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Opting out of workers’ compensation: Non-subscription in Texas and its effects


Texas is the only state that does not mandate that employers carry workers’ compensation (WC) insurance coverage. In place of traditional WC, companies can choose to offer alternative “non-subscription” disability plans to workers. Little large-scale empirical research has studied the consequences of switching from traditional WC to non-subscription plans. We use a difference-in-differences estimator along with a novel machine learning approach to compare effects of switching to non-subscription plans for employees in Texas versus contemporaneously measured non-Texas-based employees for 25 large companies. Our results indicate that total medical payments dropped by roughly 40% from switching to non-subscription plans, consisting of reductions in hospital spending, physician spending, and other medical spending. Similarly, indemnity payments dropped by 70% and number of reported lost days dropped by 80%. Accumulating all sources of spending, we find that total expense associated with workplace injury fell by approximately 46% after switching to the non-subscription program.

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  1. 1.

    The lone exception is for private employers engaged in public sector construction projects who must provide WC insurance coverage for all employed workers (Texas Labor Code § 406.096). The state does not permit public sector employers from opting out of the WC program (Texas Labor Code §406.002).

  2. 2.

    ERISA applies to all employee welfare benefit plans, including private disability plans established by firms opting out of the WC system. To satisfy ERISA requirements companies with private plans must generate a document detailing the operation and the administration of the plan and then provide each covered employee with a summary of the plan description, updates on material modifications of the plan, and any plan documents upon request. The plan administrator and other plan fiduciaries must act in the best interest of covered employees and beneficiaries. Every benefit plan must establish a reasonable set of procedures for administrating the plan. These procedures must result in workers receiving a full and fair review of their claims and benefit awards consistent with the plan document and with similarly situated claimants. Workers denied benefits have the right to an internal appeal and if not resolved, an external appeal via state or federal court. It should be noted that ERISA explicitly excludes all benefit plans established to comply solely with applicable state WC laws (Minick 2015).

  3. 3.

    Non-covered injuries include injuries occurring while a worker is intoxicated, injuries resulting from a worker’s own actions to injure him or herself or unlawfully injure someone else, injuries arising from the actions of someone else who intended to harm the worker for personal reasons, injuries arising from an act of God, and injuries resulting from the worker’s horseplay (Texas Labor Code §406.03).

  4. 4.

    Workplace safety programs increase output by diminishing the disruptive effects of injuries and by increasing the stability of the workforce (Viscusi 1979). In the other direction, programs such as slowing the pace of the assembly line or installing cumbersome machine guards can interfere with the work process and decrease output. On net, which effect dominates is an unresolved empirical question. For purposes of discussion, we assume that safety equipment is a productive factor. None of the conclusions we present change if safety equipment reduces output.

  5. 5.

    Litigation may also be precluded if the employer provides a monetary settlement to the injured worker before litigation or arbitration commences.

  6. 6.

    We regress the missing status on claimants’ demographic characteristics. The coefficients on demographic characteristics are not statistically significant.

  7. 7.

    The calculation method is verified by the company from which the data were obtained.

  8. 8.

    State refers to Texas versus all other states. This is the case throughout the analysis.

  9. 9.

    We use OLS and a semi-log specification for our primary analysis. Because a number of our outcomes are zero we add 1 to all outcomes to avoid taking the natural log of zero. We estimated a parallel set of analyses using generalized linear models with a log link function and gamma distributional assumption and found qualitatively similar results to those reported below [results available upon request].


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Correspondence to Thomas J. Kniesner.

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Jinks, L., Kniesner, T.J., Leeth, J. et al. Opting out of workers’ compensation: Non-subscription in Texas and its effects. J Risk Uncertain 60, 53–76 (2020).

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  • Workers’ compensation insurance
  • Non-subscription
  • Difference-in-differences
  • Triple differences
  • Machine learning

JEL Classifications

  • C54
  • C55
  • I13
  • J32
  • J38