Opting Out of Workers' Compensation: Non-Subscription in Texas and its Effects

Texas is the only state that does not mandate that employers carry workers’ compensation (WC) insurance coverage. In place of traditional WC, companies can choose to offer alternative “non-subscription” disability plans to workers. Little large-scale empirical research has studied the consequences of switching from traditional WC to non-subscription plans. We use a difference-in-differences estimator along with a novel machine learning approach to compare effects of switching to non-subscription plans for employees in Texas versus contemporaneously measured non-Texas-based employees for 25 large companies. Our results indicate that total medical payments dropped by roughly 40% from switching to non-subscription plans, consisting of reductions in hospital spending, physician spending, and other medical spending. Similarly, indemnity payments dropped by 70% and number of reported lost days dropped by 80%. Accumulating all sources of spending, we find that total expense associated with workplace injury fell by approximately 46% after switching to the non-subscription program.