Questions and Answers About Nonsubscribing to Workers' Compensation in Texas
What is a Texas Nonsubscriber?
The term nonsubscriber is commonly used to identify businesses that do not “subscribe” to workers' compensation in Texas.
The History of Nonsubscription in Texas
Texas enacted its first workers’ compensation law in 1913 and like the laws being enacted by most states at the time, workers’ compensation in Texas was voluntary.
At the begenning of the 20th century workers’ compensation laws were voluntary for a couple of reasons. Specifically, an elective law made passage easier and many felt that compulsory workers’ compensation laws would violate the 14th amendment due process clause of the U.S. Constitution. Since workers’ compensation mandated benefits without regard to fault or negligence, many felt that compulsory participation would deprive the employer of property without due process. The issue of due process was resolved by the United States Supreme Court in 1917 when in New York Central Railway Co. v. White it was held that an employer’s constitutional rights weren't affected. After the ruling most states enacted new compulsory workers’ compensation laws.
Workers’ compensation in Texas remains generally elective meaning that most private sector employers can choose to subscribe to workers’ compensation or operate as a Texas nonsubscriber. Nonsubscription wasn't a major issue until the late 1980s when workers' compensation premiums escalated, on average, 150%. In response, businesses provided injury benefit plans to offer occupational injury benefits to employees as nonsubscribers. A number of these same businesses joined together to form the Texas Association of Responsible Nonsubscribers to assist Texas nonsubscribers with injury prevention, the provision of quality benefits and leading the effort to preserve the option for responsible nonsubscribers.
What is a Responsible Nonsubscriber?
Responsible Nonsubscriber is a term established by TXANS meaning that a nonsubscribing employer has established a specific program to employ sound and ethical practices for injury prevention and the provision of quality benefits when employees become injured on the job.
What are some of the primary components of a responsible nonsubscriber program?
Some of the primary components of a responsible nonsubscriber injury benefit program include:
- A workplace safety program designed to meet the unique needs of the nonsubscribing business.
- A well documented responsible nonsubscriber occupational injury benefit plan that
establishes the provision of workplace injury benefits.
- A program that communicates the programs elements to employees.
Benefit funding, which is typically secured through insurance or a combination of
self-funded and insured benefits.
- Employer/employee selection of quality medical providers to provide exceptional care for
- A program to manage benefit claims
- Programs to prevent and address disputes in a manner that is fair to both employees and
- Regulatory compliance, both state and federal.
Is Nonsubscription an Alternative to Workers' Compensation?
Although employers can provide comprehensive benefits as a Texas nonsubscriber, no program can operate as an exact "substitute" to workers' compensation. To reduce confusion TXANS refers to nonsubscription as an “option” rather than an alternative.
How do Texas Nonsubscribers Differ from Self-Insured Employers?
An employer that chooses nonsubscription is not the same as a certified self-insured employer. Self-insured employers continue to participate in the workers' compensation system. Because they are subject to the laws and regulations associated with workers' compensation, self-insured employers receive the same tort protection as those employers that purchase traditional workers' compensation insurance. Benefits provided by self-insured employers are also strictly regulated and the employer must demonstrate the necessary financial standing to participate in the program.
Why do Businesses Choose Nonsubscription?
Businesses choose nonsubscription for a variety of reasons:
- Cost Reduction - Texas nonsubscribers can avoid many unnecessary costs by developing and maintaining a comprehensive responsible nonsubscriber benefit program.
- Reinvesting Cost Savings - Nonsubscribers can provide additional benefits to their workforce.
- Improved Healthcare - Texas nonsubscribers work with healthcare professionals to develop programs to provide quality care at a reasonable cost.
- Flexibility - Texas nonsubscribers can customize their occupational injury benefit plan to improve the injury costs.
- Improved Safety & Care - Responsible nonsubscribers expend additional resources to prevent injuries and offer quality post-injury benefits and care.
- Survival - Some businesses choose nonsubscription as a means of survival.
- Jobs and Economy - The option has prompted businesses to move to Texas or expand current operations within Texas.
- Better Relations & Higher Productivity – Nonsubscribing employers frequently report improved employee relations and higher productivity.
How Many Businesses Operate as Nonsubscribers in Texas?
The number of nonsubscribing businesses fluctuates, influenced by the relative cost of workers' compensation insurance and the types of insurance available to Texas nonsubscribers. Recent estimates indicate that approximately 114,000 employers operate as nonsubscribers in Texas.
