Workers Compensation Insurance is not necessary in Texas?

While it’s true the state of Texas doesn’t require most private employers to have workers compensation insurance coverage for their employees, that doesn’t mean they are not responsible for the medical treatment and lost wages of their employees in case of a workplace injury or illness. ?

There are several reasons why more than 80% of private employers in Texas had Workers Compensation insurance according to research conducted in 2022 by the Division of Workers’ Compensation of the Texas Department of Insurance.

Workers Compensation insurance benefits both the employer and the employee. Employers who offer coverage send a positive message to their employees by letting them know their wellbeing matters. On the other hand, Healthy and productive employees are essential to the success of any business and insurance companies provide resources to prevent workplace injuries. When an injury does occur, they have support staff dedicated to ensuring employees get the care they need to get back on their feet.

According to the NSC, on average the cost of a workers compensation claim was $42,000 for the years 2020 – 2021. Motor vehicle Injuries were the highest on average at $89,000 while the average cost for a fatal injury was $1,340,000. For most employers it’s very hard to estimate the frequency and magnitude of future workplace injuries.

When employers purchase insurance, they gain access to a capital reserve in case they need it without putting their cash flow at risk. This allows them to focus their financial resources on growing their business. In addition, these employers are protected from most lawsuits since injured employees resolve their claims through the Division of Workers Compensation dispute resolution process.

Few employers have the scale and experience to get certified by the state to cover their own workers’ compensation claims. The certification affords them the same liability protection as insured employers. However, these companies have had insured plans with premiums exceeding $500,000, are required to have a tangible net worth of at least $5,000,000, post a security deposit of $300,000 and excess insurance for at least $5,000,000. In other words, the capital cost to self-insure is still significant and even those companies with the expertise and means to do it buy insurance for claims that exceed their financial capability.

Employers who are neither covered by workers compensation insurance nor certified to self-insure are classified as non-subscribers. Non-subscribers have reporting obligations and are still liable for medical expenses and lost wages. In addition, they may also be liable to their employees for non-economic and punitive damages. Considering there are no caps for non-economic damages in Texas, these additional costs could be substantial.

The state of Texas gives employers a choice on how to fund and manage Workers Compensation claims. This requires careful consideration about what’s financially sound and beneficial for both the employer and the employee. It’s also important not to underestimate the complexities and additional costs of handling claims and helping employees return to work after an injury.