Background and History The Texas workers’ compensation system has been elective to employers since it passage into law in 1913 and while Texas employers have been able to nonsubscribe since that time, nonsubscription didn’t really garner much attention until late 1980’s when slowing economy and skyrocketing workers’ comp rates spelled near disaster for Texas’ workers’ compensation system. During the late 80’s, employers faced premium increases as high as 150 percent amidst unrivaled fraud and abuse but conditions became more favorable after the workers’ comp law was re-written in 1989. The changes to the law and record-breaking economic expansion brought about drastic declines in workers’ compensation premiums and decreasing numbers of nonsubscribers. But the more favorable conditions may be short-lived because workers’ compensation insurance premiums are rising again so too could be the number of nonsubscribing business in Texas. Texas’ Elective Workers’ Compensation System The Texas workers’ compensation system is a “generally” elective system or a system that allows Texas employers (with few exceptions) to choose whether or not they will carry workers’ compensation insurance. While Texas is currently the only generally elective state, it is not the only to maintain provisions that allow segments of the employer population to operate as nonsubscribers. For example, in Alaska entertainers and commercial fisherman are exempt from carrying workers’ compensation and in Arkansas relief or charitable organizations can operate as nonsubscribers. A growing number of states are also allowing “carve out” programs in workers’ compensation program rather than purchasing workers’ compensation insurance through an insurance carrier. What Law Allows Nonsubscription? Nonsubscription in Texas is authorized under Section 406.002 of the Texas Labor Code, which reads: § 406.002. Coverage Generally Elective a) Except for public employers and as otherwise provided by law, an employer may elect to obtain workers’ compensation insurance coverage. b) An employer who elects to obtain coverage is subject to this subtitle. As you can see, Texas employers “may elect” to purchase workers’ compensation insurance. What types of Employers Operate as Nonsubscribers? A 2001 study by the Texas Research and Oversight Council in Workers’ Compensation (ROC) indicates that 35% of private employers in Texas operate as nonsubscribers, which equates to approximately 114,000 employers employing approximately 1.4 million employees statewide. Most Texas nonsubscribers are found in the small business community; with nearly half of the businesses that employ between 1 and 4 employees operating as nonsubscribers while 13 percent of mid-sized employers (100 and 499 employees) operate as nonsubscribers and 14 percent of large employers (500 or more employees) are also nonsubscribers. Nonsubscription is most prevalent in the retail trade industry with 48 percent of retailers operating as nonsubscribers followed by 38 percent of the service industry (excluding providers of educational services), 36 percent of the manufacturing industry and 35 percent of the agricultural employers. Nonsubscription was less prevalent in the transportation and construction industries (29 percent), finance, insurance and real estate (28 percent), wholesale trade (25 percent) and mining (12 percent). Why Do Companies Elect to Nonsubscribe? Overall the high cost of workers’ compensation is the primary reason larger companies choose nonsubscription but company size appears to play an important role in the reasons employers choose to nonsubscribe. In the Texas Research and Oversight Council on Worker’ Compensation’s 2001 nonsubscriber study the three most commonly reported reasons large employers choose nonsubscription are: premium quotes too high (87 percent), alternative occupational benefits are a better value that workers’ compensation (80 percent) and a desire to gain greater control over the choice of medical provider (79 percent). Small businesses on the other hand (fewer than 50 employees), reportedly chose nonsubscription because they have too few employees to purchase workers’ compensation insurance (67 percent) or to avoid high costs (61 percent). The previous was an excerpt from "Is Responsible Nonsubscription a Viable Option for your Company?" published by TXANS (Texas Association of Responsible Nonsubscribers). To download the entire file CLICK HERE | 
