period in 2019. The report, Covid-19 in the Texas Workers’ Compensation System, showed the majority of the claims and fatalities specific to the COVID-19 pandemic during the time studied involve first responders and correctional officers/prison workers. The report is based on responses to a DWC data call of 66 selected workers’ comp insurance companies. The information submitted by insurers as of Sept. 27 is limited to benefits paid as of Oct. 8 on claims reported to carriers as of June 30.

Networks

The workers’ comp medical networks authorized by HB 7 must be certified by TDI. A carrier may choose to contract with a network or create its own. Employees of companies that opt to participate in their insurer’s network “are required to obtain medical care through the network, provided that the injured employee lives in the network’s service area and receives notice of the network’s requirements from the employer,” according to the report.

As of June 1, 2019, TDI had certified 30 networks covering 254 Texas counties to provide workers’ comp health care and 21 were actively treating injured employees.

“Overall, TDI has received relatively few complaints about certified health care networks given the fact that about 1.1 million injured employees have been treated in these networks since 2006,” according to the report. Between 2006 and 2019 TDI received 1,913 complaints about certified networks; about 25% were deemed justified.

According to the study, 80% of injured workers say the “medical care for their work-related injury was as good or better than their routine medical care.” Additionally, the wait period to receive non-emergency medical care has been cut in half since 2011.

More injured employees receiving income benefits are getting back to work within six months — 83 percent compared to 74 percent in 2004.

Other highlights of the system cited by the report include:

“In 2001, Texas was among the highest nationally in terms of medical costs per claim, according to a multi‐state comparison by the Workers’ Compensation Research Institute. Today, Texas’ cost per claim at 12 months maturity is about 24 percent less than the median cost of the 18 states in the analysis, which included Florida, Pennsylvania, Louisiana and Illinois.
Despite medical cost inflation and annual increases in the medical fee guideline, the average professional medical cost per claim has not changed significantly from 2005 to 2019 for lost-time claims. Average medical cost per claim did increase for medical-only claims during this same period.
From 2005 to 2019, overall hospital payments increased from about $270 million in 2005 to $396 million in 2019. Average hospital costs per claim at six months post-injury have doubled since 2005 for both lost-time and medical-only claims. The reason for these cost increases appears to be a rise in inpatient and outpatient hospital costs per claim over time.”

Nonsubscription

Under the workers’ compensation law enacted in 1913, private employers in Texas are allowed to opt out of participation in the workers’ comp system, or “nonsubscribe.” While several states provide for exemptions to mandatory workers’ comp, Texas is the only state that lets private employers opt out completely. Those that do lose the protection of statutory limits on liability provided under workers’ compensation and may be sued for negligence by injured employees.

Employer nonsubscription rates in the private sector remained essentially flat from 2018 to 2020, moving from 28% to 29%. However, employer subscription rates since 2016 remain the highest rates since the first employer survey in 1993, according to the report.

In 2020, an estimated 19 percent of private-sector employees did not have workers’ comp coverage, down from an estimated 24 percent of employees without such coverage in 2004.

Employer nonsubscription rates are highest for the smallest companies as well as the largest. Employers that do not purchase workers’ comp often cite the following reasons for nonsubscription: “too few employees (63 percent); too few on-the-job injuries (56 percent); workers’ compensation wasn’t required by law (59 percent); and insurance premiums are too high (48 percent),” the report states.

Among the reasons employers give for providing workers’ comp coverage are the ability to participate in a network, the perception it is a legal requirement, protection from lawsuits and decreased workers’ comp insurance rates.

Even if an employer opts out of the workers’ comp system, it doesn’t necessarily mean the company’s workers are unprotected for workplace illness and injury, as nonsubscribing employers often participate in alternative injury benefit programs.

According to the Association for Responsible Alternatives to Workers’ Compensation (ARAWC), the fact that nonsubscription rates have remained consistent in recent years shows that the market is stable and competitive.

“The REG report highlights a continued, stable marketplace in Texas. As I’ve stated for years, one of the major components for Texas’ success is competition. Employer choice has helped Texas remain the number one state to do business, and this REG report is more evidence of that fact,” Ryan Brannan, a former Texas Commissioner of Workers’ Compensation and a consultant to ARAWC, said in a statement.

Responding to the latest REG report, ARAWC cited in a media release potential reasons for the continued market stability:

“Texas injury benefit programs have matured very favorably over the past five years, and gained credibility through:

Removal of exclusions and limitations on coverage,
Clarity in the same goals as workers’ comp and how they achieve those goals,
Proof that injury benefit plans commonly pay better wage replacement benefits,
The QCARE designation that confirms the key components of and recognizes employers that sponsor responsible injury benefit programs, and
More credible research on the better medical outcomes achieved by these programs.”

ARAWC also pointed out that none of the studies conducted by the REG “considered marketplace data available directly from ARAWC or legacy organizations that have represented employers that sponsor Texas injury benefit programs.”