Workers’ compensation in Texas is at a happy moment. Employers expect premium decreases in 2015 of over 10%, driving the state further down the rankings of states in terms of workers’ compensation insurance costs. Insurers, enjoying combined loss ratios of around 90%, can easily afford to cut prices.
Consider a fresh perspective on what’s happening: Texas may be leading the nation in shrinking the footprint of the workers’ compensation system upon the economy.
National Council for Compensation Insurance filings reflect fluctuating predictions of claims costs stretching well into the future. Almost all recent NCCI rate filings have been for decreases. About half of these decreases are in excess of 5%. This reflects a well-documented pattern of ever-lower rates of injury.
Nationwide and in virtually all sectors, injury frequencies per the Bureau of Labor Statistics and claims data per the NCCI have been declining for many years. There’s no authoritative study as to why. I looked at national Bureau of Labor Statistics data on manufacturing injuries resulting in at least 30 days’ lost time. These injuries consume a lot of benefits and industry resources. One might even say that the workers’ compensation system was built for these claims. From 1995 through 2010, they fell by 60,000, or 63%.
Using variance analysis, I estimate that half the decline was due to lower manufacturing sector employment and half due to worksite changes. These changes include safer work design, safety enforcement and early return-to-work programs.
Returning to Texas, lost-time claims frequency declined between 2000 and 2012 by almost 60%, with the decrease starting well before the state’s major law reform took place in 2005. Between 2011 and 2013, the state’s private sector lost-time injury rate fell by close to 15%. This post-2000 trend cannot be explained by workforce shifts from high- to low-risk jobs, for Texas has maintained a strong, balanced workforce in all sectors.
In 2013, the private sector workforce incurred 30% fewer lost-time injuries than it had in 2004, a year before a major workers’ compensation reform package was enacted (even though it is 16% larger), with the manufacturing workforce almost unchanged in size, and the lost-time injury rate per hundred workers declined by 40%.
Work injuries fuel the workers’ compensation system. If 40% of half the sales in home security service contracts disappeared during a decade, wouldn’t some people in that industry sit up and take notice? Why aren’t we smacked in the head by this trend?
Two forces make the system look bigger, even while the system gets smaller. One is ever-rising medical costs, driven in part by medical innovation and by provider profiteering. The other is ever greater, multifaceted complexity of claims. Think Medicare set-asides, and treatment guidelines, pharmacy review and aging workers’ ailments, all of which emerged since 2000.
But look at claims cost trends of late. They’ve gotten tamer. Between 2009 and 2012, the nation’s average indemnity costs stayed pretty much flat. Texas’ average increased, which might be consistent with a more robust economy (duration of disability appears to be constant or declining). Of late, average workers’ compensation medical costs in Texas rose annually at about 3%, roughly the same as the national medical consumer price index.
Moderation in claims costs combined with relentless reduction in injury rates places the workers’ compensation system in Texas and most other states in one of two categories: “mature” or “declining.”
The “declining” label may be more appropriate for Texas in light of the state’s opt-out program, which offers a legal way for employers to exit the system.
Once Texas fixes a glaring problem with its opt-out program, the state might well be a model for a graceful, incremental downsizing of the 100-year-old workers’ compensation. Employers who opt out are not required to adopt a formal benefit plan, such as using an ERISA format. They are pretty much able to intimidate or ignore their injured workers and dump their injury care on public hospitals.
There is more to this story than space allows. Suffice for now to conclude that these trends are not an optical illusion. The workers’ compensation system, in a fundamental way, has been shrinking.
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