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Texas Companies Save Millions by Opting Out of Workers' Comp, Study Finds

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This week, a Stanford University law professor released a study that found that 15 large Texas companies have saved significantly by choosing to opt out of workers' compensation and instead write their own workplace-injury benefit plans. 

According to the findings, by ditching the state system, these companies report a 44 percent cost savings on workplace injuries compared to their sister facilities in states that require workers’ compensation. Though author Alison Morantz didn't publish the raw overall savings, she told the Houston Press that the 15 companies collectively saved tens of millions between 1998 and 2010. These big savings, however, may be coming at the expense of the injured workers on their payroll.

As we reported last month in our feature “Don't Fall Down On The Job In Texas,” Texas is the only state in the country that allows employers to opt out of workers' compensation and leave their workers without coverage. It's one of two states that allow employers to offer alternative benefit plans, commonly called “non-subscription plans.” And those are exactly what Stanford law professor Alison Morantz was studying, looking closely at how employers were saving this much money and what that might mean for injured workers.

One of the surprising areas of cost-savings was legal expenses. Morantz found that, even though the main caveat to opting out is that companies are no longer immune to lawsuits, non-subscribers in Texas are somehow spending significantly less money — 84 percent less — on settlements and attorneys’ fees compared to their costs in other states where workers are protected under workers' compensation. This may mean that the threat of lawsuits is nothing more than a “paper tiger,” as Morantz described it. Part of the reason could be that the majority of non-subscribers (13 out of 15 in the study) make employees sign away their right to sue in court and require them to take their claims to arbitration instead. And employers usually get to pick the arbitrator.

Still, Morantz said, this explains only a small portion of the cost savings. She said that, while some employees with minor injuries may actually be better off under alternative plans, some of the stringent rules in these plans may be resulting in both cost savings and no medical help for many other workers.

“There are clearly workers who are unquestionably worse off, because they may have injuries that aren't even covered at all under these plans,” Morantz said. “So what do they do? They can end up in a really horrible situation.”

In our feature, we reported on several workers who found themselves without coverage thanks to some of those rules in non-subscription plans. Those rules commonly include that workers must report injuries by the end of their shift or within 24 hours, compared to workers’ comp’s 30 days; that benefits cut off after 50 to 120 or so weeks, compared to workers’ comp’s 401 weeks; and that some injuries aren’t even covered at all, like specific types of hernias.

In Morantz's study, she found that the most striking area of cost-savings was with non-traumatic injury claims, such as pulling a muscle in your back or hurting your neck. These are the injuries that employers’ insurance companies are most likely to deny coverage, and that employers may suspect their workers are faking, Morantz said. “These are the ones that tend to be the most controversial and murky to begin with,” she said. “If the doctor can't tell for sure if it's work related, does the employer choose to give the worker the benefit of the doubt?”

According to Morantz, Texas opt-out companies report fewer non-traumatic injuries than their out-of-state sister stores — and the Texas companies also pay less for the employee's medical care each time.
Non-subscribers have always claimed they have safer working environments in the first place, and if workers do get hurt, they get them to doctors faster thanks to the 24-hour reporting rule, resulting in less costly medical care. But to Morantz, having fewer of these injuries could mean one of two things: Companies may actually be investing more in workplace safety, or they’re just turning away more injured workers, even firing them. It’s impossible to tell, because the tricky part, she said, was that she couldn’t study what wasn’t there.

For example, the Houston Press interviewed a Home Depot employee named Belinda Smith who ruptured a disc in her back — but since Home Depot claimed she didn’t report it within 24 hours, she did not receive any help from her employer and had to rely on Medicare. Stories like that one would not appear anywhere in Morantz’s data, because the claim was denied.

Which leaves a lot of room for future research, Morantz said. What she plans to study next is the impact that employers’ 24-hour reporting rule has on injured workers like Smith. “If you have a lot of traumatized or overwhelmed injured people who are denied coverage because they didn't report their injury in 24 hours, then that should be really disturbing,” Morantz said. “It may just not be realistic to ask workers who have just been injured to turn around and report it right away.”

Her research comes at a time when supporters of non-subscription are trying to spread it across the country. Legislators have been considering it in Tennessee and South Carolina, and last year, Oklahoma passed a law allowing companies to opt out as long as their alternative plans provided benefits equal to or better than the state’s system.

But perhaps the dangers of spreading a system the industry still doesn’t know very much about became clear when the Oklahoma Workers’ Compensation Commission came out with its own opinion about the new alternative plans — many of which were authored by a Texas firm. In a ruling, as the social justice magazine Pacific Standard  ProPublica and NPR recently reported*, the commission compared the idea that alternative plans offered “equal” benefits to injured workers to a “water mirage on the highway that disappears upon closer inspection.”

In a letter obtained by Pacific Standard NPR, the U.S. Department of Labor said it was currently investigating whether alternative plans, in both Texas and Oklahoma, violate workers’ rights under federal law.

*Correction March 24, 2:54 p.m.: The story was originally reported jointly by ProPublica and NPR, then re-published on Pacific Standard with permissions. 

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