Deciding About Mandatory Workers’ Compensation in
For more information contact Allen Cooper, (512) 474-0007 ext. 208
Should
Proponents of mandatory workers compensation argue that there is no longer a need for the ‘safety valve’ option of non-subscription because comprehensive reforms of 2005 have lowered premiums and attracted employers back to the workers compensation system. Opponents of mandatory workers compensation argue that non-subscription should always be an option, because non-subscribers have low accident rates, offer quality private occupational injury benefit plans, and are reinvesting workers comp savings in job creation and community contributions. [1] Which side should a policy maker believe? There is currently insufficient data available to make a good decision.
The
But there is very little information available to the policy maker about the non-subscriber system. Most of the non-subscriber claims are anecdotal and not supported by independent research. The State of
More than 1.7 million Texans are employed by non-subscribers and there is an urgent need for more data about the experiences of non-subscriber injured employees. To decide whether non-subscription should continue to have a place in the Texas Workers Compensation System, lawmakers need better data about what actually happens to employees of non-subscribers when they are injured. This paper will review data currently available about non-subscribers, and recommend new data collection approaches.
A. Non-subscription in
The original Texas Workers’ Compensation Act of 1913 allows any employer to opt out of the Workers’ Compensation System. Non-subscribers to Workers Compensation insurance may be sued for negligence by employees, and before 1989 this prospect discouraged most employers from ‘going bare.’ But since then the non-subscriber option has been transformed from a last-resort refuge from the workers comp system to a full-fledged alternative occupational injury risk-management system. Currently 37 percent of
Policy makers frequently describe the non-subscription system as a market mechanism to measure the ‘health’ of the Workers Compensation System.[2] Policy makers have assumed that as Workers Compensation insurance rates fall, employers will return to the Workers Compensation System. But non-subscription has remained a popular option even as Workers Compensation insurance rates have fallen. In fact the percentage of non-subscriber employees in 2006 was the second-highest ever reported, and non-subscription rates rose fastest among businesses with 500 or more employees.[3]
There is no longer a reason for policy makers to believe that reform of the Workers Compensation system alone will affect the number of employers choosing non-subscription. Non-subscription has developed as an alternative system to Workers’ Compensation Insurance, and the interests of non-subscribers are effectively represented by two industry groups, the Texas Association of Responsible Non-subscribers, and the Texas Alliance of Non-subscribers.
Policy-makers must decide whether non-subscription is good public policy for
B. Key Issues and Questions: A Review of Available Data
The debate about mandatory Workers Compensation centers on a number of key issues. Parties on both sides often cite studies and data which they claim support their position. Two examples are the position papers by Bill Minich and Richard Geiger which were recently published by the Insurance Council of Texas.[4] A close review of the data cited reveals that no reasonable person would find it adequate to support the positions advanced. Key issues and available data will be reviewed here.
1. Which
The first obvious question is: which
An open records request to determine the actual number of non-subscribers submitting the DWC-5 form turned up evidence of widespread non-compliance with the requirement. The request revealed that 76,961 employers had lapsed workers compensation coverage (they let their workers compensation coverage expire, but did not submit the required DWC 5 form.) An additional group of employers had submitted the DWC-5 form at some point in the past, but not in the current year as required by law.[5]
Employers who fail to submit a DWC-5 form are subject to administrative penalties, but the open records request revealed that since the year 2000 no administrative penalties have been collected for noncompliance.[6] Division of Workers Compensation staff stated that enforcement of these requirements was not a priority for the agency, and was not given significant resources.
It is therefore not presently possible to accurately identify all non-subscribing employers.
2. Are non-subscriber workplaces safe?
Non-subscribers are also required to report workplace injuries that result in more than one day of missed from work using the DWC-7 form. But it appears that this requirement is also widely violated. An open records request Open Records Request revealed that nonsubscribers reported 8,641 lost-time injuries in 2005, and the majority of the forms submitted had incomplete information.[7] By contrast, subscribers to workers’ compensation insurance, who employ 77 percent of the private sector workforce, reported more than 122,000 workplace injuries.[8] Underreporting is the only plausible explanation for such a wide discrepancy.[9] Division of Workers Compensation employees informed the author that the DWC-7 form was useless for statistical purposes because non-compliance with the requirement is widespread.
