President Trump has some lofty goals for his first year in office, but during his first month in office, he spent ample time undoing many executive orders ushered in by the Obama administration. One particular area of concern was some controversial rules and actions from the Department of Labor. Former Labor Secretary (now the Democratic National Committee Chairman) Tom Perez expressed concern about workers’ compensation laws in Texas and Oklahoma and called for an investigation.
Workers’ compensation is a government-mandated employee benefit program that covers three types of benefits when a worker is injured on the job or has a work-related illness. Each state has its own system, and while features of each system vary, they all must provide coverage of medical costs, replacement of lost wages and payment for death or dismemberment. An injured worker typically receives medical treatments paid for by the employer or employer’s insurance carrier; if the injury results in lost time from work (beyond a statutory waiting period) he or she receives wage replacement (indemnity) benefits; and in cases of permanent injury or death, the worker (or the worker’s family) is compensated.
Texas does not require firms to have workers’ compensation insurance, but instead allows them to manage their own workers’ injuries and benefits. Self-insuring can save firms millions of dollars in workers’ compensation costs that can be spent on other employee benefits and business expansion.
Secretary Perez took a dim view of these nonsubscriber programs, calling them a “pathway to poverty,” based on claims that they pay fewer benefits, limit access to courts and access to medical treatment. Last spring he called for a federal investigation into the Texas plan and, at the time, the Oklahoma plan. (The Oklahoma plan, which was passed 2013 has since been ruled unconstitutional by that state’s Supreme Court.) Texas is now the only state that allows employers to choose not to subscribe to the very expensive workers’ compensation insurance system.
Recent media reports have accused the Texas opt out system of denying treatment and benefits that allegedly push injured workers into poverty. However, workers who allege lack of treatment and compensation for workplace injuries are not solely the outcome of opt out systems. In Washington, workers at the Hanford cleanup site, owned by the Department of Energy, have complained about denial of medical treatments after being exposed to radioactive waste. The California’s workers’ comp system has been accused of denying victims of the San Bernadino terrorist attack medical and psychological treatments. In other words, the traditional workers’ compensation model is flawed, and the Texas model may be the solution for other states.
For decades, researchers have found a myriad of disincentive effects associated with state workers’ comp insurance systems that keep workers off the job for too long and on an eventual path to dependency on the Social Security Disability Insurance (SSDI) system. Since SSDI pays a little less than a worker’s Social Security benefit, it is by no means a path to prosperity. The most common reasons for workers’ comp claims are not obvious injuries that demand immediate medical attention, but musculoskeletal disorders, such as latent low back pain that develops from an injury. Two years ago, researchers from the University of Massachusetts-Lowell and the Center for Disability Research examined workers’ comp claims of low back pain from 49 states. They found significant differences in cost and length of disability based on states’ workers’ compensation provisions. For instance, in states that allowed employers choose the initial health care provider for the injured worker, average medical costs per injured worker were slightly lower. Higher wage replacement rates were also associated with higher medical costs (in the U of M study, the average wage replacement rate was 68 percent). States with limited choices in health care provider had a lower before wages are replaced was associated with an increase in the average length of disability (state average waiting periods ranged from three to seven days), while a shorter retroactive period (the number of disability days before the disabled worker receives benefits that retroactively cover the waiting period) was associated with a shorted length of disability.
While these findings may not convince skeptics of the benefits of nonsubscriber system like the Texas model, here are few more considerations: According to a new report from the Texas Public Policy Foundation, most Texas nonsubscribers offer wage replacement rates of 85 to 100 percent. Workers’ comp insurance systems typically cap benefits at a lower rate. Also in the Texas model, 97 percent of employees returned to work within six months, compared to 83 percent in the state’s traditional workers’ comp insurance system.
The one requirement of the Texas nonsubscriber model that rattled the Obama Department of Labor was the 24-hour reporting requirement. Traditional workers’ compensation allows a worker up to 30 days to report an injury. However, this 30-day reporting requirement can be problematic for an employer who may not be aware that a potential unsafe situation exists in the work environment, leaving open the possibility that another employee could become injured. The Texas nonsubscriber model requires a 24-hour reporting period with a “good faith” clause, which allows employers to get workers medical treatment at the onset of the known injury and to rectify a potentially unsafe environment quickly.
Finally, unlike traditional workers’ compensation insurance, nonsubscribers are not protected from legal liability, so they are incentivized to provide a safe workplace.
Trump’s appointment for Labor Secretary, Alexander Acosta, is scheduled for his confirmation hearing tomorrow. If he is confirmed, hopefully he will take a more collaborative approach to employers trying to manage the costs of a system that in many states is out of control while getting injured workers treated and back to work quickly.