Deregulation & Due Diligence
Workers’ compensation rules across the country are undergoing rapid change. Until recently, Texas was the only state that allowed companies to withdraw from the state-run workers' compensation insurance program. In 2013, Oklahoma also passed a law that has created a path for private employers to withdraw from state-operated insurance.
In these two states, more and more companies are choosing to pass on the local workers' compensation insurance to run their own private programs. The state of Texas refers to these companies as “non-subscribers.”
There are no official federal guidelines for workers' compensation programs. With the exception of special programs for employees of federal agencies and select laborers working in specific industries, all workers' compensation programs are run by state-level organizations. This can create the potential for gaps in the regulatory oversight of the workers’ compensation programs that are run by non-subscriber companies.
Becoming a non-subscriber can be a two-edged sword: it has the potential both to reduce the company’s overhead for workers' compensation insurance, but also to expose the company to open-ended liability. One of the advantages of a company’s enrollment in a state insurance program is that it sets limits on the amount of liability facing an enrolled company. Most state programs take a no-fault approach to workers’ compensation. This means that insurance would be available to cover the cost of a work-related injury regardless of who was responsible for the injury.
The trend in Texas and Oklahoma toward non-subscriber models of workers’ compensation has been controversial. The actions of these states have sparked journalistic and academic studies on the impact of non-subscriber practices, and it is reasonable to expect that there will be continued scrutiny of how workers’ compensation will function for the employees of non-subscribers in those states.
For a company considering a switch to non-subscriber status, this creates an increased internal need for diligent analysis when making decisions about workplace injuries or choosing a third-party service to mediate in the company’s place. Depending on the local laws and how thorough a non-subscriber’s plan is, managers and human resource staff should be vigilant to avoid exposure to unanticipated liability or other risks that would otherwise be mitigated by state-managed insurance. This means familiarizing themselves with the applicable laws, the costs and benefits of opting-out of the state system, and by staying current via seminars, workshops and other training so that they can provide their organizations with up-to-date and insightful advice.