Non-subscribers with 10 or more employees are also subject to OSHA accident reporting and record keeping requirements. But this information is not helpful to the policy maker since the federal reporting requirement only extends to workplace fatalities, not injuries. In his essay Bill Minich mentions a private study of workplace injuries among a select group of non-subscribers, but he declined to make this study available to the public or to the author, so its conclusions cannot be relied on.
Regarding occupational safety at non-subscriber workplaces, no conclusions can be drawn based on currently available data, except that non-compliance with current reporting requirements is widespread.
3. Is the tort system an adequate remedy that is reasonably available to injured workers?
Under
One example will illustrate the problem with judgment-proof employers:
Oscar Macias’s back was broken in four places on
In his essay Bill Minich states that in 34 cases injured employees have been awarded judgments against non-subscribers exceeding $1 million.[10] But if the non-subscriber employer is insolvent, it is impossible for an injured worker to use the civil justice system to be compensated for the injury. We know that in 34 cases non-subscribers have paid more than $1 million, which appears to be a modest number in a state where more than 400 workers each year are killed in workplace accidents. But it is currently unknown how many injured
4. Do non-subscriber occupational injury plans offer adequate medical and wage replacement benefits?
The state estimates that 58 percent of non-subscribers (accounting for 88 percent of non-subscriber employees) offer some sort of private occupational injury plan.[11] Do these plans offer adequate medical and wage replacement benefits? This question cannot be answered at this point. There is very little information about the kind of benefits available in these plans, and almost no information about benefits actually provided to employees.
The Texas Division of Workers Compensation contracts with Texas A&M to conduct a survey of a random sample of non-subscribers. The most recent survey, conducted in 2004, contains responses to questions about whether benefit plans are provided, what kind of benefits are provided, whether these benefits are capped, and whether liability waivers and arbitration is used. But the data provided in this survey is self-reported by employers and is anonymous, with no penalties for fraud. There is no data about the actual experience of injured employees.
Non-subscriber proponents sometimes cite a 1994 survey of employees to claim high levels of employee satisfaction, but this study is outdated, and a review of the study by the author indicates it has been misquoted and taken out of context by non-subscriber proponents.[12]
Private non-subscriber plans are not publicly available, and both non-subscriber associations declined requests to provide copies of the plans. The author has reviewed copies of two company plans obtained directly from employees, and the benefits are inferior to that available under the Workers’ Compensation system.[13]
Three differences stand out:
1) Total benefits are capped at $250,000 per injury, regardless of the severity of the injury, whereas lifetime medical treatment is available under the state system.
2) Most injuries must be reported the same day of the event, rather than within 30 days of the event.
3) Dispute resolution consists of review by company-controlled committees, followed by binding arbitration, with no possibility of judicial review.
These plans are not available to the public, and it is currently impossible to know what benefits have been provided to injured workers under them.
5. Are injured workers seeking benefits under non-subscriber plans adequately protected?
Most non-subscriber occupational injury plans have dispute resolution provisions, but it is unknown how injured employees who dispute decisions fare under these provisions. The plans reviewed by the author contained dispute resolution procedures that strongly favor the employer, by prohibiting judicial review, allowing the employer to pick the company providing the arbitrator, and requiring the employee to pay a portion of arbitration costs.
An example of the difficulties an injured employee may encounter is the case of an employee working at a machine shop who filed a claim for treatment for carpal tunnel syndrome. His identity is withheld here because the dispute is ongoing. The employee had worked for the employer for five years when he went to a personal doctor after straining a muscle in his arm, and the doctor diagnosed carpal tunnel syndrome. He reported the injury, and was told that he had to see a doctor under contract with the company’s plan, but that he would have to sign an arbitration agreement first. He did not want to sign the arbitration agreement, but the human resources director told him as he was signing, “if you disagree with anything, you can still sue,” even though the document stated he was giving up his right to a jury trial. After being seen by this doctor, who also diagnosed carpal tunnel syndrome, the plan administrator rejected the claim because the injury was reported a day after the muscle strain, rather than the same day the strain occurred. The employee appealed the denial. More than three months later, as the employee continued to suffer pain and lose sleep and muscle mass due to the pain in his arms, the appeal was denied by a committee whose membership the company refused to reveal to the employee. Now the employee has the option of seeking arbitration, but he will have to pay half the cost of arbitration, and will have to accept the arbitrator of the company’s choice.