What Types of Companies Choose Nonsubscription?
Nonsubscribing employers represent all types of businesses and range in size from a few employees to Fortune 500 companies with multi-state operations. Nonsubscribers can be found in almost every segment of today's business community. Businesses that cannot afford the high cost of workers' compensation or utilize reasonable measures to reduce costs associated with workers' compensation are more likely to elect to nonsubscribe.
The following industry sectors represent the highest percentages of nonsubscribing employers.
- Arts/Entertainment/Accommodation/Food Services 52%
- Manufacturing 37%
- Finance/Real Estate/Professional Services 33%
- Health Care/Educational Services 44%
- Wholesale Trade/Retail Trade/Transportation 37%
- Agriculture/Forestry/Fishing/Hunting 25%
- Other Services Except Public Administration 42%
- Mining/Utilities/Construction 21%
What Businesses are Barred from Operating as a Texas Nonsubscriber?
Private sector businesses engaged in state building and construction projects and governmental entities cannot operate as a nonsubscriber in Texas.
What are the Benefits Associated with a Quality Nonsubscriber Program?
A nonsubscriber program should be designed to prevent injuries and provide quality injury benefits in a way that balances the needs of employees and the employer. The benefits of a quality nonsubscriber program can include:
- A safer workplace as nonsubscribers are directly responsible for providing a safe working environment
- A more responsive employer as many of the benefit decisions can be addressed at the company level
- Quicker benefit payments as the nonsubscribing employer is more likely to pay benefits directly
- No waiting period on wage benefits as many nonsubscribers pay from the first day of lost time
- Higher lost time benefits as many nonsubscribers exceed workers’ compensation payments for lost time
- Access to quality medical care
- A clear explanation of injury benefits
- A method of having benefit concerns addressed
Insurance for Texas Nonsubscribers
A variety of nonsubscriber insurance options (and benefits) are available to Texas nonsubscribers. The availability of insurance usually depends on the size of the employer (number of employees).
Most small employers utilize accident insurance that pays benefits directly to the employee with a low deductible for the employer. The scope of benefits offered by accident insurance can be limited and in many cases costly injuries may be subject to a maximum dollar amount that is determined by a disability schedule.
Mid-sized employers might utilize a reimbursement policy that allows the employer to submit expenses to the carrier for reimbursement or a pay-on-behalf-of policy that pays on behalf of the employer. Coverage can be obtained for medical expenses, wage replacement benefits, legal costs and damages (which in some cases may include arbitration and mediation costs), occupational sickness, occupational disease and cumulative trauma. While benefits associated with reimbursement and pay-on-behalf-of policies may also be capped, the limits are usually greater than those offered by accident policies.
Larger nonsubscribing employers might employ the use of a several coverage options, including those described for mid-sized employers, excess insurance and stop loss coverage. Excess insurance is written on top of a primary insurance policy and is designed to offer additional coverage for claims that exceed the maximum amount set forth in the primary policy. Stop-loss insurance also provides coverage for costly claims by offering benefits for claims that exceed a pre-determined dollar amount. Unlike excess coverage, stop-loss insurance is not always necessarily associated with other insurance. In the nonsubscriber scenario, stop-loss insurance usually offers coverage for a specific claim that exceeds a pre-determined amount.
Some large nonsubscribing employers might also maintain large retention levels that allow the company to self-fund a portion of its injury benefits while others might purchase insurance to address less-costly claims. Excess and stop-loss insurance typically offer benefits for a wide range of workplace injury benefits, including costs associated with employer liability.
Both workers' compensation insurance and nonsubscriber insurance offer benefits for workplace injuries but the similarities end there. Nonsubscriber insurance (and the related benefits) is not workers' compensation and should not be represented as a substitute or alternative for workers' compensation.
Can Businesses Provide other Benefits as a Texas Nonsubscriber?
One of the primary benefits of a responsible nonsubscriber program is the ability to reinvest recognized cost savings. For example, businesses that might not otherwise be able to afford the cost of healthcare can utilize savings recognized from nonsubscription to provide other benefits like:
- Injury prevention and safety training. All nonsubscribers should invest in injury prevention and increased safety training. In a recent survey of businesses that maintain workers’ compensation, 95% reported that safety positively impacted the company's financial performance. And 61% indicated their company recognized a return of $3 or more for every $1 spent to improve workplace safety.
