Opting Out of Workers’ Compensation: Non-Subscription in Texas and Its Effects

Texas is the only state that does not mandate employers to carry WC coverage. We employ a quasi-experimental design to examine the effects of switching from traditional workers’ compensation (WC) to a “non-subscription” program in Texas. Specifically, we compare before and after effects of switching to non-subscription for employees in Texas to contemporaneously measured before and after differences for non-Texas-based employees. Importantly, we study large self-insured companies operating the same business in multiple states in the US; hence the non-Texas operations represent the “control” sites for the Texas “treatment” sites. The resulting difference-in-differences estimation technique allows us to control for any companywide factors that might be confounded with switching to non-subscription. The analysis also controls for injury characteristics, employment characteristics, industry, and individual characteristics such as gender, age, number of dependents, and marital status. Outcomes include number of claims reported, medical expenditures, indemnity payments, time to return to work, likelihood of having permanent disability, likelihood of claim denial, and likelihood of litigation. The data include 25 “switcher” companies between the years 2004 and 2016, yielding 846,376 injury incidents. Regression findings suggest that indemnity and medical payments fall substantially and return to work increases. Claim denial rates increase, but litigation rates are unchanged.