Many non-subscriber plans are registered as benefit plans under the federal Employment Retirement Investment Security Act (ERISA) and under that law employees have the right to sue to make sure they receive the benefits they are due under the plan. Many non-subscriber proponents point to this federal law as ensuring that employees receive fair treatment. It is unclear, however, what sort of protections this in fact provides to employees. A search on the Lexis-Nexis legal database revealed no reported cases in which an employee of a non-subscriber has invoked the ERISA protections in a dispute over plan benefits.[14] The ERISA provisions confer substantial benefits on the employer, however, since federal preemption protects the employer from contract claims under state law and from state regulation.
It is currently unclear whether employees seeking benefits under the plan are protected.
C. Conclusion and Recommendations
The National Commission on State Workmen’s Compensation Laws, established by Congress in 1970, identified five basic objectives of a modern worker’s compensation program. The objectives are: 1) broad coverage of employees and work-related injuries and diseases, 2) substantial protection against interruption of income, 3) provision of sufficient medical care and rehabilitation services, 4) encouragement of safety, and 5) an effective system for delivery of the benefits and services.
There is broad agreement that the formal Texas Workers’ Compensation system has achieved these objectives, but
The question before us is whether the 1.7 million Texans employed by non-subscribers will enjoy these same protections and benefits if injured at work.
Some proponents of non-subscription argue that they do, but a careful review of available data makes it clear that there is not enough information on the record for the policy maker to decide if non-subscription should continue to have a place in the Texas Workers’ Compensation system.
The following actions should be taken:
1) The
2) For each injury reported, the non-subscriber employer should also be required to report the benefits provided to injured workers. The following information should be reported: a) total medical cost of treating accident, b) cost of medical treatment paid for or provided by employer, c) total lost time by employee, d) cost of salary replacement paid by employer, and d) cost of any other settlement paid by the employer.
3)
4) The
[1] The Texas Alliance of Non-subscribers states on its website that “non-subscription offers employees timely and effective medical treatment” and that “non-subscription savings allow for job creation [and] increases in employee salaries and benefits.” The website is http://www.nonsubscriberalliance.org/nonsubscription.php?PHPSESSID=29233e99fa53b3925e67395b901529de and was last visited
[2] 2006 Biennial Report p. 5.
[3] P. 7-8
[4] “Is It Time for Mandatory Workers’ Compensation Coverage in
[5] Texas Department of Insurance, Division of Workers’ Compensation, Open Records Request # 56532, “Subscriber CD Containing Both Old Mainframe Version & New Texcomp Version,” October 31, 2006.
[6] Texas Department of Insurance, Division of Workers’ Compensation, Open Records Request # 57120, November 14, 2006..
[7] Texas Department of Insurance, Division of Workers’ Compensation, Open Records Request #56533, “Totals Count of TWCC-7 (DWC-7) List of Records with all Confidential Data Redacted,” November 15, 2006..
[8]
[9] Inexplicably, injury reporting requirements are different for non-subscribers and subscribers. Non-subscribers must report injuries resulting in two or more lost days, while subscribers must report injuries resulting in one or more lost days. But this difference is not enough to account for the discrepancy.
[10] The essay does not indicate the period of time in which the cases occurred.
[11]
[12] For example, in Bill Minich’s essay he claims the study concludes that 87% of employees of subscribers and non-subscribers reported having all medical costs paid. But according to the study, this group is a subset of employees who reported having some of their medical costs paid. Of nonsubscriber employees 13% had no medical costs paid, compared to 6% of subscriber employees. In other words, Minich’s claim is that nonsubscriber employees got the same level of benefits as subscribers, so long as you don’t consider the nonsubscriber employees who got nothing.
[13] The plans reviewed are for Pilgrim’s Pride Corporation and Rob Roy Industries.
[14] Lexis Nexis search by author,