- Enhanced or increased benefits. Nonsubscribers can reinvest in other benefits like lower deductibles, medical or dental coverage, higher wages, bonuses and more.
- Damage or settlement awards. While only an estimated three percent of nonsubscribers have faced litigation stemming from a work-related injury, the costs related to the payment of damages and settlements cannot be ignored.
- Costs that exceed policy terms limitations. Some claims may require long term medical care or care that is outside the nonsubscriber plan or policy. Savings can be used to create reserves to address long-term or catastrophic claim, taking into account any potential ERISA or tax implications.
- Pricing cycles or fluctuating insurance rates. There are times when market conditions make it cost effective to allow the insurance carrier to assume more risk. Conversely, there are also times when employers may want to assume a higher deductible in an effort to reduce overall premium costs.
Are There Any Downsides to Nonsubscription?
As with any benefit program there are always issues that must be considered and responsible nonsubscription is no exception. The freedom to operate as a nonsubscriber is accompanied by the responsibility to expend the necessary time and resources to ensure the program’s success. Responsible nonsubscriber programs generally require a greater commitment in terms of time and effort than workers' compensation. One of the primary differences between subscribing and nonsubscribing employers is liability.The exclusive remedy doctrine associated with workers’ compensation provides an agreed level of benefits to an injured employee in exchange for a limit on liability, which excludes most negligence claims. Nonsubscribing employers are not protected by the exclusive remedy doctrine. Some legal protections do however exist for nonsubscribers and nonsubscribers can insure their exposure to liability.
What Laws and Regulations Apply to Texas Nonsubscribers?
Nonsubscribing employers are subject to certain state and federal regulatory requirements.
On the state level, nonsubscribers must file a statement regarding the company’s status as a Texas nonsubscriber annually with the Division of Workers’ Compensation at the Texas Department of Insurance. Texas nonsubscribers must also report all lost time injuries, occupational diseases and work-related fatalities. Some nonsubscribers may also be subject to certain federal filings. Posting notices regarding the company’s nonsubscriber status must also be posted in the workplace. Employees must also receive written notification that the company is a Texas nonsubscriber at the time of hire. Nonsubscriber forms and notices can be downloaded from TXANS website. To visit the forms and notice section of TXANS website.
Is Texas is the Only State that Allows Nonsubscription?
Although Texas is frequently cited as the only state in the nation without a mandatory workers' compensation system, many other states maintain options to workers' compensation. Some of the options and exceptions are based on the size of the business or number of employees. Other options are based upon the type of business, definition of employee or approval of other types of benefits that may be used in lieu of workers’ compensation. The nature of our state’s generally elective system is what makes Texas is unique. Texas allows most private sector businesses to provide occupational injury benefits as a nonsubscriber.
What is Key to Maintaining the Option to Nonsubscribe?
There are two prerequisites for safeguarding the freedom to nonsubscribe in Texas. All nonsubscribers must care for injured employees by preventing workplace injuries and providing quality injury benefits and businesses must work together through TXANS to safeguard the nonsubscriber option. TXANS ability to safeguard this freedom depends on support from Texas businesses--nonsubscribing businesses, subscribing businesses and nonsubscriber industry professionals that support the freedom to choose responsible nonsubscription.
How can I obtain more information about nonsubscription?
TXANS also offers a variety of valuable resources about responsible nonsubscription including:
TXANS Meetings and Events
- TXANS local meetings and TXANS Annual Nonsubscriber Conference & Exhibition feature excellent educational programs on responsible nonsubscription in Texas.
– TXANS monthly newsletter provides the most current information on nonsubscriber-related issues. TXANS Update also offers pertinent information on legislative or regulatory issues that may affect Texas nonsubscribers.
TXANS Knowledge Center
- TXANS Knowledge Center provides immediate access to literally hundreds of articles, reports, sample documents, court opinions and legal summaries that relate to all facets of Texas non-subscription. Topics include: legal findings, plan design & development, ERISA, insurance, claims management, healthcare, safety risk management and more.
TXANS Laws & Regulations
– TXANS Laws & Regulations outlines the regulatory requirements (both state and federal) that apply to Texas nonsubscribers and includes applicable forms and notices in downloadable formats.
TXANS Overview of Nonsubscription to Workers’ Compensation. TXANS report examines many of the fundamental issues surrounding nonsubscription in Texas for employers, employees, industry professionals and policy makers.