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Texas non-subscribers still have protections.

"Circumstances are not as grim as they may seem for Texas employers who have decided not to subscribe to the state system."

TEXAS IS ONE OF ONLY THREE states that allow employers to become either a "subscriber" by purchasing workers' compensation insurance or a "non-subscriber" by rejecting that act as allowed by law. Recently, many Texas employers have decided to become non-subscribers. For most, the motivating factor behind this decision is cost. Supporting the pool of high-risk subscribers has made the workers' compensation program prohibitively expensive, even for employers with good claims experience.

While employers that do not subscribe may benefit from the cost savings that result from their decision, at the same time, many of these employers are aware that not subscribing and failing to provide any kind of work injury coverage leaves them prey to a host of problems. For one, employers who become non-subscribers lose many common law protections afforded them under the workers' compensation law and, as a result, may be subject to tort liability for damages for personal injuries or death suffered by an employee in the course of his or her employment. As a result, the usual common law defenses of "contributory negligence," "assumption of the risk" and "negligence of a fellow employee" are not available.

However, circumstances are not as grim as they may seem for Texas employers who have decided not to subscribe to the state system. To counteract the high level of risk created by this decision, non-subscribing employers need to implements as many protective measures as possible to protect themselves from financial exposure and liability. Fortunately, there exist several basic protections that can easily be put into place by the non-subscribing employer.

First, since an employer wants to attract and keep a productive work force, it is imperative to provide financial protection for employees. The company should adopt a plan of benefits containing medical, salary continuation impairment, death and funeral benefits as a competitive tool to attract employees and as a protection against lawsuits. Second, the employer should select general liability and indemnity insurance products that offset liability for any lawsuits filed by an injured employee. Certain insurance policies take into account losses and paid claims for medical and indemnity payments to an injured employee; these insurance products usually provide coverage commencing after a specific threshold of financial cost has been met.

There are several ways an employer can offset liability. Offering safety training programs and providing employees with safety manuals takes on an even greater role in the employer's ability to defend against claims and lawsuits. In addition, drug and alcohol programs and testing policies can stem many potential problems. Finally, the employer should consider implementing a managed care program; this can help reduce the cost and utilization of services.

From a benefits standpoint, the best alternative for a non-subscribing company is to offer a benefits program designed to fall under the provisions of the Employee Retirement Income Security Act (ERISA). This way, an employer can provide transition benefits that will cover a work injury while taking advantage of ERISA's broad powers to preempt state laws governing employee benefits; this provides the company with legal protection in the case of certain state law actions for benefits such as contracts, fraud and bad faith. An ERISA plan also offers a company the opportunity to save money on claims by using managed care programs that are not available in Texas under the state-sponsored workers' compensation program.

If a company uses a benefit plan with the intention of gaining ERISA preemption protections, the plan must be designed and administered so as not to seem to be maintained solely for the purpose of complying with worker's compensation law. The plan should be funded and administered in a way that is similar to the company's existing benefit plans because plans maintained solely for the purpose of complying with worker's compensation laws will not fall under the ERISA preemption of certain state laws.

When deciding what medical benefits to offer, the employer should take into account several factors, including any limitations in insurance, employee needs, the company's financial condition and managed care options. The medical benefits should also be structured with a general health plan in mind. For example, work injury medical benefits should not be substantially more favorable than the benefits available under the general group medical plan, since a disparity could encourage the employee to try to access benefits under the work injury program.

The non-subscribing employer should also implement an accident plan. A standard employee accident plan under ERISA would offer salary continuation, an accident benefit, a serious injury or disfigurement/impairment benefit, a death benefit and a funeral benefit. The salary continuation benefits can be designed to meet the needs of each employee and to vary in length and amount depending on the severity of the injury and the likelihood that the employee will return to work within the time frame allocated for continuing salary benefits.

To Insure or Self-Insure

THE EMPLOYER WHO DECIDES to become a non-subscriber to the Texas plan has several issues to resolve. First, the company must determine whether to insure or self-insure the benefits provided under the program. This decision is usually based on cash flow and whether the company can withstand the unpredictability of claims from year to year. Larger employers tend to find self-funding more attractive. A funding such as tax-exempt trust, can be used to provide these benefits. If a company decides to self-fund its benefits plan, the type of claims administration will depend largely upon the cost of services, the past performance of the claims system already in place, and whether the type of administration will affect the plan's qualification as an ERISA plan. One appealing option is in-house administration of claims whereby a group inside the company acts as gatekeeper and uses the outside vendors for utilization review, bill review and managed care.

For companies that cannot afford to self-insure -- or for those who decide against it -- buying insurance helps regulate the cost of benefits each year because the premium is paid on a fixed annual basis. Insurance should help offset, at least partially, a large claim or tort liability suit. The excess insurance may help limit the maximum risk under the ERISA non-subscription plan.

Managed Care

IF AN EMPLOYER implements an ERISA plan, it has the opportunity to manage health care costs related to workers' injuries much more effectively than in the past. In Texas an employer operating under the state-sponsored workers' compensation system may not direct employees who are injured on the job to a specific provider for treatment. The employer may offer a recommendation, but the choice belongs entirely to the employee. An ERISA plan, however, permits the company to institute specific strategies to control medical costs. These strategies, similar to the ones used in other forms of health insurance, include utilization review and managed care networks both for inpatient and outpatient care. Since the focus in worker injury cases is often on orthopedic, chiropractic and physical therapy services, and most care is provided in an outpatient setting, case management is critical.

Directing injured workers to specific providers allows the company to use a managed care network as a cost containment measure. However, the employer should ensure that the network will offer discounts, quality care, cooperation with utilization review protocols and a 24-hour servicing capability for injured workers. The provider is also responsible for informing the employer when an injured worker is ready to return to work.

With the judicious use of a managed care system, an injured employee is likely to be rehabilitated more quickly and be ready to return to light-duty work. The salary benefits can be designed with built-in controls in mind. Also, since the physicians and providers are under contract with the network, services are likely to be used only when necessary. In addition, the fee arrangement can be structured on a per diem or per injury basis to preclude any motivation to increase services. Fee contracts under these arrangements are usually lower than the Texas workers' compensation fee schedule. Case management can also be used to check the length of hospital stays when inpatient care is necessary and to manage the number of chiropractic care visits and physical therapy services utilized by the injured worker.

Employers should give injured employees strong incentives to return to work as early as possible. If the employee's current job is too physically demanding, lighter work duties, reduced hours or modified work duties encourage a return to work. If the employee is performing work tasks that are at a pay level less than his or her pre-injury job, the company should make salary continuation benefits to compensate for the difference. A less challenging job, such as light-duty administrative functions, can often speed up the recovery process.

To successfully implement such a program, employers must communicate their ideas to their workers. Employees must accept the program and feel comfortable with the program and feel comfortable with the benefits it will provide. Since employers in Texas who reject the workers' compensation system are not required by law to implement any employee work injury and accident benefit program, these employers should inform their workers of this, then educate employees about the programs they will have in place instead, which demonstrates management's concern for their welfare.

Management can also develop focus groups or employee meetings in order to explain the decision not to subscribe and the benefit alternatives. A well-planned employee accident program can help a Texas employer limit the liability exposure of non-subscribing, get a better handle on costs, offer certain advantages of ERISA protection, as well as keep workers satisfied with their benefit program. This benefits both employer and employee.
COPYRIGHT 1992 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:companies that forgo workers' compensation insurance
Author:Merlo, Chris
Publication:Risk Management
Date:Jun 1, 1992
Previous Article:Oregon's successful reform.
Next Article:Standing guard over workers' compensation.

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